May is over and it is time to once again review our dividend income in our ROTH IRA account.
It was again another successful month as our annualized dividend income increased. We haven’t received as many dividends as in April but it still was a successful month.
In our ROTH IRA we collect income from dividends as well as options trading.
Both incomes helped the account balance growth although this month our overall balance dropped slightly.
But if you follow my blog and remember my dividend growth philosophy you know that the account balance is not important to me. It is the income what’s the most important!
As long as my regular dividend or options income is stable, secure, and ever growing, I am happy and do not care what the balance is.
I am actually happier seeing my stocks dropping down as I can be reinvesting my dividends and buying cheaper shares.
So, how did we do this month?
This month, we received $89.48 dollars in dividends. It was $2.01 dollars less than in the previous month.
Our options income reached $108.00 dollars of received premiums. It was also less than in the previous month but we still exceeded 3% mark and achieved 3.18% monthly revenue on invested capital (ROC).
Our average annual options income is 2.65%.
Although our month-to-month dividend income was less than the record month of April, I am happy to see that our annual dividend income increased again to $1,083.88 from previous month of $1,074.87 (0.84% increase MoM). This is a great increase compared to $883.48 annual dividend income from 2016 (22.68% increase YoY).
· ROTH IRA investing/trading strategy
If you are interested, here you can review our investing & trading strategy used in our ROTH IRA account.
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
Our May 2017 dividend income was 22.68% better than last year. This month we received $89.48 in dividends which is the second highest dividend income this year.
All dividends were reinvested back to the companies which generated them using DRIP program.
We use DRIP as long as our dividend income is small to use direct reinvesting by manual stock selection. Once our dividend income reaches at least $1,000 dollars or around this number, we will cancel our DRIP and start using selective reinvesting.
Selective reinvesting means that we will pick our own other stocks into which the dividends will be reinvested. It will no longer be an automated DRIP program buying the same stocks which produced the dividend.
But it still is a long way to go.
Here are some numbers:
Dividend Income = $89.48 (account value = $22,715.63 -0.71%)
The account is up 9.33% for the year.
Monthly dividend Income:
My dividend holdings:
(Click to enlarge)
· ROTH IRA options income
Our options income reached $108.00 dollars of received premiums.
We trade conservative trades to create income in this account which can be later used to buy more dividend growth stocks.
After our options income reaches $2,000 dollars, we will use 50% of the amount to buy dividend growth stock. Until then, we will just reinvest the options income back into options trading.
This is a great deal as I personally struggle depositing more money to our ROTH IRA account and dividends along with premiums help generating a good deal of money.
Here are the numbers I am looking at:
$50 monthly deposits (contributions)
$90 monthly average options income
$88 monthly average dividend income
$228 monthly average money available to invest
Compare it to just a simple contribution and the picture is no longer as pathetic as it would be. And I hope, these numbers will keep growing.
I also have a plan to reach a certain amount of cash available for options trading. The goal for 2017 is to reach $6,000 dollars cash buying power for options.
As of today, we only have approx. $3,397.94 dollars in ROTH IRA available for options trading (6.17% increase).
With that money available for trading, in April 2017, we generated $108.00 dollars income from options 3.18% return on invested capital.
This month we opened a few new trades generating options income (mostly Iron Condors). We also have a triple income play trade using ETE stock as underlying. Although ETE is dropping last few weeks, I am optimistic on the stock and used strategy. I hold 103.076 shares of the stock which generates nice 6.57% yield so I keep buying more shares as the stock goes lower.
I also keep selling covered calls against the position generating more income. Here you can review the details of the trade:
ETE triple play – dividend capture trade – TRADE OPEN
As soon as the trade above closes, our next trade will be a covered strangle (we will sell a new covered call and bull put spread against this stock) to generate more income.
We also own 170.949 shares of AGNC stock and sometime ago we decided to sell covered calls against these shares too.
Unfortunately, AGNC is not a very good optionable stock and when we reviewed premiums for the future trade I couldn’t see any good premiums to trade. We will keep an eye on this stock and try to sell a new covered call as soon as the old one ends but as of today, it is unlikely.
Here is the trade against ANGC shares:
AGNC covered call (ROTH) – TRADE OPEN
In May we opened a few Iron Condors using TECK Resources (TECK). A few investors from our Facebook Group have asked me why I was trading TECK.
As you know, I do not have reasons for trading certain stock. People want to have a reason, some love story, or prediction behind the stock. I do not have any of it. I do not believe in it. And I do not want to spend my time searching for a story or creating one.
