Blue Chip DRiP Portfolio: August Dividends + Covered Call Income – Seeking Alpha

Don’t Drink The Kool-Aid

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Many would like to believe that the COVID-19-induced stock market downturn in March/April and subsequent recession is all but over. The markets have jumped back up to challenge February highs. Virtual high fives and elbow bumps to all. I only have one issue with drinking the Kool-Aid: the fundamentals.

Yep. This recovery has zilch to do with fundamentals. Sure, it’s fun to have a bright red tongue and run around bouncing off the walls with a massive sugar high. Unfortunately, the high will eventually fade away, just like stimulus checks and the $600/week bonus unemployment payments. Fundamentals always prevail. Maybe not tomorrow or next week. But this economy is akin to a body builder getting pumped up artificially with steroids. Eventually, the internal organs break down and the facade of external health can hide it no longer. The only question is how long the Mr. Olympia market of stocks can stay propped up.

With that said, I still firmly believe in time in the market over market timing. True, I’m hoarding way more cash than in the recent past. I will be prepared for fantastic bargains when they arrive. But I’m cautiously back to buying dividend stocks this month, because I need as much time in the market as possible.

If you read last month’s article, you’ll recall that I recently sold $120k of assets in this portfolio to buy a home for cash. Escrow is closed, and I’m penning this from our new home. I’ve gotta say, it feels great to have the stress of buying a home and moving in the rear-view mirror. Peace of mind is invaluable. It’s now time to claw back at our passive income stream.

Here we go with the August stats:

Dividend Income: 2020 (Blue) vs. 2019 (Red)

In August 2020, we pocketed $1380.24 of dividend income. Compared YoY to August 2019, which saw $846.45 in dividends, that’s an honorable 63% increase YoY. May 2020 saw $1578.34 of income. I’m quite happy that even with the COVID-19 effect and my large selloff, dividend income only decreased by 12.5% QoQ.

Dividend Income Received: August 2020

Ticker/Stock Name Income
AbbVie (ABBV) $158.12
Antero Midstream (AM) $325.96
Bristol-Meyers Squibb (BMY) $20.40
Blackstone (BX) $0.74
Caterpillar (CAT) $5.15
Energy Transfer (ET) $373.27
General Dynamics (GD) $53.90
Kinder Morgan (KMI) $80.55
People’s United Bank (PBCT) $75.60
iShares Preferred and Income Securities ETF (PFF) $10.46
Starbucks (SBUX) $2.05
AT&T (T) $205.67
Texas Instruments (TXN) $0.90
Verizon (VZ) $63.47
WestRock Company (WRK) $4.00
* = New position

Total: $1380.24

Noteworthy Tidbits

Our highest payers for the month: Energy Transfer with $373.27 and Antero Midstream with $325.96. So far, both have managed to sustain their astronomical dividend yields, but the dam could bust at any time. I’m curious what you think. I look forward to reading your comments below. Luckily, we’ve got some safer names like T, VZ, PBCT, and GD paying out good money as well… but you never know what lies ahead!

August 2020: Dividend Increases Announced

Nope. Nada. Nothing.

August 2020: Dividend Cuts/Suspensions Announced

British Petroleum (BP) announced a -50% dividend cut. This was anticipated, but it still hurts – a lot. It reduced our annual dividend income by a whopping $202.61.

Stock Transactions: August 2020

Rebuilding our dividend income stream starts now. Although we’re content on the sidelines stacking cash, we are still reinvesting all dividends received, and dollar cost-averaging on a much smaller scale. Some of our smaller purchases were simply to reach 100 shares so we could initiate covered call options.

We made nine cash purchases in August:

Ticker/Name # of Shares Share Price Amt. Invested Est. Annual Income
Antero Midstream (AM) 50 $5.44 $272.00 $61.50
Enbridge (ENB) 20 $32.00 $640.00 $59.00
Energy Transfer (ET) 80 $6.45 $516.00 $97.60
Iron Mountain (IRM) 10 $30.11 $301.10 $24.70
MSC Industrial (MSM) 28 $64.73 $1,812.28 $84.00
Pinnacle West Capital Corp. (PNW)* 40 $76.75 $3,069.80 $125.20
Southern Co. (SO) 50 $52.07 $2,603.40 $124.00
AT&T (T) 25 $29.39 $734.75 $52.00
Exxon Mobil (XOM) 45 $39.95 $1797.80 $156.60
Total: $11,747.13 Total: $784.60
* = New Position 6.68% avg. yield

We cancelled all our DRiPs (dividends automatically reinvested) last month. This was part of our effort to consolidate cash for our home purchase. Moving forward, we’ll re-implement automatic dividend reinvestment of certain companies.

We made one sale in August, due to an option getting called in. We made a nice profit. We still like Gladstone Land (LAND) and will look to buy back in on a dip.

