March 2018 Income Fund Update

March 2018 income fund update report graphicHere’s my March 2018 Income Fund update, following on from last month’s February update. March is usually a good dividend month but how good was it? Click on for the details…

Dividend Income

Total income from my Income Fund this month was $2,545, a 32% increase compared to the $1,923 I received in March 2017.

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

March’s 2018 result shows a small increase on year to date compared to last year. I’ll be relying more on added capital than dividend growth this year to reach my 2018 Target of $13,760. That’s because I bought more total market funds which pay lower dividends. On the plus side, they’re more tax efficient and should have higher total return.

Income breakdown

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

The largest contribution came from US stock funds with $1,722. International came next at $578 with individual stocks paying $244.

Finally, interest from the Income Fund cash reserves made up the remaining $2. 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

Eighteen stocks that I hold paid dividends this month for a total of $244 as detailed below.

Last March my individual stocks paid $212 from eighteen stocks. Since then, I’ve switched TROW for DAL. I’ve also added to INTC.

Dividends increased by a simple average of over 12% over last year all on their own. DAL and HD had the biggest increase with 50% and 25% respectively. EMR and CVX had the lowest increases under 2%.

Note that I sold my position in LB after the ex-dividend date. So I received dividends even though my position is showing zero. I discussed this stock sale here.

Income from funds

All stock funds that I hold paid out dividends this month. There were no capital gain distributions.

Fund 03/18 03/17 Organic inc
US Total Market (VTSAX) $365
US High Dividend Yield (VHDYX) $1,356 $1,007 14%
Total International Stock (VGTSX) $7
High Dividend Yield International (VIHAX) $571 $383 14%
Total $2,299 $1,390

US stock funds paid a total of $1,722 with $568 coming from International funds. I didn’t hold the total stock market funds this time last year.

Organic dividend growth of both high-yield funds was about 14%. Additional increases in the year-on-year comparison are due to new capital added.

Asset Allocation

My Income Fund asset allocation is shown below.

I hold 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.

Individual stocks are a little over my target and US Total Stock and International stocks 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 $5,199 of new money to my Income Fund in March. The increase in investments this month is due to the tax refund that I received.

Fund purchases

Total purchases this month were $3,734 in VHDYX and $3,605 in VTSAX.

Funds sold

None.

Stock purchases

I bought another 7 shares of DAL on 2nd March for $26.78 per share. Total cost including the $2 commission was $371.46. 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 60.

Stock Sales

I sold all of my LB shares at a loss this month. I will buy them back next month. See this post for details.

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 $2,815 and held in the VMFXX money market account which is where all dividend distributions are paid into. $2,625 of this amount is reserved for future distributions of $875 a month. The remaining $190 is spare and not yet invested.

Cash has increased by $1,217 since last month as I rebuild my three month withdrawal buffer due from the higher dividend income this month.

Portfolio Performance

My Income Fund decreased in value from $435,136 to $431,917 this month. This decrease of $3,219 includes $5,199 of new capital so overall loses were higher.

Outlook

2018 pay raise!

I’m using the first quarter of the month to set my monthly withdrawal rate for the year. The first quarter is usually the lowest dividend payout. This is because June and December tend to include larger international payments. I’m also buying more shares throughout the year.

Overall the total dividends received in the first quarter were $2,680 which works out as $893 on average per month. I’m going to round this number to $875 and take that as a monthly withdrawal for the remainder of the year. This is a small increase compared to the $850 I withdrew each month previously.

This is a conservative withdrawal rate and any additional dividend income will be re-invested. Of course, this is all mental accounting as the $875 I withdraw for paying bills means that an extra $875 of my paycheck can be used for new purchases.

The cash withdrawal doesn’t come from any stock sales – it’s a three month drawdown of the $2,625 in cash that I will refill from dividend income each quarter.

Summary

March barely beat last year’s cumulative dividends. So although this month’s dividend was a lot higher than last year, it had to overcome much smaller payments in January and February.

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


Quote of the Day

A goal is not always meant to be reached, it often serves simply as something to aim at.

 

5 thoughts on “March 2018 Income Fund Update”

  1. Good progress. Have you asked Vanguard why they do not offer High Yield Dividend Mutual Fund as an Admiral Class? That would cut your expense ratio in half. There is many funds with a lot less asset under management that offer Admiral. Really don’t know why they haven’t yet.

    1. Hi Dave,
      No, I’ve not asked but it’s a good question. The ETF version (VYM) is even available at a cheaper Expense Ratio (0.08%) but I prefer the convenience of the fund. That said I’ve been putting most new money into Total Stock Market lately.
      I’m sorry for the slow reply to your comment – I’m not getting notifications of comments lately.
      Best wishes,
      -DL

      1. Thank you for the reply! Problem with Total Stock Market Index is the QDI is only 92%. You want to own funds that are 100% QDI with your taxable accounts. If you want something with about the same yield and good to build in Vanguard you may want to look at Dividend Appreciation – 100% QDI income. Is a great complement to High Yield Dividend.

        1. Thanks Dave, I always learn something from your comments! I checked last year’s tax returns and VTSAX was 95% QDI which I did not realize. However in comparing to VDADX, the taxes on the 5% of non qualified income is pretty much offset by the 100% QDI taxes on the higher dividends that VDADX paid. So it seems to be a wash, at least for my tax bracket.
          Could you explain why VDADX is a good complement to VHDYX? It contains about 30% of the same stocks at VHDYX so it’s only adding 126 new stocks to the combination. Performance-wise it’s lagging VTSAX pretty badly but there’s not much history to go on and the future could well be different. It seems to me though that VDADX and VHDYX are much more correlated to each other than VHDYX to VTSAX. I’m using data from Portfolio Visualizer.
          Best wishes,
          -DL

          1. Hello again. VTSAX is heavily influenced by the performance of about 10 stocks. When those 10 start to tank you will want to have a fund that holds the stocks that have a long track record of paying and increasing dividends. The 30% that both hold are quality dividend payers which are great anchors in a down turn. Good luck.

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