March 2017 dividend income

March 2017 is over.

It was quite fast. I almost haven’t noticed. And many things happened in March. Good or bad. But financially, I did well and actually better than expected; both in dividend income and options trading income.

This month, we received $85.86 dollars in dividends.

It is slightly less dividends than last month.

But it was more than in the same month last year. In March 2016, I made $70.46 in dividends. That is 21.85% increase year over year.

Definitely, this month was another success!

Our annual dividend income increased to $1,068.55 from previous $1,062.66 of annual dividend income. This is a great increase compared to $883.48 annual dividend income from 2016.

· ROTH IRA investing/trading strategy

Here is my investing & trading strategy I use in my IRA account. If you want to read about this strategy

click here.

In our ROTH IRA account we primarily invest into high quality dividend growth stocks. However, we allow exceptions and invest to higher risk, non-growth dividend stocks.

We reinvest all dividends using DRIP program. We will be using DRIP as long as dividend income will be below $1,000 per months or dividend period.

Once our dividend income reaches the limit of $1,000 dollars per the period (quarter, dividend payout, etc.) we will cancel the DRIP program and start re-investing the dividends selectively into either new stock holding, or existing stocks.

In our ROTH IRA account we also use options trading strategy called “triple play”.

We sell cash secured puts as long as we are assigned and buy the stock. With this strategy, we do not roll the puts unless there is a great opportunity to do so or the stock dropped in price significantly.

Once we buy shares, we keep them, collect dividends, and start selling covered calls.

We sell covered calls at the money, slightly in the money, or above the money. We do this as long as we sell the stock.

During this cycle, our DRIP program ensures that we reinvest the dividends.

For example, we sell puts against stock XYZ, we get assigned and buy 100 shares of the stock. Later, we receive the dividend, which is automatically reinvested. We buy fractional shares of the stock, for example 2.468 shares. Now we own 102.468 shares of the stock. While we are selling covered calls, when we get assigned the calls, we sell 100 shares of the stock. At the end of the cycle, we are left with 2.468 shares which continue bearing new dividends. These dividends are then reinvested back into the same stock, so our position is slowly growing.

Now, you may ask, what if you buy a stock and it drops significantly down, so selling covered calls down low may result in selling the stock at a loss and what would we do in this situation?

This is a valid question and no stock, even dividend growth stocks are not protected against a violent price drop. It may happen. In this case, we may temporarily stop selling covered calls and simply wait, or we may be selling covered call down low, but we will strive avoiding assignment and rolling those calls higher as long as we get above our stock purchase price where we can let the calls assign.

Once we sell shares via covered calls, we start selling puts again.

This options strategy is slightly different than the one we use in our trading account.

You may ask why doing this and not just keeping the stock to avoid losing capital gains?

Many times, the options income from puts and covered calls is a lot larger than the dividend itself. Also bringing income from options every week or two weeks will exceed any capital gains of the stock.

And we want options income too. We want to capture dividends and we want income from options. Most of the stocks are quarterly dividend paying stocks. That means, if we keep the stock and we will not be selling options, money invested in the stock will be dead money. There may be a small capital gain, but overall, it will be dead money.

· ROTH IRA dividend income

As I mentioned above my dividend income was better than last year. I made $85.86 in dividends and all dividends were reinvested back to the companies which generated them.

Here are some numbers:

Dividend Income = $85.86 (account value = $22,479.74 +1.23%)
The account is up 8.20% for the year.

Monthly dividend Income:

Last month, we purchased 100 shares of Energy Transfer Equity, L.P. (ETE) using triple play strategy. We sold cash secured puts with 19 strike and got assigned to the stock. We bought shares at $19 a share.

We were selling covered calls against the position with 19 strike. The calls kept expiring worthless in March. We will continue selling covered calls in April.

My dividend holdings:

(Click to enlarge)

· ROTH IRA options income

As I mentioned above we trade options in our ROTH IRA account to generate income which could be re-invested into dividend growth stocks.

We are in an “accumulation phase” when we deposit our sparse contributions of $50.00 dollars monthly and keep that cash in the account to trade cash secured options with it. This way we generate income from the options.

As of today, we only have approx. $3,017.70 dollars in ROTH IRA available for options trading. The goal in 2017 is to reach $6,000 available dollars for options trading.

With that money available for trading, in January 2017, we generated $58.00 dollars income from options 1.92% return on invested capital.

In March, we had options trades opened using stocks Ensco plc (ESV). We didn’t have to do anything with those positions.

We traded options using Energy Transfer Equity, L.P. (ETE). We also decided to add an Iron Condor using Seagate Technology plc (STX). We had to roll the trade once in March to avoid assignment. Unlike ETE trade, we do not want assignment of this stock as of now.

