Freedom Portfolio Income December 2020

Check out the dividend income in the Freedom Portfolio for December.

Wow what a year 2020 has been. Pandemic, economic doom, stock market drop of over 30% and I retired. Not all bad and proof that if you are financially prepared even life’s tough times can be easier.

This month is my low month for dividend income on a quarterly basis but still a fantastic month for cash incoming. All dividends are still reinvesting (except for RDS.b because of their dividend cut). My general rule is to sell any position cutting their dividend but RDS.b should bounce back nicely and it still had a good yield after the cut. Its good to have investing rules but even better to be flexible when you have put in the research.

On to the dividends:

RDS.b (Royal Dutch Shell) $333.00

EMR (Emerson Electric) $104.59

JNJ (Johnson and Johnson) $102.23

CVX (Chevron) $317.59

O (Realty Income) $60.22

ADM (Archer Daniels Midland) $110.35

LMT (Lockheed Martin) $39.72

SO (Southern Company) $260.42

CHCT (Community Health Trust) $20.02

DOW (DOW Inc.) $266.93

XOM (Exxon Mobil) $232.07

Total for December $1,847.18

What a great month. I love seeing this cash come in each month especially when I am confident in all of my holdings to continue paying their dividends and raising them over the long term.

How did you do this month?

What are your income goals and how are you building a portfolio to reach them?

Thanks for reading!

Projecting Dividend Income

Watch how I plan to grow my portfolio from $40k in income to $80k in income over 5 years. All passively.

You want to know what real freedom is? For me, it is watching my income grow while I do absolutely nothing while the businesses I own earn money and reward shareholders. The rest of freedom is pursuing a life of adventure, enjoying family or doing nothing at all. All things I sacrificed early in my career to earn enough to save enough to be retired at 55.

If your serious about living off passive dividend income in retirement, at some point before you retire you should have sat down and taken a hard look at your holdings. That hard look includes deep diving into a:

  1. Reasonable understanding of where the company’s revenue is made
  2. Where profits come from
  3. How capital spending leads to growth
  4. How much free cash flow is really available for shareholders
  5. The dividend’s coverage ratio and what that means

Once you have done that, regularly keeping an eye on what the investing community says about the stock will make more sense. If you just read analysis or pundits, you have no basis to agree or disagree with whether you should take a position or keep holding a stock.

If you’re not willing to put in the work, stick with index funds.

When you have done the work and you think you know your portfolio the next question is will the dividend income meet my future needs. To do this with any chance of success in reaching the crossover point, where your income exceeds your expenses, you must make some guess as to where you believe the income will be at points in the future.

Otherwise, you could find yourself welcoming shoppers at WalMart when you planned on being at the beach. Not a place I hope to find myself in.

Projecting that income is not an exact science. It requires variables that do not remain static over a period. You must make some assumption on stock prices, dividend growth rates and even whether you think the company can safely pay the dividend in the future. 

To keep it simple, let us look at generic numbers over a single year with a $1000 investment. Assume 100 shares of XYZ at $10 per share with a current 5% dividend yield reinvested each quarter. We want to know how much that 5% means in real dollars for the year.

In the 1st quarter, we get 12.5 cents per share for our 100 shares for a total dividend of $12.50. Those shares are reinvested at a price per share of $10.10 reflecting a 1% gain in stock price for the quarter. We now have 1.24 new shares.

In the 2nd quarter, we get 12.5 cents per share for our 101.24 shares for a total dividend of $12.655. An increase in income of 10.5 cents. Those shares are reinvested at a price per share of $10.10 for  a flat quarter. We now have 1.25 new shares.

In the 3rd quarter, we get 12.5 cents per share for our 102.49 shares for a total dividend of $12.81. An increase in income of 15.5 cents. Those shares are reinvested at a price per share of $9.9 reflecting a 1.98% loss for the quarter in market price per share. We now have 1.294 new shares.

In the 4th quarter, we get 12.5 cents per share for our 103.784 for a total dividend of $12.97. An increase in income of 16 cents. Those shares are reinvested at a price per share of $10.12 reflecting ~1% gain for the quarter. We now have 1.28 new shares.

So for the year, we project $50.94 in total dividends. 94 cents of increased income and total new shares of 105.064.

This scenario included no increase in dividend. Every position I hold has at least an annual increase of 2% with some increasing their dividend by over 10% per year. I ignore dividend growth when I project income because it isn’t guaranteed, and I like a natural conservative variable to give myself a crossover cushion. For some real numbers, because no one is counting on retiring with just $1000 of investments if the same scenario is applied.

At $10,000 invested you would have $509.40 in annual income.

At $100,000 invested you would have $5,094.00 in annual income. The first $100k is the hardest but with that income it starts growing faster and fasters.

At $500,000 invested you would have $25,470 in annual income. That is starting to cover some serious expenses.

At the mythical $1,000,000 invested you would have $50,940 in income. Probably not enough for most people to retire at a lifestyle but lifestyle is your choice.

