Income Fund Update for April 2017

income fund report graphicThere wasn’t much drama in my income fund in April, although I did sell a couple of companies. Here’s my Income Fund update for April 2017.

Dividend Income

Total income from my Income Fund in April was $349, a 3.5% increase compared to the $337 I received this time last year in April 2016.

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

April continues building on the higher dividends paid out at the end of March.

Income breakdown

The chart below shows a breakdown of the income this month.

The bulk of income this month comes from the two bond funds I hold. Together they paid $308 or 88% of the total.

Individual stocks contributed $39.80 or 11%.

Finally, interest from the Income Fund cash reserves made up the remaining $2; it’s a very small percentage (0.4%) which was rounded to 0% in the chart above.

Dividend income from stocks

Six stocks paid dividends this month as detailed below for a total of $39.80. That’s a 16% decrease over this time last year.

Last April my individual stocks paid $47.62 from 23 stocks. Since then, I’ve sold two positions which paid dividends in April. Almost all of the year-on year decline this year results from my sale of DEO. I sold it in March 2016 after the record date so I received a bi-yearly dividend of $11 last April.

I sold the few shares of CB in April, also after the record date, so I received the dividend this month.

Dividends this month increased by a simple average of 5.6% over the last year all on their own. JPM had the biggest increases over 10%. WMT and CB had the lowest dividend growth, both coming in under 3%.

I’ve included the dividend growth of each stock on a 1-year trailing basis in the table. The yield calculations are annualized, or extended forward a year, based on the current dividend payment against the market value.

Income from funds

I received income from two Vanguard funds in my portfolio this month.

Fund Income ($)
High Dividend Yield (VHDYX) 0
International High Dividend Yield (VIHAX) 0
High-Yield Corporate Bonds (VWEAX) 230.97
IT Investment-Grade Bonds (VBILX) 76.73

The High Yield Bond Fund (VWEAX) was the largest contributor with $230.97, down from $238.78 last April. I sold some VWEAX in December last year when I adjusted my asset allocation.

This time last year, I had significantly higher cash (about $27,000) in my Income Fund which provided $10 in interest. I was also holding VWESX, a Long-Term bond fund which had a higher yield. Together they paid $50.80.

In switching both to the more stable Intermediate Term Bond Fund (VBILX) for my Emergency Fund strategy late last year, I’m earning a little more income – $76 this month vs $50. The IT Bond yield is higher than the average yield of the old LT Bonds + Cash position I was holding last year.

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

Asset Allocation

My Income Fund asset allocation as of April 2017 is shown below.

Compared to last month, the US Stock Fund increased one percent to 43%. Individual Stocks decreased one percent to 12%. So not too much drama on the allocation front. I’m trying to hold the IT bonds and International stocks at 10% and 20% respectively.

Cash is virtually zero as I just have a small amount left to manage cash-flow.

Overall the Income Fund is at a 75:25 Stocks:Bonds allocation (counting cash as bonds) which is closing on my overall target of 80:20.

Detailed Allocation

The following table shows the details plus my target asset allocation.

The bond funds are targeted for a combined 20% total weight, with a target 10% in each of the Intermediate-Term and High-Yield funds.

I’m still under-allocated to VHDYX, so the majority of new money is going towards that, with a little towards VBILX and VIHAX to keep them in line.

Fund Purchases & Sales

I added $2,600 of new money to my Income Fund this month. $2,300 of this was the standard contribution I make from my salary. I’m confident this amount is at least always left over after paying for Savings and Living Expenses. I also added a further $300 which was left over from my salary.

Fund purchases

Total purchases this month were $3,548.48 in VHDYX, $900 in VIHAX and $100 in VBILX for a total of $4,548.48.

The additional purchases were funded from the sale of TROW and CB this month which gave $1,816.65.

Funds sold

None

Stock purchases

I transferred my WMT stock from Capital One over to my Vanguard brokerage this month. Because I had a partial number of 10.08 shares, I decided just to sell all the shares at Capital One, and buy replacement shares at Vanguard.

The shares were sold and bought with market orders on the same day ($6.95 commissions at Capital One and $2 at Vanguard) for $74.14. The WMT shares had just about broken even, so I had capital gains of $1 to avoid any wash sale complication.

The net result is that I increased the number of WMT shares from 10.08 to 11.

Stock Sales

I sold my TROW and CB shares in April which provided $1,816,65 of cash which was re-invested as mentioned above.