· Our dividend investing outlook

We saw the market getting to a complete halt in March. It even reversed and dropped.

We saw the first dip of more than 1% since election.

Many saw this as a positive event and I tend to agree with them.

The dip was bought again by investors but there weren’t enough buyers to move the market to higher highs. It still may happen if the purchase continue, but as of now, we are at a cross road.

Will the market go higher or are we seeing a creation of a new lower high?

Here is what I am seeing:

If the market fails to break the thin grey line, we will most likely see a correction.

While many may freak out. I am actually happy about it.

I keep telling to all dividend investors who are not comfortable with the current market that it doesn’t matter to them where the market is.

Of course, this depends on where you are in building your dividend portfolio but if you are at the beginning or even middle of the accumulation phase, you do not have to worry about crisis, panics, sell offs, or any sort of disasters.

As a dividend investor, you keep buying and building your dividend income. And when stocks drop even 50% you should welcome it with open arms and keep buying, keep reinvesting your dividends.

I have heard investors saying that they do not want their portfolio to drop 40 or 50% and then wait for a long term recovery. They want to time the market, sell now and buy back when the market drops. I have watched investors selling in August and September 2016 when the market was at all time high.

Back then the market was at 2120 and they couldn’t stomach it. They kept selling (trimming) their positions.

Today, the market is at 2340.

220 points higher!

So, you sell now and keep waiting for a drop, sell off, or correction which may not yet come. It may happen in six months from now. And you will be sitting sidelines depriving yourself of dividend income which could have been reinvested.

And if that really happens, I do not mind that my portfolio value drops.

I do not follow my portfolio value.

I follow what my dividend income is.

When building a dividend growth portfolio, you should always have in mind what was the reason you started building that portfolio.

In my case, it was income.

So if I invested $22,000 dollars to stocks which pay me $1,070 dividend income and there is a sell off and my portfolio drops to $9,000 dollars but keeps paying me the same $1,070 dividends, should I be concerned about the value?

No, my reason was income. And with the value drop my income hasn’t changed. I do not have to worry at all but on the contrary, I will be very happy that my dividends are now buying a lot cheaper stocks!

Many of my stocks in my dividend portfolio not only recovered well from the 2008 Great Recession, they actually increased dividends! Why selling them then?

Let me know what you think!

Leon says:

April 3, 2017 at 1:32 pm

Nice logic. If you invest 22k(dividend ratio 5%) and lose 13k, you gonna be happy? You only need 13 years to BE. I would say that at least is prudent to buy some far OTM puts for protection. Still, good luck :)

Martin says:

April 3, 2017 at 4:17 pm

If I invest 22k and the portfolio loses 13k in a panic selling like, for example in 2008, what makes you think that it would take 13 years to get BE and I should not be happy about it?

My portfolio did exactly that in 2008. It took 4 years to get BE and exceed the levels of 2007 highs (so I was BE in 2011). And all the time I was collecting and reinvesting the dividends into cheap stocks.

You are looking at this from a perspective of a growth investor. You are looking at investing into dividend stocks that I would need the value of the portfolio to make withdrawals at retirement. But I would not. Unlike 4% withdrawal rule, I will not be needed to sell a single stock at retirement.

Growth investors? Yes, in order to generate cash from his portfolio he would have to sell stocks to release and withdraw cash. Then value of the portfolio is extremely important for him.

Me as a dividend investor? In order to generate cash, I will just collect dividends instead of reinvesting it. So it is dividend security what’s important and not value.

And so, tell me, how long did the crisis in 2008 last and how come my portfolio is 3 times higher since 2009 lows?

Why should I NOT be happy when my stocks dropped by 50% during that time and I was buying them cheap and today they tripled my investment?

Why would I be buying protection? Protection from what? From a crisis which would last approx. 2 years at most? With stocks I plan on holding forever (unless the underlying company goes bankrupt, which is unlikely for companies such as KO, JNJ, O, T, etc.)?

Look at the 20 year chart of those companies and tell where are those crisis?

Here is a 20 year chart of a stock. I removed dates values and symbol. Show me which crisis should I protect myself from?

DivHut says:

April 2, 2017 at 11:49 pm

Nice job with your passive income for March. Keep holding those dividend paying stocks even if we see a correction. You said it… why sell a great income producer just because the value of your portfolio drops. As long as those dividend keep on coming in and are being raised you will only increase your passive income stream over time.

Martin says:

April 3, 2017 at 12:00 pm

That’s exactly my point. As long as I get the same dividend and actually growing it, I do not care what the value is. I actually be happy if the value drops as I will be buying cheap stocks.
Thanks for stopping by.