April 2016 – Income Fund update

Market drops towards the end of the month led to pretty flat results at the end of April. The S&P 500 was up only 5.6 points to 2065.3. How did my Income Fund do in comparison?

Dividend Income

Total income from my Income Fund in March was $337, a 1% decrease compared to the $341 I received in April 2015. Underlying income was higher but the increases couldn’t compensate for TROW‘s special dividend last April which boosted last year’s income. That’s a nice problem to have so no complaining here!

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

With a total of $1,985 so far this year, I easily beat last April’s total ($1,790) and am still making steady increases over last year.

Income breakdown

The chart below shows a breakdown of the total income of $337.

Individual stocks contributed $48 or 14% of the total income this month. The two Vanguard bond funds paid distributions this month for a total of $280 (83%) and interest from the cash reserves in my Money Market account made up the remaining $10.

Dividend income from stocks

7 stocks paid dividends this month as detailed below.

Last April my individual stocks paid $50 from 9 stocks. Since then I’ve sold DOW, ALB and added WMT plus more JPM. I also sold DEO but after the dividend date, so I received one last dividend from them. RTN paid dividends last April too but this year their payment is included in May’s results.

I’ve included the dividend growth of each stock on a 1-year trailing basis in the table. 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 5% over the last year, excluding DEO’s negative contribution from currency rates. WMT and CB have the lowest dividend growth of around 3% or less.

Dividend income from funds

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

Fund Income ($) Div Growth (%)
High-Yield Corporate Bonds (VWEAX) 238.78 -1.03
Long-Term Investment-Grade Bonds (VWESX) 40.8 -4.5

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.

My Income Fund

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

I’m still slowly rebalancing to my target asset allocation. Compared to last month, cash has decreased by 1% and stocks have increased 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.

Likewise the bond funds are targeted for a 15% total weight. I added $100 to VWESX in April as it dropped below its target weight of 5%, but VWEAX is still heavily over-weight at the moment so it’s not getting any additional contributions except for any capital-gains that it generates. It remained steady this month due to capital growth at 21.7% with the final target being 10%.

Cash is overweight too although it dropped from 13.5% to 11.6% this month.

Portfolio Performance

My Income Fund increased in value from $236,992 to $242,361 this month, a new record high, helped largely by the stock market although I added $2,410 of new capital. I also bought an extra $3,000 of VHDYX from the fund’s cash reserves.

The new capital I added ‘purchased’ 36.1845 shares of my Income Fund and the end of month share price increased by $0.7117 to $102.6535, the highest it’s been.

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%
Apr-16 102.6535 0.70% 2.65% 242,361.27 235,934.98 2.70%

I’ve been tracking my fund performance like an Index Fund since the beginning of the year and the underlying monthly investment performance in April was 0.7%. I’m comparing this performance to VTSAX which gained 0.66% in April, excluding dividends. Year to date performance is 2.65%, compared to 2.70% 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. Over the long-run a 100% stock allocation should always beat an 85:15 stock/bond allocation. I’ll add dividend payments to this chart too once more have been paid out – my fund’s dividend payments are much smaller than VTSAX’s.

Does the relative performance matter? Not to me; it just helps put a boundary on the results to put it into perspective. VTSAX, being a total market stock fund, indicates the average performance that can be achieved.

Outlook

I’m now making monthly purchases for the core funds with automatic monthly $1100, $600 and $100 purchases of VHDYX, VIHAX and VWESX respectively. I’m expecting to be able to add an additional $400 each month on top of that.

I’m persuaded that “time in the market” is more important than “timing the market” so I’ll be buying $13,166 more VHDYX from my cash reserves this month. At the end of April, the value of my VIHAX holding was $39,331.47. To get VHDYX to its target 2:1 ratio, it needs to increase from $65,496.93 to $78,662.94 which is a difference of $13,166.

Having the funds at their target ratio allows me to put more money into whichever fund performs worse each month, so I’m automatically buying more of the ‘cheaper’ fund.