Ticker / Name # of Shares Share Price

Total Amount

Gladstone Land (LAND) 200 $15.00 $3000
Total: $3000

August Transactions: Takeaway

    • Cash invested in August = $11,747.13
    • These investments add approximately $754.60 of annual passive dividend income.
    • With these additions, our estimated forward annual dividend income is up to $12,540.18 from $12,050.56 at the end of July, including the cut from British Petroleum. Overall, that’s a 4.06% increase on our projected annual income from last month. That’s a nice start to revamping this portfolio!
    • I rebuilt our MSC position. It’s a solid company that is currently unloved, and we bought it back cheaper than what we sold it for last month. ET, ENB, IRM, AM, and XOM were all small purchases to reach 100 shares to buy more covered call contracts. PNW is a new position, as we’re looking to grow and diversify our utilities holdings. On that note, we repurchased half of our SO position, getting back in slightly cheaper than we sold it off for.
    • Moving forward, we can expect to pocket an average of $34.36 of passive income each and every day without lifting a finger. That’s up from $33.02 in July. We’ve still got a lion’s share of work to do to achieve 100% financial emancipation. But the groundwork has been laid, and the sky’s the limit!

Diversification Checkup: Sector Allocations

Stock Sector Current % of Portfolio Goal % of Portfolio
Basic Materials 3.30% (was 3.18%) 5%
Communications 7.11% (was 7.40%) 5%
Consumer Cyclical 1.44% (was 1.36%) 5%
Consumer Defensive 2.45% (was 2.73%) 8%
Energy 27.27% (was 28.34%) 12%
Financial 13.98% (was 13.93%) 10%
Healthcare 9.89% (was 10.78%) 10%
Industrials 8.74% (was 7.30%) 10%
Real Estate/REIT 13.36% (was 15.40%) 10%
Technology 1.58% (was 1.58%) 10%
Utilities 9.35% (was 6.57%) 12%
Misc. (ETFs, Funds) 1.32% (was 1.33%) 3%
100% 100%

As you can see in the chart, our asset allocations are still out of whack due to our massive sell-off. Rehabbing the portfolio is a top priority, but it won’t happen overnight. The only notable change from last month:

  • Our Utilities allocation jumped almost 3% as we continued to add to that sector with purchases of PNW and SO. Strong, defensive businesses with solid and safe dividends. Done deal.

Top 10 Holdings: Ranked by Position Size

Below are our Top 10 Holdings ranked by position size within the portfolio. I include last month’s rankings for comparison, as well as their contribution to our passive income stream.

Ticker/Name Ranking Percentage of Portfolio Ann. Div. Income
AT&T (T) 1 (was 1) 7.01% (was 7.29%) $874.68
Exxon Mobil (XOM) 2 (was 2) 5.66% (was 5.21%) $881.79
Energy Transfer (ET) 3 (was 3) 4.35% (was 4.88%) $1493.09
Antero Midstream (AM) 4 (was 4) 4.04% (was 4.04) $1463.70
PPL Co. (PPL) 5 (was 5) 3.95% (was 3.94%) $422.34
AbbVie (ABBV) 6 (was 6) 3.60% (was 3.77%) $325.68
Iron Mountain (IRM) 7 (was 10) 3.44% (was 3.22%) $502.25
Prudential (PRU) 8 (was 9) 3.38% (was 3.25%) $387.20
LyondellBasell (LYB) 9 (NA) 3.21% (NA) $354.60
Enbridge (ENB) 10 (was 8) 3.19% (was 3.32%) $516.25

As a rule of thumb, we try not to let any single position grow over 5% of the overall portfolio value. This rule is not hard and fast but keeps me from getting carried away with any individual holdings, no matter how glorious they may seem.

Notable changes in August

Not much changed since last month, but LYB snuck on the list, as it’s appreciated a bit lately. Otherwise, AT&T and XOM are still over 5%, so we won’t be buying any until they get back in balance. Hopefully, in the near future, we can buy more of our higher-quality “core” positions at reasonable valuations so they can start inching their way back on the chart. But we’re relegated to this new normal for a while. It’s a little scary that so much of the portfolio is weighted in Energy, but it is what it is. Just more motivation to save as much as we can and smooth out our positions ASAP.

Top 10 Holdings: Ranked by Income Generated

This is another fun chart. I thought it might be beneficial to track our biggest payers:

Ticker/Name Ranking Estimated Annual Income % of Portfolio Income
Energy Transfer (ET) 1 (was 1) $1,493.09 11.91% (was 12.42%)
Antero Midstream (AM) 2 (was 2) $1,463.70 11.67% (was 12.18%)
Exxon Mobil (XOM) 3 (was 4) $881.79 7.03% (was 6.03%)
AT&T (T) 4 (was 3) $874.68 6.98% (was 7.28%)
Brookfield Property REIT (BPYU) 5 (was 5) $523.69 4.18% (was 4.36%)
Enbridge (ENB) 6 (was 6) $516.25 4.12% (was 4.29%)
Iron Mountain (IRM) 7 (was 8) $502.25 4.01% (was 3.98%)
Ares Capital (ARCC) 8 (was 7) $495.94 3.96% (was 4.13%)
PPL Corp. (PPL) 9 (was 9) $422.34 3.37% (was 3.51%)
Simon Property Group (SPG) 10 (was 10) $421.25 3.35% (was 3.50%)

Many of our top payers are sailing on choppy seas. The dividend safety of ET, AM, and XOM are highly questionable. We’re highly overweight with these 3 positions comprising over 30% of our dividend income. The upcoming months are going to be nail-biters!

