June 2019 Income Fund Update

May 2019 income fund update report graphic

Here’s my June 2019 Income Fund update, following on from last month’s May update. Click on for the details…

Dividend Income

Total income from my Income Fund this month was $4,069, a 15% increase to the $3,551 that I received in June 2018. The following chart shows the cumulative dividend income this year compared to previous years.

It’s nice to see a larger increase this year compared to last year. I’ve been adding most new money to funds which paid a distribution this month. And it looks like I’m about halfway to my target which is good since we’re halfway through the year!

Income breakdown

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

Income from the mutual funds was about equal between US and International funds at $1,913 and $1,907 respectively. Distributions from International funds tends to be higher in June and December as many international companies only pay dividends twice a year.

Individual US stocks paid $245 this month and $4 interest from the Income Fund cash reserves made up the remainder. I keep a little cash aside to smooth out withdrawals and the interest rate on this money market account is above 2%.

Dividend income from stocks

Seventeen stocks paid dividends this month for a total of $245 as detailed below.

Last June my individual stocks paid $264 from nineteen stocks and so income decreased 8% year on year. Since last year I’ve bought additional shares in EVRG, MAR and UPS. DAL paid dividends this month last year but not this month. Finally BMS also paid dividends last year but has since been acquired and I sold my shares.

The average organic increase was a little over 10%. HD, UNP and MAR had good dividend increases greater than 20% with EMR holding up the rear as usual.

Income from funds

Fund 06/19 06/18 Organic inc
US Total Market (VTSAX) $468 $406 -10%
US High Dividend Yield (VHYAX) $1,444  
Total International Stock (VTIAX) $391 $47 2%
High Dividend Yield International (VIHAX) $1,517 $1,423 8%
Total $4,064 $3,551  

US stock funds paid a total of $1,913 with $1,907 coming from International funds. The distribution from VTSAX was 10% lower this month compared to last June. However since I’ve been adding to this fund over the year there was a net increase in the amount I received.

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 as usual. International and US stock funds remain a little under. Not enough to worry about however.

Purchases & Sales

I added $2,593 of new money to my Income Fund this month.

Fund purchases

Total purchases this month were $2,495 in VTSAX and $1,425 in VTIAX.

Funds sold

None.

Stock purchases

I bought 4 shares of NEE for a total of $795.24 on 6/3/19 including a commission of $2. This is a new position for the Income Fund as I slowly increase the number of stocks to a total of 32. I chose NEE because it looks well positioned for environmentally friendly energy production and the world will only need more electricity going forward.

At the time of purchase they had a P/E of 28.9 and a dividend yield of 2.3%. With this purchase DIS remains the lowest paying dividend holding in my Income Fund.

Stock Sales

I sold all 50 shares I owned in LB this month for a total of $1,097.48 including a $2 commission. This resulted in a long-term capital loss of $654.27. My plan is to tax-loss harvest and buy the shares back in July.

Distributions

I transferred $1,100 from Fund Cash into my Living Expense account. This is an automatic payment and represents about 25% of my Living Expenses that my Fund pays every month. Money is fungible and 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 my 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 in withdrawing since the money is already in a taxable account.

Fund Cash

Fund Cash is now at $3,300 and held in the VMFXX money market account which is where all dividend distributions are paid into. $0.22 is uninvested with the remainder reserved for three distributions of $1,100 to cover withdrawals in July, August and September.

Portfolio Performance

My Income Fund increased in value from $493,768 to $527,619 this month. This increase of $33,850 is despite $2,593 of new capital and a distribution of $1,100 however, and so the overall gain was $32,357.

This month makes a new all-time portfolio high, beating the previous high of $524,401 from April 2019.

Retirement Accounts

Although most of the financial information I describe is about my Income Fund, I should point out that I consider it to be 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 $19,000 contribution for 2019.

Financial Independence

Here’s a chart of my living expenses as a percentage of income. As income from my investments increases, the living expense percentage decreases (gets better). However other factors such as changes in net salary (e.g. salary increases or payroll deductions) affect the results too.

My net income in June 2019 was higher than in 2018. This decreased the percentage of my living expenses from last June’s 37.2% to 35.8%.

In real terms, since my living expense budget is fixed at $4,120 a month this year and the distribution from my income fund is fixed $1,100 a month, I’m 26% of the way to Financial Independence.

Outlook

Starting next month I’ll be limiting purchases of international funds in my taxable account and make them in my tax-deferred accounts instead. Although this means losing the tax credit from foreign income, it means more of the distributions that I do receive will be qualified and taxed more favorably at the long-term capitals gains rate.

I am continuing to use VTSAX as my core US holding. While it’s not 100% tax efficient since it owns stocks which don’t pay qualified dividends, it’s >90% efficient. I’ll be holding it for the long-term and I don’t know how the tax code might change in future, so owning the entire market seems the most prudent choice.

Summary

June recovered a lot of the loses from May and it’s always nice to see a new all-time high in my investments. How was your latest month? Are you one step closer to Financial Independence?

Quote of the Day

If you could kick the person in the pants responsible for most of your trouble, you wouldn’t sit for a month.