My personal projections for the freedom portfolio in 2021 are to generate $40,436.70 in dividend income. 100% of that without any new Capital and without me lifting one finger in anything resembling work. Just the way I like my income, free of effort.

In the next 5 years while the portfolio sits and reinvests, and dividends are increased I conservatively project the Freedom Portfolio to throw off over $80,000.00 in annual income. $80k without working and even when I am asleep.

Stick around and watch how that works out for me. Maybe we can all learn something.

How do you project your income?

Thanks for reading!

Whats with the Appalachian Trail references?

If you’ve read every word I’ve written, not that much yet, you’ve seen vague reference to the Appalachian Trail. Why? My personal obsession is backpacking. Specifically backpacking along the Appalachian Trail. I have been hiking the AT since I was about 9 in boy scouts. I’ve kept it up no matter where I was in my career and now that I’m retired, I’ve really gone crazy. I have hiked over 900 miles in 2020 and in February of 2021 I plan to begin a thru-hike of the entire length of the AT. 2,200 miles from Springer Mountain in Georgia to Mt Katahdin in Maine.

In addition to hearing about how I manage my retirement income you will get bored to death with periodic updates on my hiking endeavors. Join along. Maybe it will inspire you to save more to achieve financial independence faster so you can have the freedom to indulge your obsession.

Thanks for reading

Deep dive into the Freedom Portfolio

My Freedom Portfolio is an IRA made up of the rollover balances from my last two employers’ 401k plans. Since I just retired March 1st, I had a particularly good opportunity to buy in near the bottom of the Spring decline in the markets by rolling over my last 401k in early April. That has solidified my personal projections guiding my retirement income.

I purposely chose my IRA to make public because I feel most people have or will experience a similar scenario nearing and in retirement. Transactions inside this portfolio have no tax consequences so some decisions are easier.

The current market value (fluctuates daily with the market) is $547,040.36. There are 17 equity positions in well known, successful businesses. The current yield based on 2020 projected (mostly actual) dividend income is 5.1%. That 5.1% represents over $28 thousand dollars in dividend income I will receive by the end of this year.

All this income was and will continue to be re-invested for the next 5 years at a minimum. I will start tapping into it when I turn 60. By that time I anticipate the income to grow way more than double its current amount. Stick around and watch it grow in real time as I blog about it each month.

Here are current positions along with market values and projected current year dividend income:

Position                                                         Mkt Value          Annual Dividend 2020

T (AT&T Inc)                                                  $59,013.25         $3,467.38

ABBV (Abbie Inc)                                          $47,219.02         $1,536.24

MO (Altria Group Inc.)                                $45,138.41         $2,104.61

ADM (Archer Daniels Midland)                 $15,169.74         $435.03

CVX (Chevron Corp)                                    $22,125.10         $1,086.61

CHCT (Community Healthcare Trust)       $2,158.89           $78.40

DOW (Dow Inc)                                            $20,287.03         $612.14

EMR (Emerson Electric Co.)                       $15,719.78         $408.60

XOM (Exxon Mobile Corp)                         $10,653.70         $915.46

IRM (Iron Mountain Inc REIT)                   $30,660.74         $1,241.96

JNJ (Johnson & Johnson)                           $14,994.54         $398.17

LMT (Lockheed Martin Corp)                    $6,055.60           $158.87

OKE (Oneok Inc)                                          $134,056.77       $9,553.30

PM (Philip Morris Intl)                                $48,311.07         $2,109.06

O (Realty Income Corp REIT)                     $15,641.39         $703.83

RDS.B (Royal Dutch Shell)                          $34,650.00         $1,514.56

SO (Southern Co.)                                       $25,179.41         $1,013.50

Total                                                              $547,034.44       $28,109.17             

Looking at the Freedom portfolio one quickly notices that 24.5% is represented by one holding OKE (Oneok Inc). I did not intend to overweight this much in one company and may need to think about rebalancing in the future but right now I am confident in this investment. I have huge capital gains on it, I have huge dividend yields and I feel the dividend is safe, so I am letting it ride into retirement.

The other serious weighting is by industry. The freedom portfolio has $201,485.57 in Oil and Gas representing 38.5% of the total.

I spend a lot of time on this portfolio, following the businesses, listening to the community and right now I am comfortable with these decisions. This portfolio is a key to my retirement, and I like it.

Of course, all these numbers fluctuate daily as the market churns with volatility. A patient investor can look past a 30% market drop like we had earlier in the year and watch their investments rise as it recovers. Whether that takes one year or many years, as long as the dividend is paid, I’m happy. My job is to assess the business as events occur as best I can. Not rocket science but does take some diligence that pays off with multi-generational financial independence.

That is all for now. Ill do one of these deep dives once a Quarter or so. Future ones will allow some comparisons by Quarter etc. They will also give readers a good sense of managing a real portfolio and hopefully motivate you to your own dividend success.

Thanks for reading.