February 2018 Income Fund Update

February 2018 income fund update report graphicHere’s my February 2018 Income Fund update, following on from last month’s January update. January showed a big increase in my Income Fund, but February was not so kind. Click on for the details…

Dividend Income

Total income from my Income Fund this month was $99, a 71% decrease compared to the $351 I received in February 2017.

The decline is because I no longer hold high-yield bonds that pay a monthly distribution compared to this time last year. In moving that money to stock funds, most of the dividends I receive now are paid in the third month of each quarter.

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

February’s 2018 result still barely registers on the chart and my new 2018 Target of $13,760 looks far away. But this is the new normal of my portfolio now. It’s more tax efficient and it should have higher total return over a long time since it’s all stocks. The improved tax efficiency means that the bulk of the dividend income is taxed at the qualified 15% rate. Previously the monthly bond income was taxed at my ordinary 28% rate.

Income breakdown

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

The largest contribution came from individual stock holdings – together they paid 99% or $97.

There was no income from any of the stock funds I hold since they pay out in the third month of the quarter.

Finally, interest from the Income Fund cash reserves made up the remaining $1. I keep a little cash aside to smooth out ‘withdrawals’ and the interest rate on this money market account has increased a little.

Dividend income from stocks

Six stocks that I hold paid dividends this month for a total of $35 as detailed below.

Last February my individual stocks paid $95 from eight stocks. Since then, I’ve sold out of the small positions I held in CLX and VZ. I’ve also added to T and GIS.

Dividends increased by a simple average of over 7% over last year all on their own. AXP and RTN had the biggest increase with 10% and 9% respectively. T and GIS had the lowest increases under 3%.

Income from funds

None of the funds I hold paid out dividends or capital gains this month.

Asset Allocation

My Income Fund asset allocation is shown below.

I’m now holding 100% stocks in my Income Fund which is held entirely in Taxable accounts.

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

Detailed Allocation

The following table shows the details plus the new asset allocation for my Income Fund.

Individual stocks are a little over my target and US Total Stock and International stocks (VIHAX) are a little under.

Changing the allocation ratio via new capital takes a lot of time because of the size of my contributions vs the total value. Eventually it may not even be feasible. However I don’t plan on selling any assets to re-balance faster.

Fund Purchases & Sales

I added $15,197.50 of new money to my Income Fund in February. $2,300 is the usual monthly amount I aim to invest. The rest is from a bonus I received at work.

Fund purchases

Total purchases this month were $5,297.50 in VHDYX, $6,250 in VTSAX. and $3,000 in VGTSX.

Funds sold

None.

Stock purchases

I bought 7 shares of DAL on the 1st February for $56.50 per share. Total cost including the $2 commission was $387.50. Delta Airlines is one of my more speculative holdings as they’re not a defensive dividend growth stock. However I think they are a well-managed company at a good valuation and it doesn’t hurt that I spend a fair amount of money each year on their services. This purchase increases the number of DAL shares I hold to 53.

Stock Sales

None.

Distributions

I transferred $850 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 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 $1,473 and held in the VMFXX money market account which is where all dividend distributions are paid into. $1,220 of this amount is reserved for future distributions of $850 a month. The remaining $252 is spare and not yet invested.

Cash has decreased by $786 since last month since I withdrew $850 but received some dividend income this month. This figure includes some additional dividends which were reported last month but took several days to reach my main brokerage account.

Portfolio Performance

My Income Fund decreased in value from $441,077 to $435,136 this month. This decrease of $5,940 includes $15,197 of new capital so overall loses were much higher.

Outlook

For this quarter I’m continuing to withdraw $850 a month. This money pays some living expenses and allows me to invest more of my paycheck.

Going forward, I will set my monthly withdrawal rate for the next three quarters of the year to the average monthly income from the first quarter. The first quarter is usually the lowest income of the year since I invest throughout the rest of the year and because the stock funds I own tend to pay more dividends in Q2 and Q4.

Shifting focus

I started a position in Vanguard’s Total international Fund and will stop funding VIHAX. My tables above include references to the investor class of that fund (VGTSX) which has a $3,000 minimum purchase limit compared to the $10,000 limit of the cheaper admiral class fund.

I am moving towards a total market portfolio with a small tilt to high-yield (value) plus some individual stocks.

Summary

February has been a small step forward in terms of the dividends received this month. Hopefully March will finally show an increase in the cumulative dividends compared to last year.

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


Quote of the Day

Always be yourself, express yourself, have faith in yourself, do not go out and look for a successful personality and duplicate it.

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