March 2016 – Income Fund update

March was a good month for the stock market after a slow start to the year. It’s also a strong month for dividend income which helped my portfolio reach a new all-time high. Here’s my dividend income and Income Fund update for March 2016.

Dividend Income

Total income from my Income Fund in March was $965, a 22% increase compared to the $787 I received in March 2015.

The following chart shows the cumulative dividend income so far this year compared to previous years.

With a total of $1,648 so far this year, I easily beat last March’s total ($1,449) and I’m closer to beating April’s total from last year ($1,790) so that’s a good start to the year.

Income breakdown

The chart below shows a breakdown of the total income of $965.

Individual stocks contributed $237 or 25% of the total. All four of my core Vanguard Funds paid distributions this month for a total of $716 (74%) and interest from the cash reserves in my Money Market account made up the remaining $12.

The Vanguard fund distributions were a little lower than they would have been due to my exchange of VTIAX to VIHAX last month. The new fund didn’t have a full quarter of dividends to distribute. Over the long-term I expect this fund will pay higher distributions than VTIAX because of its dividend focus although total return will likely be lower.

Dividend income from stocks

23 stocks paid dividends this month as detailed below.

Last March my individual stocks paid $174 from 21 stocks. Since then I’ve bought some shares in both VDE and NHC and I’ve added a total of around $7,000 of new stocks over the last 12 months. I bought $1,995.77 of additional shares in VPU and VDE using my Cash Reserves during March and I also sold out of my DOW, WPPGY and DEO positions.

I’ve included the dividend growth of each stock on a 1-year trailing basis in the table. This doesn’t include dividend payments projected out over this year so the growth percentage will look higher than it really is for companies such as BBL that will pay lower dividends going forward. Dividend growth is calculated from the last 4 payouts compared to the 4 before that. The yield calculations are annualized, or extended forward a year based on the current dividend payment against the market value.

On average, dividends of the stocks I hold have increased by nearly 10% over the last year with BBL and CVX showing the lowest dividend growth of 3% or less. A couple of stocks such as LB and MAR had dividend growth over 25%. The income from LB includes a special dividend of $2 per share; the underlying yield is about 2.3% although the company pays special dividends more than most companies in my portfolio.

Dividend income from funds

I received income from all four Vanguard funds this month as shown below.

Fund Income ($) Div Growth (%)
High Dividend Yield Index (VHDYX) 373.48 13.5
International High-Dividend Yield Index (VIHAX) 58.87
High-Yield Corporate Bonds (VWEAX) 241.24 0.1
Long-Term Investment-Grade Bonds (VWESX) 42.31 6.4

The two bond funds pay their distributions monthly and the distributions are taxed as normal income and not the lower qualified dividend rate that dividends receive.

At 13.5%, dividends from VHDYX look like they have grown faster than the average of my individual stocks too but it’s not an accurate comparison because the values have been calculated differently.

My Income Fund

Here’s an overview of my Income Fund and the current asset allocation as of March 2016.

I’m still slowly rebalancing to my target asset allocation although I’ve started to speed it up. Compared to last month, cash has decreased by 3%, stocks have increased by 5% and bonds decreased by 1%.

Asset Allocation

The following table shows the detailed asset allocation.

My long term plan is to limit individual stocks to 10% of the total, but I’ll be achieving this for the most part by adding new capital to the mutual fund components rather than selling individual stocks. However, I am slowly selling out of some stocks as I want to reduce the number of individual positions to simplify my portfolio.

Likewise the bond funds are targetted for a 15% weight, and currently I’m only re-investing any capital gains that they pay. VWESX is at its target weight of 5%, but VWEAX is still heavily over-weight at the moment. It decreased another 1% this month to 21.7% with the final target being 10%.

Cash is overweight too although it dropped from 16.4% to 13.5% this month.

Portfolio Performance

My Income Fund increased in value from $221,690 to $236,992 this month, a new record high, helped largely by the stock market although I added $5,192 of new capital.

The new capital I added ‘purchased’ 51.366 shares of my Income Fund and the end of month share price increased by $4.4275 to $101.9418.

Date Price ($) Change YTD Change Value Cost Basis VTSAX YTD
Dec-15 100.0000 0.00% 0.00% 215,011.28 215,011.28 0.00%
Jan-16 97.9494 -2.05% -2.05% 212,642.17 217,045.51 -4.18%
Feb-16 97.5142 -0.44% -2.49% 221,690.30 227,034.95 -4.22%
Mar-16 101.9418 4.54% 1.94% 236,992.29 232,228.37 2.04%

I’ve been tracking my fund performance like an Index Fund since the beginning of the year and the underlying monthly investment performance in March was 4.54%. I’m comparing this performance to VTSAX which gained 6.53% in March, excluding dividends. Year to date performance is 1.94%, compared to 2.04% for VTSAX.

Just for fun here’s a typical “growth of $10,000” chart with my investments compared to VTSAX.

VTSAX has a different composition than my portfolio so I expect different results. It contains US-only stocks and includes small-cap stocks whereas my investments contain US large-value stocks, international value stocks and (volatile) US bonds. I’ll add dividend payments to this chart too once more have been paid out. Does the relative performance matter? Not to me; it just helps put a boundary on the results to put it into perspective.

