August 2018 Income Fund Update

June 2018 income fund update report graphic

Here’s a catch-up of my August 2018 Income Fund update, following on from last month’s July update. Click on for the details…

Dividend Income

Total income from my Income Fund this month was $136, a 68% decrease compared to the $421 I received in August 2017. Yet another decrease, and I’ll be glad when the year on year increases start again.

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

Total dividends received so far this year in 2018 are $6,550 compared to $6,789 in 2017.

This time last year I held high-yield bonds which paid monthly distributions. In September 2017 I exchanged these for stock funds which pay quarterly at a much lower yield.

The cumulative total for this year has fallen behind last year’s total, since I’m no longer getting large monthly distributions. What’s not visible from the chart is that I’ll have a slightly lower tax bill since nearly all income is at the lower qualified dividend tax rate.

But with four months to go, reaching my 2018 Target of $13,760 looks extremely unlikely because of the lower yield.

Income breakdown

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

The largest contribution came from individual stocks paying $133.

Interest from the Income Fund cash reserves made up the remaining $3. 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

Seven individual stocks paid dividends this month for a total of $133 as detailed below.

Last August my individual stocks paid $99.66 from eight stocks. I sold my CLX shares and bought DAL shares between May 2017 and June 2018. UPS paid dividends in August last year but this year they paid in September so will show up next month. Aside from the new shares in DAL, the holdings were pretty much the same as in 2017. Some partial shares from 2017 were sold when I consolidated all the stocks at Vanguard.

The DAL shares were the main reason behind the increase this year. However dividends increased by a simple average of 10% over last year all on their own. DAL and AXP had the biggest increase with 38% and 9% respectively. GIS and T had the lowest increases of 2 and 1%.

Income from funds

No US stock funds paid dividends this month. They pay quarterly so won’t show up until September.

Asset Allocation

My Income Fund asset allocation is shown in the chart 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. International stocks are a little under. Not enough to worry about however.

Purchases & Sales

I added $3,055 of new money to my Income Fund in August.

Fund purchases

Total purchases this month were $2,805.06 in VTIAX. International stocks are still a little below my target asset allocation. I also reached the threshold to convert to the cheaper admiral class of this fund with this purchase.

Funds sold

None

Stock purchases

I bought 12 shares of EVRG on 20th August for $696.44 including $2 commission. EVRG is an electricity utility company operating in Kansas and Missouri.

May 2019 Update: Despite my purchasing them, these shares have increased in value a little bit (1%). This is more than the total market but less than BMS above.

Stock Sales

I sold all my shares (15) of packaging company BMS this month. They were acquired for $575.32 in November 2014 and sold for $741.99 including a $2 commission. There was nothing really wrong with BMS, although they were growing slowly at the time. I just wanted to reduce the number of individual companies that I own and picked this one.

May 2019 Update: Obviously since I sold them, then the share price has subsequently increased by 11% compared to the total market’s mostly flat value.

Distributions

I transferred $875 from Fund Cash into my Living Expense account. This is an automatic payment and represents about 21% 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 (although an argument can be made that tax-deferred money is different). The withdrawal from the income fund simply 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 because one day I won’t have a salary. There’s no additional tax impact since the money is already in a taxable account.

Fund Cash

Fund Cash is now at $1,059 and held in the VMFXX money market account which is where all dividend distributions are paid into. $1,048 of this amount is reserved for a final distribution of $875 a month for the third quarter. The remainder is spare and not yet invested.

Cash decreased by $1045 since last month due to the $875 withdrawal and stock purchase being partially offset by incoming dividends and $200 cash that I added to the Fund but didn’t use to buy mutual funds.

Portfolio Performance

My Income Fund increased in value from $459,374 to $465,422 this month. This increase of $6,048 includes $3,055 from new capital so overall, capital growth was $2,993.

Retirement Accounts

Although most of the financial information I describe is about my Income Fund, I should point out that I consider this one piece of the bigger picture. Ideally I’d like to reach Financial Independence based solely on my taxable accounts which is 100% stocks, but I still have Retirement accounts in case I can’t.

I am maxing out my 401(k) contributions to reach the full $18,500 contribution this year. It’ll be the first year I’ve done this since I arrived in the US in 2000.

Outlook

I’m looking forward to a large dividend payment next month when the funds make their quarterly distribution.

Summary

So a good month all in all with a modest portfolio increase. I don’t see how I’ll reach my 2018 income target now but in the meantime I’m continuing to invest as much money as I can.

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. – Bruce Lee

8 thoughts on “August 2018 Income Fund Update”

  1. I like the EVRG purchase. I own 180 shares in Ameren’s DRIP and would like to see them use their all time high stock price to buy EVRG which is a logical purchase for the geographically.

    1. Hi JLH,
      My EVRG shares originally came from GXP when it merged with Westar. I’m not familiar with Ameren so that’s something to look into; I had considered buying NextEra (NEE) shares previously but decided against that in the end.
      Thanks for taking the time to comment!
      – DL

  2. I have EVGR as well from the GXP times. Like the dividends I have been getting for a long time. Been a bit concerned now with the PG&E bankruptcy and how quickly a “stable” utility company has been gone. Your thoughts on that?

    1. Hi Christoph,
      There’s an inherent risk in owning any individual company shares and the only real mitigation is to diversify so that loses are limited. For a time I did hold an ETF for the Utility sector (VPU) in addition to GXP.

      Sector-based ETFs can be a good way to add instant diversify to a portfolio early on until the number of individual holdings in that sector are sufficiently diverse. And for utility companies you can diversify geographically too in case of hurricanes / flooding etc. But now I personally just own most of my stocks via VTSAX / VHYAX and just have a small percentage (~10%) in individual stocks. So my GXP shares are only about 0.2% of my total portfolio. I do own shares of PG&E via the VTSAX fund, but its impact is negligible (it’s 0.03% of the fund).

      The PG&E case does seem to be a rare event (and perhaps made worse by CA state laws which give it more liability) but really a catastrophe (natural disaster, cyberattack, negligence) could happen to any company at any time. Most of the time, these events are large but the company is able to survive e.g. BP’s Deepwater horizon disaster.

      Thanks for stopping by!
      -DL

  3. I know you said there was no significant reason for selling BMS, but I own BMS and I’m curious if you have any complaints about its performance. Its growth is slow but I’m ok with that, because after all, we’re playing the long game here.

    1. Hi Dividend Dude,
      BMS itself is low growth but profitable but I guess it really depends on how the Amcor merger goes. Perhaps the combined company can improve margins more and find opportunity in new markets. I had actually forgotten about the Amcor acquisition of BMS, but that was probably the main reason for my sale at the time.
      Best wises,
      -DL

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