June 2017 Income Fund update

June 2017 income fund update report graphicThis is the monthly report I’ve been waiting for as all my assets pay distributions this month. So it should be an awesome payout! But was it?? Read on to see my June 2017 Income Fund update.

Dividend Income

Total income from my Income Fund in June was $2,673, a 65% increase compared to the $1,619 I received this time last year in June 2016. This amount makes several records:

  • ūüéÜ Highest monthly income ever (previously $1,923 in March)
  • ūüéČ First time monthly income is above $2,000.

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

So that’s, well, pretty awesome really and with $6,015 this year I’ve nearly caught up to September’s total from last year ($6,154). The extra income has mostly been helped by new investments as I’ve added almost $100k to my Income Fund over the last year.

Income breakdown

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

The bulk of income this month comes from the two stock funds I hold. Together they paid $2,156 or 80% of the total.

Individual stocks contributed $206 or 8%. The majority of my individual stocks pay dividends in the last month of the quarter, so are higher in June.

The two bond funds that I hold added 12% of this month’s income for $310. These amounts are pretty typical as bonds pay their distributions monthly.

Finally,¬†interest from¬†the Income Fund cash reserves made up the remaining¬†$1; it’s a¬†very small percentage (0.04%) which was rounded to 0% in the chart above.

Dividend income from stocks

18 stocks paid dividends this month as detailed below for a total of $205.84. That’s a 7.7% increase over this time last year.

Last June my individual stocks paid $191.11 from 21 stocks. Since then, I’ve sold AWR, NHC and TROW. I recently added DAL which paid a dividend. UPS were included in last year’s payments but are counted in May this year

Dividends this month increased by a simple average of 5.75% over the last year all on their own. RTN had the biggest increases with a 9.2%. PG and T had the lowest dividend growth, both coming in under 2.5%.

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 all four Vanguard funds in my portfolio this month.

Fund Income ($)
High Dividend Yield (VHDYX) 1,185.68
International High Dividend Yield (VIHAX) 970.36
High-Yield Corporate Bonds (VWEAX) 232.15
IT Investment-Grade Bonds (VBILX) 77.68

VHDYX and VIHAX both pay out on a quarterly schedule (March, June, September and December). VIHAX being an international fund has a tendency to pay higher dividends in June and December as some international companies pay on an annual or bi-annual basis. Distributions from both funds are usually qualified which means they are taxed at the lower 15% dividend rate.

The High Yield Bond Fund (VWEAX) was the largest bond contributor with $232.15, down from $237.84 last June. I sold some VWEAX shares in December last year when I adjusted my asset allocation.

This time last year, I had significantly higher cash (about $11,800) in my Income Fund which provided $4.50 in interest. I was also holding VWESX, a Long-Term bond fund which had a higher yield. Together they paid $45.

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 – $78 this month vs $45. 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 (28%) – not the lower qualified dividend rate that dividends receive.

Asset Allocation

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

Compared to last month, all of the percentage changes to asset allocation are within rounding error. So no change 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. It’s gradually closing in on the target but very slowly.

Fund Purchases & Sales

I added $2,540 of new money to¬†my Income¬†Fund in June. $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 $240 which was left over from my salary.

Fund purchases

Total purchases this month were $3,300 in VHDYX, $200 in VIHAX and $100 in VBILX for a total of $3,600.

The additional purchases above the $2,540 of new capital were funded from fund Cash reserves.

Funds sold

None.

Stock purchases

I added 8 shares to existing holding LB for $404. I wrote about my June stock purchase earlier. Purchases were funded by fund Cash reserves.

Stock Sales

None.

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 $2,510, most of which ($2,505.29) is reserved for future distributions,¬†a sub-account¬†which is being filled by dividend income. The remainder ($4.8) isn’t invested yet.

Cash has increased by $415 since last month.

Portfolio Performance

My Income Fund increased in value from $364,077 to $368,324 this month, a new record high. This increase includes $2,540 of new capital.

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 threshold is re-invested.