Outlook

I received some more unexpected income this month so I didn’t draw down quite as much of the fund’s Cash Reserves as I was expecting to. This is certainly a nice problem to have though so I’m not complaining!

In total this month I bought $6,795 of VHDYX and $3,112 of VIHAX using some of my Cash Reserves as well as new money from my monthly salary. My goal over the next three months is to get VHDYX and VIHAX to the target 2:1 ratio; at today’s prices that means adding another $14,500 from cash into VHDYX and I plan to dollar-cost-average that starting in April through June.

I’m also switching from weekly to monthly purchases for the core funds although I’ll have some money spare each month for a manual purchase. I will also start purchasing a small of VWESX monthly to maintain its allocation.


Quote of the Day

The secret of getting ahead is getting started.

0 thoughts on “March 2016 – Income Fund update”

  1. Ciao DL,
    Now I understand better the comparison that you are making with other funds, the starting point being “100” and the fluctuations that happen give you an Index performance regardless of the stocks acquired and their average price. As you have been buying stocks at lower prices than 100 I would expect your total returns to be higher than 1.94% correct?
    I am also curious on why choosing the Bond funds vs. Owning them directly, but I guess it’s because it differentiates a lot over a vast spectrum of bonds… Do these funds pay distributions to you or are they kept in the fund?
    Ciao ciao
    Stal

    1. Hi Stal,
      Yes I would expect that too. I’m not including dividends either. I think I’ll probably use the personal performance spreadsheet from the bogleheads forum to calculate my personal rate of return but for some reason I’m more interested in the abstract performance of the underlying assets in my fund 🙂

      Owning bond funds vs real bonds is really just for convenience – the fund managers essentially do all the laddering and replacement of bonds as they mature. They pay monthly distributions, and since I hold the more risky bond classes, the interest is higher at around 4% to 6%. The bond fund distributions are paid into my money market account. I’m only taking a fixed $300 out of the money market account monthly, any surplus money stays in my Income Fund.
      Best wishes,
      -DL

  2. Impressive totals for the month of March and nice year over year growth considering the amount you are bringing in. Nice blend of stocks and funds paying you as well. Most of us just rely on individual stocks for our passive income but funds definitely have a place in a portfolio. Thank you for sharing.

    1. Hi DivHut,
      Thanks for the support! I liked bond funds when I first started investing as they pay monthly distributions. I’m aiming for an eventual 85:15 allocation between stocks and bonds. The ones I hold are very volatile (low quality & high-yield) but they do tend to move in opposite directions to the stocks so they help mitigate some of the drops (and gains) of the market as well as provide a fairly steady income floor.
      I hope you also had a great month in March!
      Best wishes,
      -DL

  3. 22 PCT increase from last year is a very very nice increase. Your snowball starts to roll!
    A while ago, I started to analyse dividend funds as well. I like the idea a lot, despite the double taxation I would have. I started the analysis as I want some passive income down the road.
    In my analysis, I see room for specific stocks as well, especially in the Belgian REIT space.

    1. Hi atl,
      Speaking of snowballs, it snowed here over the weekend. I prefer dividend snowballs over the real thing!

      I’m looking for about 10% of my portfolio being in specific stocks; I already hold the stocks via the index fund anyway so an additional 10% of ‘play’ money lets me focus on companies that I like and satisfies my inner Warren Buffet.
      REITs can be a good diversifier to regular stocks as they tend to behave a little differently. I don’t hold REITs in my taxable account although I own some in my tax-deferred retirement accounts since they’re taxed at a higher rate.
      Best wishes,
      -DL

      1. Snow? Now? We had 21 °celcius today, a first family biking tour and icecream on a boat.

        The reit would be for a few reasons: i am not ready yet for a personal rental, they have a fiscal interesting treatment in Belgium, the dividend is quite high. Right now, i keep an eye on them and plan to make a move in the next big dip

    1. Hi JC,
      I was expecting March to be good as the month went on but I didn’t really expect it to be that good!

      Last year I had two 4-digit months (June and December). This year I’m on track to have three (June, September and December).

      I hope you had a great month as well!
      Best wishes,
      -DL

    1. Hi DFG,
      Thanks! No I don’t think about the fees at all to be honest, I can’t see them or touch them. The Vanguard fees are very low (the highest I pay is 0.3% for the international fund) so I view this as the price I pay for wide diversification which I couldn’t achieve myself and convenience.
      I could save a little more by buying VYM instead of VHDYX but for the sake of 0.09% I prefer the flexibility of funds (e.g. ability to automate purchases) over the ETF.
      Best wishes,
      -DL

  4. Great month DL! A 22% growth rate, amazing. The detail you provide in your article is pretty impressive. It looks like you have made some nice moves to better position yourself for stronger dividend growth going forward. Keep up the great work!

    Bert

    1. Hi Bert,
      Yes I’m a bit of a numbers geek so I like to look under the covers at how I reached the results.
      Congrats on a great month yourself – here’s to April and more compounding!
      Best wishes,
      -DL

Leave a Reply

Your email address will not be published. Required fields are marked *