Finally, starting this month, I’m increasing the distribution I take monthly from the Fund from $300 a month to $540 a month. I arrived at this amount since it’s the average monthly income I received over the first quarter of the year. This is always the lowest quarter for income because the income in subsequent quarters improves from more investments. So for sustainable income, I think this is a reasonable starting point, and I won’t need to keep as much cash around in the fund’s reserves.

Although I’m ‘withdrawing’ money, it really just means that I can use more of my paycheck for investing; so all in all it’s the same as re-investing dividends.

Summary

So steady progress this month I think. Dividend income wasn’t greatly improved, but was still $30 higher than in January. Most of my purchases of late have been in the stock funds so I won’t see higher income from them until June.

How was your April? Are you one step closer to Financial Independence?


Quote of the Day

Age is an issue of mind over matter. If you don’t mind, it doesn’t matter.

 

26 thoughts on “April 2016 – Income Fund update”

  1. April was a good month on my end. Any passive income is more than the $0 I earned at the same time last year. The goal is to have even more coming in next year at this time.

    1. hi Chris,

      Congrats on making a start in earning extra income – it’s a long journey, but every journey starts with a single step. And every step makes the next step that little bit bigger.

      Wishing you all the best on your road to Financial independence!
      -DL

  2. My dividend income for April wasn’t quite as high as yours but better than 0 which always helps! Like you, a lot of my portfolio is ETF/funds so a lot of my income comes at the end of the quarter versus in particular months although I do have some individual securities and am always on the lookout for more.

    1. Hi timeinthemarket,

      Yes the bond funds pay out the most in the first two months of each quarter – I just use them as a kind of “floor” for a minimum income. I am shying away from individual stocks but I still plan on buying a limited amount later this year.

      Congrats on your portfolio – you’re doing amazing and I wish I had started investing in my 30’s.

      Great name by the way, I wish thinking about that phrase recently.

      Best wishes,
      -DL

  3. Div life,

    No worries – you had the special dividend and are showing quite a bit of move making. JPMORGAN has been hit down recently, hopefully you keep an eye, could average down at some point? Congrats on the record highs and keep it up!

    -Lanny

    1. Hi Lanny,

      JPM is still just above my last purchase price but with the trend over the last couple of days it might become more tempting. VZ is looking interesting too but I’m not in a hurry to buy.

      Looking forward to reading your April update – I hope you had a great month!

      Best wishes,
      -DL

  4. When I get mine up it will be lower as well. Mostly from sale of stocks that cut their dividends last year unfortunately. Glad to see your putting that cash to use. Your right. Time in the market matters the most (just try to catch it on a down day during the month ;-).
    Cheers,
    DFG

    1. Hi DFG,

      The market knows when I make a large purchase as it always seems to go down the day after! It’s the same with rain and washing cars I guess. In reality, I’ve probably made large purchases before a big increase; I just don’t remember those as well.

      Sorry to hear about your dividend cutters – I haven’t sold my BBL shares yet but I really should just take the tax loss and move on. I’ll look at that later this month.

      Best wishes,
      -DL

    1. Thanks abt, I like seeing the big picture in one chart and it helps smooth out some of the inconsistencies between months.

      Income increases are slowing down in the first two months of the quarter as any increases are only from individual stocks and bond funds; I’m not adding very much new capital to either category at the moment. But I am expecting a big hike in June so that’s something to look forward to!

      I hope you had a great April too!

      Best wishes,
      -DL

  5. Alas I cannot seem to see any picture on the post 🙁 Still from what I read the “fund” is doing great, maybe I should ask you to sell me some shares!! 🙂
    When I come around making the “Index Fund” page, I need to remember to calculate return since inception like you do, not just total return as I am doing now… 😛
    ciao ciao

    Stal

    1. Hi Stal,

      Hmm…I’m not sure what’s up with the images 🙁 Hopefully just a refresh will fix it. They’re embedded graphs / tables from MS Office and they’re working as far as I know.

