Read on to see my August 2017 Income Fund update.
The following chart shows the cumulative dividend income this year compared to previous years.
This month’s results put me ahead of the total reached through October last year, two months ahead. The increase wasn’t quite enough to beat last November’s total.
The chart below shows a breakdown of my income this month.
Most of the income this month comes from the two bond funds I hold. Together they paid $321 or 76% of the total.
Individual stocks contributed $100 or 24%. The majority of my individual stocks pay dividends in the last month of the quarter, so will be higher in September
Finally, interest from the Income Fund cash reserves made up the remaining $1; it’s a very small percentage which was rounded to 0% and not shown in the chart above.
Dividend income from stocks
8 stocks paid dividends this month as detailed below for a total of $99.66.
Last August my individual stocks paid $101.55 from 10 stocks. Since then, I’ve sold out of APD and VZ and put the proceeds into VHDYX instead.
Dividends this month increased by a simple average of 6% over the last year all on their own. AXP and RTN had the biggest increases with 10% and 9% respectively. PG and T had the lowest dividend growth, with 2%.
I’ve included the dividend growth of each stock on a 1-year trailing basis in the table. The yield calculations are annualized (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.
|High Dividend Yield (VHDYX)||0|
|International High Dividend Yield (VIHAX)||0|
|High-Yield Corporate Bonds (VWEAX)||236.82|
|IT Investment-Grade Bonds (VBILX)||83.56|
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.
This time last year, I had significantly higher cash (about $9,560) in my Income Fund which provided $4.45 in interest. I was also holding VWESX, a Long-Term bond fund which had a higher yield. Together they paid $47.
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 – $83 this month vs $47. 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 (marginal rate 28%) – not the lower qualified dividend rate that dividends receive.
My Income Fund asset allocation as of August 2017 is shown below.
Compared to last month, there’s no change to the asset allocation.
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.
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 $2,785 of new money to my Income Fund in August. $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 $485.80 which was left over from my salary after paying living expenses and savings.
The price of LB continued to drop this month so I added another 12 shares of LB for $435.80. I’m now above my target allocation for LB so no more purchases are planned.
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. One day I won’t have a salary after all.
Fund Cash is now at $1,570 which is reserved for future distributions, a sub-account which is being filled by dividend income.
Cash has decreased by $470 since last month since incoming dividends this month are lower than the $800 withdrawal. This is the always the case for the first two months of each a quarter, and explains why I keep three times the monthly withdrawal in reserve at the start of the quarter.
My Income Fund increased in value from $376,848 to $379,408 this month, a new record high. This increase includes $2,785 of new capital.
I was considering to increase the monthly withdrawal amount from the current $800 but I’ve decided not to. I’ll be making some big changes to my portfolio in September which will likely reduce the monthly income. Expect an update on that shortly.
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 far away however.
I will not be purchasing any individual stocks in September.
Overall this was steady progress for August. Nothing too exciting which is always good when investing. The market was quite flat this month and most of the increase in the portfolio was due to the new capital added.
How was your latest month? Are you one step closer to Financial Independence?
Quote of the Day
Work like you don’t need the money. Love like you’ve never been hurt. Dance like nobody’s watching.