Beating my 2017 goal of $9,925¬†income this year should be a cakewalk as I’m already nearly two thirds there. The final FI destination is still looking very far away, however I took a big step forward this month.

Summary

Looking back I was amazed to see I’d added about $100k of new capital since last June. Half of this came from including my former Emergency Fund capital; the other half was from my salary. So this performance isn’t typical. I am however glad I made that re-characterization.

I was expecting June to have good results and it didn’t disappoint. The last month of the quarter is always a more exciting month because of the stock fund payouts.

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


Quote of the Day

It’s not the daily increase but daily decrease. Hack away at the unessential.

12 thoughts on “June 2017 Income Fund update”

  1. Thanks for the update. You made some amazing progress. One question I had about your bond fund VBILX. I was looking in to this and I really like the safety of this fund (it barely even budged in 08-09). However the distributions seem to be shrinking over time. The payments have gone from around .045 in 2003 to around .025 today. I’ve seen this in a lot of bond funds, any idea what is the reason for this? It’s pretty contrary to what dividend investors look for in stocks. Thanks, and keep up the great work.

    1. Hi Mangar,
      VBILX consists of about 1900 individual bonds, each of which has a set expiration date from five to ten years. The payments that the fund pays each month is based on the interest payments of the bonds which is fixed at the time the fund purchases them. The decrease you see in the fund payments is because the interest rate has been steadily declining until late last year. So a bond that expired paying 4% in 2004 might be replaced by a bond paying 3% and then replaced by a bond paying 2% in 2013 and so on. This is really no different than the interest you’d be earning from cash held in 2003 vs now, since the same underlying government rates are used to set the interest rate.
      It’ll take a while for the fund payments to increase as underlying rates increase today for the same reason that it takes a while for the payments to decrease. There are more stable bond fund choices than VBILX (the lower the risk, the lower the reward) so my choice was based on my preference for risk. And otherwise there’s always the choice to just stay with cash using a CD ladder for higher interest, depending on your situation and goals.
      Hope that helps – feel free to ask any questions,
      Best wishes,
      -DL

  2. Wow that is awesome! So many records! My best month was last DEC at like $2.3K I believe. GREAT WORK at adding $100K…I don’t think I’ll be doing that anytime soon. Do you average $2.5K in additions every month? That is really high. My goal this year is $13K in passive income….we’ll see, think I have a shot. Take care,

    Passive Income Dude

    1. Hi Dan, Thank you! $2.3k last December is great too and hopefully it’ll increase for you even more this December. I’m currently fortunate enough to invest $2300-$2500 a month after my savings and expenses are paid – a little more in the third month of the quarter where most of my passive income is concentrated.
      I wish you every success in beating your $13k target – I don’t expect to reach that level this year, but there’s always next year!
      Best wishes,
      -DL
      PS. I would comment on your blog but apparently I don’t have an openID or something so I can never get the comments to work. So I will continue to lurk for now!

    1. Thanks Doug! We’ll see what the rest of the year brings but hopefully it’ll be more good news.
      Hope you had a great June too!
      Best wishes,
      -DL

  3. And the records keep falling. Amazing total amount brought in as well as year over year growth rate. With so much fresh capital added and dividend raises along the way you have really set the bar high for next June. Keep up the amazing work.

    1. Hi DivHut,
      I don’t think the growth will be as high next year but as time goes by, more and more of the work is done by the stocks and holdings themselves. December will be an interesting time too – I’m curious how it’ll compare to June.
      Congrats on your June results too!
      Best wishes,
      -DL

    1. Hi IH,
      Yes I’m always looking forward to seeing further progress. There’s still a long way to go however so one step at a time.
      Good Hunting!
      -DL

  4. That’s an awesome result through six months and a crazy amount added. I can’t wait to see what it’s like next year with all the deployed capital. How much are you saving per month to push it to that level?

    1. Hi Duncan,
      Half of the increase was because I merged my former emergency fund into my income fund. I’ve been saving about $2,500 a month over the last year plus a little bit more in the 3rd quarter of each month.
      Best wishes,
      -DL

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