All I want, is a knowledge that the company can produce and sustain its operation and some proof that it will be here in the next 20 years and that is enough for me to trade it.
But again, all this depends on the investing or trading strategy you use. As a dividend investor I would be looking for different signs of a company vitality than as an options trader.
And as an options trader I look for metrics such as buying power, premiums, volatility, etc. As long as the stock meets my criteria, I trade it. And if the stock goes up and down, I do not care. I actually make money when that happens.
Here are a few trades I opened, closed, or carried over this month:
Options Trade: TECK Iron Condor trade (ROTH IRA) – TRADE OPEN
New Iron Condor using TECK in ROTH IRA – TRADE OPEN
TECK Iron Condor trade (ROTH IRA) – TRADE OPEN
TECK Iron Condor (ROTH IRA) – TRADE CLOSED
Another stock I trade options against is Seagate Technology (STX). There are people bashing this stock and saying it will not survive, its dividend is not sustainable, etc. But they have been saying this for years.
In our trading account I have been trading STX for three years now. And although it is volatile, it survived all the predicted catastrophes. And in fact, by buying a SSD manufacturer they are well positioned to cover all segments of data storage market (clouds as well as physical storage disks).
Our goal is to increase cash in our ROTH IRA account enough that we can start trading a triple play trades against STX and allow stock assignment so we can start collecting dividends and buying shares of STX. As of now, we can only trade Iron Condors and prevent stock assignment and if it ever happen, we will have to liquidate the position immediately, although at a loss.
Here is the STX trade done in May:
New Iron Condor with STX in ROTH IRA – TRADE OPEN
· Our dividend investing outlook
Many dividend investors I follow keep complaining about the stock market and selling their positions. Many use Robert Shiller’s CAPE metrics as an evidence of the overpriced stocks and predicting an imminent stock market crash.
It is sad to see so many people having it wrong and setting themselves to lose on the missed opportunity.
Many forget or refuse to believe that the US economy is growing and improving. Just follow the data and you will see it. Manufacturing index was better again than in the previous period of time.
Profits are accelerating as 479 S&P companies reported their aggregate year-over-year sales and profit growth of 8% and 14.9% respectively.
What is a great indicator of the US economy heating up (consumers are back and start spending money again)?
It is Technology (XLK) and Consumer Discretionary (XLY) indexes going up. And it is exactly what is happening today. Both sectors are leading the pack as S&P 500 is hitting all time highs.
Every sell off (blamed on Trump who whether you like him or not has nothing to do with it as we are still riding the Obama’s economic plan) was immediately bought back! Here is the most recent one:
Since Robert Shiller came up with his cyclically adjusted PE (CAPE) for the market all sorts of gurus started using this metric to predict the market.
For the last two to three years I have been hearing that the market is expensive and due to crash. I have seen dividend investors selling their stocks in expectation of a market crash because the “stocks were expensive”.
And today, Robert Schiller himself said that this bull market is not over at all and it may go up higher for the next 50% amid above average CAPE.
The lesson?
Do not predict the market, trade what you see and not what you think you see. Do not trade expectations, feelings, maybes, or your own predictions.
No chart, oscillator, metric, or a Nobel Prize winner has a predictive power. It may help you to set a trade up, find support or resistance, but after you enter a trade, it becomes invalid and everything can happen. So be ready to and know what you would do in that case and not what the market should do because of your oscillator said so.
As a dividend growth investor you invest for a long haul, not for a couple of years. As such, you can afford to be extremely aggressive.
You can afford to use an extreme leverage and start deleveraging as you are nearing to your retirement. If you invest for the next 20 or 30 years any market sell off will be an insignificant blip on the chart which you will not be able to spot on it anyway.
In the next 20, 25, or 30 years you will have a plenty of time to fix any errors or mistakes you make today, so don’t be afraid of the market volatility or even market’s sell offs when they happen and stay the course. Have a plan how you want to invest, into which stocks, and stick to the plan no matter what Mr. Market is throwing at you. And that beast will tempt you. It will tempt you a lot.
I recommend you a book Lifecycle Investing by Ayres and Nalebuff. It will open your eyes on leveraging your portfolio in early years when you are at the beginning of the journey. But do not get me wrong. By leveraging I do not advocate gambling! You must understand the strategy before you apply it or you would be doomed to ruing your portfolio instead of growing it.
What was your dividend income this month? Do you have a written investing plan? Or do you need help to create one?
We all want to hear your opinion on the article above:
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I am also placing a new Iron Condor trade in my ROTH IRA account using 
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