As with position size, we try not to let any single position generate over 5% of the portfolio’s total dividend income. So, you know we’ll be doing our best to shore up the account and not be so reliant on the Energy sector.

Covered Call Premiums Received in August and YTD

To help counteract the depletion of passive dividend income, we’ve been strategically employing covered call options.

In the month of August, we initiated 10 new covered call options and collected $578.00 in premiums:

Name / Ticker Premium Received
Pfizer (PFE) $30
Wells Fargo (WFC) $31
Easterly Government Properties (DEA) $20
VEREIT (VER) $63
Tanger Factory Outlet Centers (SKT) $13
Antero Midstream (AM) $226
Ares Capital (ARCC) $38
AT&T (T) $26
Exxon Mobil (XOM) $69
Iron Mountain (IRM) $62
Total Received: $578

Year to date, I’ve initiated 44 covered call options. So far, 35 have expired and 9 were called in. Of the stocks called in, I’ve repurchased some of them at lower prices, reinvested some money in other businesses, and continue to hold plenty of cash.

10 options are currently open, and YTD, I’ve received $1,788.00 in premiums. When you factor this into my passive income, it’s definitely helped offset the dividend cuts and freezes announced so far in this recession.

The Whole Enchilada: The Blue Chip DRiP Portfolio As Of 8/31/20

Last but not least is a spreadsheet of the entire Blue Chip DRiP Portfolio as it currently stands. Unrealized gains/losses don’t faze us. An extra-large percentage of our holdings are still deep in the red, since these happen to be the ones we wanted to hang on to and not realize the losses.

The current balance of this account stands at $178K. With approximately $222k invested, that’s an unrealized capital loss of around $44,000, or -19.82%, not including dividend income received. If you factor in the $19,052 of dividend income this portfolio has accrued, then we’re down about -12.3% over the 18 months since its inception. Further, if you factor in $1,788 of covered call premiums we’ve earned, then the account is down about -11.5% overall. I’m not going to factor in the realized gains from the recent sales. That would take too much math and too much time. But if I did, then this portfolio would actually show slight gains overall. Crazy, right? The markets will go up and down, and we’re prepared for much more down.

  • Est. forward annual dividend income 12/31/19: $15,570.66
  • Est. forward annual dividend income 1/31/20: $16,047.24
  • Est. forward annual dividend income 2/29/20: $17,657.65
  • Est. forward annual dividend income 3/31/20: $17,973.09
  • Est. forward annual dividend income 4/30/20: $17,439.54
  • Est. forward annual dividend income 6/30/20: $16,958.17
  • Est. forward annual dividend income 7/31/20: $12,050.56
  • Est. forward annual dividend income 8/31/20: $12,540.18 = up 4.06% since 7/31/20 and down -19.46% YTD

Again, there’s a great chance these income projections will be adversely affected by even more dividend freezes and/or cuts in the upcoming months. I’m a realist. But this is still real money that is being deposited to this account almost daily. Now that we own our home outright, our concentration is 100% on increasing our savings rate and replenishing this account as fast as possible. Kind of hard to do, since I’m still unemployed. My industry is still on hold due to COVID-19 (the film industry – TV shows, movies, etc.). But we’re committed and will continue growing our passive income stream on the way to financial emancipation. A bear market, recession, or depression will not veer us off course.

Reboot: Blue Chip DRiP (v2.0)

We are back on course. Slow and steady. We look forward to the fun that lies ahead. We own our home. Outright, free and clear. No bank or any strings attached. It’s a breath of fresh air to never have to pay a mortgage again. Our monthly nut just dropped over $2,000/month. That gives us an extra $24,000/year to invest and reinvest year after year. In terms of reaching our goals of financial emancipation, it’s a nice boost. Our eyes remain on the prize. It’s all about incremental steps to returning our dividend income to previous levels and, eventually, surpassing them. As valuations become appropriate over the upcoming months and years, our focus will remain aimed towards high-quality, defensive dividend payers and growers.

Whatever your investing plan or strategy is, we wish you the best in these tumultuous times. Stay resilient. Stay persistent. Adhere to your plan. Remember:

“Do not save what is left after spending, but spend what is left after saving.”

– Warren Buffett

PS: Thanks for clicking the “Follow” button, and feel free to read my other articles. Best of luck as we journey towards financial emancipation!

Disclosure: I am/we are long ALL STOCKS MENTIONED IN THIS ARTICLE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This is not stock advice. These are purely my opinions. I’m not a professional. Do your own research. Best of luck in your investing journey!

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