Distributions
I transferred $800 from Fund Cash into my Living Expense account. This is an automatic payment and represents about 20% of my Living Expenses that my Fund pays every month.

Money is fungible, so a dollar in one account is no different than a dollar in another account. The distribution from the income fund allows me to invest $800 more of my salary than I otherwise would be able to. Withdrawing money gives me experience in managing cash-flow from the Income Fund however. One day I won’t have a salary after all.

Fund Cash
Fund Cash is now at $2,977.21 most of which ($2,544.68) is reserved for future distributions, a sub-account which is being filled by dividend income. The remainder ($432.53) isn’t invested yet.

Cash has decreased by $650.63 since last month.

Portfolio Performance

My Income Fund increased in value from $354,661 to $358,630 this month, a new record high. This increase includes $2,600 of new capital.

I’ve been tracking my fund performance like a Mutual Fund since the beginning of the year and the underlying monthly investment performance in April was 0.38%. The new capital ‘purchased’ 23.3344 new shares and the end of month share price increased by $0.4253 to $112.3276.

I compare this price performance to the Vanguard Wellington Fund (VWENX) which increased 0.76% in April, excluding dividends and capital gains. VWENX has a fairly similar stock to bonds ratio as my Income Fund: two-thirds stocks, one-third bonds. My price increase since December 2015 is 12.33%, compared to 9.98% for VWENX.

The growth percentages only reflect price changes, not total return. A Total Return calculation would include the dividend plus the capital growth of the shares purchased with that dividend.

For the original $10,000 invested in my income fund I’d have received $230.63 in cash based on the distributions I’ve paid so far. Whereas VWENX would have paid out $547.23, some of which was long-term and short-term capital gains.

Comparing performance

Just for fun here’s a “growth of $10,000” chart with my Income Fund compared to VTSAX as well as to VWENX. This data excludes re-invested dividends so it’s a growth of price, not total return. I used Price Return for now as it’s easier to calculate.

This month, my Income Fund slipped against both the Wellington Fund (VWENX) and Total Stock Market (VTSAX). You can see the lower volatility effect that bonds have on the price – the VTSAX stock fund is more volatile than both my Income Fund and the Wellington Fund but also has better performance. See my Portfolio page for more details on the numbers.

I include this comparison just for fun as it puts a boundary on the results to put them into perspective. VTSAX, being a total stock market fund, should have better performance over the long term since bonds, having a lower expected return, act as a drag but also smooth out some highs and lows.

In theory, my Income Fund should have better performance but higher volatility than VWENX over the long-term since it has a higher percentage of stocks. The type of stocks and bonds have impacts too so it’s not a apples to apples comparison.

Outlook

I’m ‘withdrawing’ $800 a month towards my living expenses, this amount is paid for by dividend income. I keep three months’ worth of dividend payments in cash, although it’s limited to 3 x $800 = $2400 and I use this buffer to smooth out monthly payments. Any money above that maximum threshold is re-invested. As dividend income increases I will adjust this amount upward.

I remain confident of beating my 2017 goal of $9,925 income this year. Although the final FI destination is still looking very far away, I took another solid step forward this month.

Summary

April has been a good first month of the second quarter in the build up to June which I hope will be a good payout. Nothing too exciting to report and that’s a good thing when investing

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


Quote of the Day

If you love life, don’t waste time, for time is what life is made up of.

6 thoughts on “Income Fund Update for April 2017”

  1. Hey DL,

    congrats on your results for April!! Keep your snowball rolling… i recently sold my TROW shares too. Solid company but i came to the conclusion that i can use the money better elsewhere. Added to my AT&T and Realty Income positions…

    Keep it up!

    1. Hi DividendSolutions,
      Thanks for the support 🙂 I was going to say that we’ll see how the TROW decision turns out but in all likelihood I won’t know since there’s little point in going back over the past. I’m happy with the sale though. I’ve not posted this yet but I also bought AT&T in May. I don’t hold Realty Income though but it’s definitely popular for its dividend.
      Best wishes,
      -DL

    1. Hi timeinthemarket – yes it was a good month. I’m a bit behind in updates but June’s results are the best yet so I’m looking forward to posting those. Hope you had a great month too!
      Best wishes,
      -DL

    1. Hi Lance,
      Thank you! Future updates should be coming later this week as I catch up with May & June.
      Best wishes,
      -DL

Leave a Reply

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