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Saturday, April 4, 2009

* Progress Update - March 2009

Once again it is time for a goals/progress update. I am pleased to report that annualized dividend income rose in March after February's decline. Since I began publicly tracking annualized dividend income in November 2007, it has increased in 15 of the last 16 months. Contrary to the enthusiasm generated by recent market gains, the economic crisis is not over and we will have to contend with future dividend cuts.

My goals were defined in this December 1, 2007 Investing Goals post and updated in my 2009 Investing Goals post. Below is an updated version of the table found in the original post.
Description Dividend
Income
Annualized
Yield
on Cost
2027 Goal 110,000 20.00%
2017 Goal 30,000 10.00%
2009 Goal 8,000 5.00%
December/2008 5,636 5.28%
Purchases YTD 849 -0.04%
Div. Changes YTD (328) -0.29%
Sales YTD (687) -0.12%
March/2009 5,470 4.83%
Purchases 219 -0.09%
Div. Changes (24) -0.02%
Sales (112) 0.00%
February/2008 5,387 4.94%
The above information covers the current month and year-to-date through the current month.

Click here for a Detailed Historical Progress Table.

For the month, annualized dividend income increased $83, and Yield on Cost (YOC) decreased -0.11%. These changes were a net of new purchases, dividend changes and sales. Let's examine each of the these categories:

Purchases: The $219 increase in annual dividend income and (0.09%) decrease in YOC related to the following purchases (yield at the time of purchase):
  • $40 WMT (1.91%)
  • $97 KO (4.15%)
  • $82 MMM (4.25%)
All three purchases lowed my YOC. Having exhausted my "risk reserve", future purchases in the near-term will likely have lower YOC than in prior months. As noted in earlier updates, I generally expect YOC to drop each month since most new investments will yield less than my current YOC, and dividend increases will not be sufficient to offset it.

Dividend Changes: The ($24) decrease in annual dividend income and (0.02%) decrease in YOC related to the following dividend changes (a=dividend stated in annual terms, q=quarterly, m=monthly):
  • $9 AFL $0.24q>$0.28a 0.01%
  • $2 CNI $0.18852q>$0.1963a 0.00%
  • $2 ED $0.585q>$0.59a 0.01%
  • $4 LLY $0.47q>$0.49a 0.00%
  • ($2) MFC $0.21325q>$0.206a 0.00%
  • ($18) ETO $2.03a>$1.97a -0.04%
  • $4 TEG $0.67q>$0.68q +0.01%
  • $2 MFC $0.206q>$0.21167q +0.00%
  • ($13) VFH $1.33a>$1.11a -0.03%
  • $3 VIG $1.03a>$1.08a 0.00%
  • ($1) VNQ $3.00a>$2.98a 0.00%
  • ($16) VYM $1.57a>$1.38a 0.02%
The increase in CNI was due to currency conversion resulting from a weakening U.S. dollar compared to the Canadian dollar. The ETFs/CEFs dividend volatility continue to concern me. Most pay dividends in the last month of each quarter, and unfortunately, most are slowly lowering their dividends each quarter as the underlying companies they hold cut their dividends.

Sales: The ($112) decrease in annual dividend income and no change in YOC related to the following sales:
  • ($71) USB -0.01%
  • ($41) CAT 0.01%
USB cut its dividend and I immediately sold it. As discussed in "Early Warning Signs of a Dividend Cut", the more I studied CAT the more convinced I became it was not the type of stock I wanted to hold in my dividend portfolio. It is highly cycical and its free cash flow is erratic. I don't believe it can sustain a prolonged downturn without a dividend cut. Fortunately, I held a very small position in it.

As noted in last month's update, I will likely not achieve my 2009 goals. I continue to anticipate a troubled environment throughout the remainder of 2009 and into early 2010 and I will continue to focus on quality and upgrading my portfolio. This will not lead to the highest current income, but should optimize long-term results. I now estimate $6,300 as my ending annualized income on December 31, 2009.

That's it for this time. The next monthly progress update will be on Saturday, May 9th.

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