      Ha – you’d be better off buying VTSAX than my fund I think – mine’s cooler though! 😉 I have the opposite problem in that I need to better calculate the total return for the growth of $10,000 since it’s not reinvesting dividends right now.
      Hope you had a great April!
      Best wishes,
      -DL

      1. Ciao DL,
        Cleared Cache and a lot of other stuff still cannot see it… 🙁 I guess it’s something with onedrive (if you use MS products), sometimes they appear (but they are unreadeable)… Ever tried Google Sheets? 😛
        Going to the point of total returns, I calculate it averaging the price at which I but shares of the fund, then calculating the difference. So far I cannot complain, April was a good month, May seems to kick off with the wrong foot, but to be honest with you as I am DGIing it’s not a bad thing because there aren’t a lot of opportunities out there to invest…
        ciaociao
        Stal

    1. Hi Alex,
      It’s quarterly and on the March, June, September, December schedule. I expect the next dividend payment around the third week in June, but the actual date hasn’t been published yet.

      Best wishes,
      -DL

    1. Hi IH,
      Thanks! It’s always nice seeing a new record or all-time high come through 🙂 Congrats on your April results – you’re certainly well ahead over last year’s results which is awesome!
      Best wishes,
      -DL

  6. Hi,

    Since I just started I can’t tell you about my April but I can comment on your post. What I notice is that you have invest in a couple of companies. Do you prefer to keep your portfolio diversified to just 10 different companies? To manage it easier?

    Regards,
    Asset Blogger

    1. Hi AB,
      The company stocks in this post were only those that paid dividends in April – I own more, about 50 companies in total. I have a general rule where no company shall pay more than 5% of total dividends; this reduces the impact of one company cancelling its dividend. My research suggested that 50 companies is a good amount for diversification so I ended up around that number and originally I aimed for around 5 stocks from each of the ten main market sectors.

      However, the more individual stocks you own, the closer your results become to the market average. In my case I could earn similar income simply by buying a dividend-oriented mutual fund. So I limit how many individual stocks I buy now since it’s so much easier to just buy funds (automatic payments from bank, no need to research etc).

      Best wishes,
      -DL

  7. Hi there DL,

    have you considered investing in european dividend stocks like Sanofi (BRK-Holding), GlaxoSmithKline (formerly BRK-Holding), or Fresenius Medical (a dividend paying DaVita competitor)?

    Best wishes,
    -VTB

    1. Hi valuetradeblog,

      No, not directly. Sanofi and GSK are two of the top 10 holdings in VIHAX, so I hold them indirectly that way – around $450 worth of each based on the reported fund holdings.

      Fresenius isn’t included in VIHAX but it is included in the top 20 of the international dividend growth index (VIAAX). I chose the yield fund (for current income) over dividend growth.

      I went the fund approach because it’s so much simpler and makes tax filing easier.
      Best wishes,
      -DL

      1. Hi DL,
        I think neither Sanofi nor GSK are included in the VIHAX. The VIAAX looks interesting.
        So no intention investing directly in foreign stocks?

        regards
        valuetradeblog

        1. Hi valuetradeblog,
          Hmm…I see GlaxoSmithKline plc as the 9th holding in VIHAX with 16,905 shares and Sanofi as 14th with 3,910 shares. Sanofi is 5th in VIAAX too and GSK is not held.
          No I won’t be adding any more foreign stocks directly – I will be investing in VIHAX monthly instead. I currently hold one ADR (in BBL) that I haven’t sold yet. ADRs are the easiest way in the US to hold foreign stocks. I previously held DEO and WPPGY too but exchanged those holdings into VIHAX.
          Best wishes,
          -DL

  8. Looking at your bond funds and all others I’ve seen I see decreasing dividends over time. It seems counterproductive in a sense to a dividend “growth” investing standpoint. Losing money to inflation and such. Thx for the update.

    1. Hi Donuts,
      That’s a good point and a pure DGI approach would likely have no bond allocation at all. Part of the variability in bond income is that the borrowers may default on payments or buy back their bonds. I’m adding very little new money to the bond portion as I want to limit them to 15% so I just look at the funds as a variable-interest investment that pays 4-6% a year on the capital.
      Best wishes,
      -DL

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