August 2017 Income Fund Update

August 2017 income fund update report graphicRead on to see my August 2017 Income Fund update.

Dividend Income

Total income from my Income Fund in August was $421, a 7% increase compared to the $393 I received this time last year in August 2016.

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.

Income breakdown

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.

Fund Income ($)
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.

The High Yield Bond Fund (VWEAX) was the largest bond contributor with $236.82 down from $244.99 last August. 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 $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.

Asset Allocation

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.

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 $2,785 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.

Fund purchases

Total purchases this month were $1,500 in VHDYX, $300 in VIHAX and $500 in VBILX for a total of $2,300.

Funds sold

None.

Stock purchases

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.

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. One day I won’t have a salary after all.

Fund Cash
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.

Portfolio Performance

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.

Outlook

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.

Summary

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.

14 thoughts on “August 2017 Income Fund Update”

    1. Thanks Doug! I feel that even if there isn’t much visible increase in income or net worth, the foundations are still being continually improved through regular saving and investing.
      Hope you had a great August too and congrats on your 1 year blogiversary!
      Best wishes,
      -DL

  1. Another solid showing for a month of passive income earned. Many very solid names paying you in August. You have build a nicely diversified portfolio with stocks and funds too. Look forward to seeing what you decide to do with your portfolio this month.

    1. Hi DivHut,
      Thanks for your continued support as always! Yes it was a solid month and I’m excited about September’s results as I’m not sure what to expect yet. I’ll be posting about my portfolio change in a couple of days – it’s a new approach for me, so that should be interesting!
      Best wishes,
      -DL

  2. Thanks for sharing DivLife…It looks like a great month for you and you’re clearly moving in the right direction. And I’m glad to hear that you’re going to beat your goal! I’m not so sure about mine. Should be a photo finish! The last few months have shown progress, but long way to go.

    Passive Income Dude

    1. Hi Dan,
      Thanks, yes things are moving along slowly but surely. Congrats on your third record month in a row this month – my results weren’t so record breaking but hopefully next month might be. We’ll see.
      Wishing you the best on beating your goals – I’m very conservative in making mine so they’re more an indication of progress than a challenge to beat.
      Best wishes,
      -DL

  3. Ciao DL,
    What is your take on LB? I have started opening puts against this stock, because I feel that it has been battered quite strongly in recent times, but so it’s all the brick and mortar retail sector in the US…
    As to the progress of the PF, did you get some pullback on the funds or are they growing constantly? I see more tension coming up (mostly geopolitical), but that increases chances of volatility and market swings.

    Ciao and compliments again!

    Stal

    1. Hi Stal,
      I do think that stocks react more to bad news (even if it’s supposedly priced into the share price). LB is down about 40% so far this year, similar to 2007-2009, on top of decreases last year. Their revenue is reduced from abandoning some clothing categories, so it’s harder to separate out those loses from underlying company performance. Cash flow still looks pretty good for now though. I’m not planning to buy more as they’re above my target weight for income and my max dividend yield limits. Time will tell if this is a falling knife I suppose 🙂

      As for the funds, well it was a wash this month. If I remove the contributions I made, then US Stocks dropped 0.1%, International Stocks increased 0.4%, HY Corporate Bonds lost 0.3% and IT Bonds increased 0.8%, for overall net gains of $277 in August. Not much one can do other than diversify and hold on for the ride 🙂

      Hope you had a great month too! Can’t believe summer is over now (at least officially here in the US after Labor Day)

      Best wishes,
      -DL

      1. Ciao DL,
        On LB we have similar views, that’s why I started taking an interest, the brands that they carry are very strong, if they hit it with the expansion in Asia they might get back to previous levels… We’ll see.
        As to the summer ending it’s a tragedy for me because I totally love the hot weather and the idea of getting back into winter… 🙁 I should move to Miami I think!! 🙂
        ciao caio
        Stal

        1. Hi Stal, Yes I’m planning to hold onto my shares – the brands, distribution network and economy of scale are pluses in my mind. It’s not a big portion of my income fund so I’m not worried about the stock even if it continues to decline. Time will tell as you mention 🙂
          I’m totally a summer person too – especially for the winter here in Michigan. The only plus for winter is that I don’t have to cut the grass. Of course that just means I have to shovel snow instead so not much of a trade. I need to find somewhere warm and far away from the coast for retirement.
          Best wishes,
          -DL

    1. Hi Chintan,
      That remains to be seen 🙂 I prefer funds over individual stocks since they’ll always pay some dividends, so a dividend orientated strategy for me really just means a “Safe Withdrawal Rate” of 2-3% instead of the more typical 4%. This also means that the portfolio needs to be larger since it’s a lower percentage, which adds more protection if I did need to sell something if the dividends weren’t sufficient. I hold bonds to help protect against sequence of returns risk if that happens.
      Best wishes,
      -DL

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