Blue Chip DRiP Portfolio: June Dividends And Covered Calls Update

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Photo Credit: Encyclopedia Britanica

The United States of a Mess

Happy 4th of July to all. Hope you sweep the spiders off your lawn chair and find a great spot to watch some beautiful fireworks. Thank you to everyone who messaged me… asking where I’ve been, why I haven’t penned a May update, or anything else in a while. I didn’t realize anybody actually read these articles!

I was getting burnt out from endless market and political noise, so I took a month off to relax with the family and hit the refresh button. So here we are, back at it with the June update, recession edition. We’re highly focused on defense at the moment: Primarily stacking cash and writing covered calls when appropriate. Dollar cost averaging here and there to stay engaged. Preparing for bubbles and rallies fueled by fumes to pop, once the inevitable realities of a longer term economic downturn set in. The “V-Shaped” recovery is fleeting nonsense. Don’t believe the hype.

The cold hard facts show that we are nowhere near a true recovery. We just jumped on this roller coaster and it hasn’t even left the station. I’ve got my lap bar ratcheted down against my thighs. The attendant in the funny costume just gave it a tug. It’s tight. I can hear the click-click clicking noise as the rickety coaster inches up the short-lived climb. But deep down, we all know what lies ahead, and the butterflies in the stomach are a testament. A white knuckles, heart-racing, full speed descent and all the jostling that comes with it. We’ll definitely be thrown for a loop or two. Are masks mandatory on this ride? Will amusement parks ever reopen? I digress.

Now, let’s dive into the June stats:

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

In June 2020, we pocketed $1,952.04 of dividend income. Compared YoY to June 2019, which saw $845.85 in dividends, that’s a whopping 131% increase YoY. March 2020 saw $1,955.05 of income. Then Covid-19 hit, and our portfolio was hit hard by dividend cuts and suspensions. Luckily, we haven’t felt too big of an impact so far, with a mere dividend income decrease of -0.15% QoQ. More cuts are surely on the way, and we’ll roll with the punches, but we’re hanging in there!

Dividend Income Received: June 2020

Ticker/Stock NameIncome
Ares Capital (ARCC)$109.98
Broadcom (AVGO)$109.94
Brookfield (BEP)$13.57
BP (BP)$101.30
Brookfield Property (BPYU)$130.92
Dominion (D)$85.17
Easterly Gov’t Prop (DEA)$39.76
Enbridge (ENB)$92.23
Corning (GLW)$42.90
International Paper (IP)$41.00
Johnson & Johnson (JNJ)$48.12
KeyCorp (KEY)$45.33
Kraft Heinz (KHC)$40.00
Gladstone Land (LAND)$10.06
LyondellBasell (LYB)$87.15
McDonald’s (MCD)$18.75
3M (MMM)$99.93
Newell Brands (NWL)$54.21
Pfizer (PFE)$41.80
iShares Preferred and Income Securities ETF (PFF)$21.81
Prudential (PRU)$85.80
Qualcomm (QCOM)$56.60
Royal Dutch Shell (RDS.B)$48.72
Southern Company (SO)$72.99
United Parcel Service (UPS)$76.94
Visa (V)$3.60
Valero (VLO)$91.14
Walgreens Boots (WBA)$38.89
Wells Fargo (WFC)$71.40
Exxon Mobil (XOM)$170.63
* = New position

Total: $1,952.04

Noteworthy Tidbits

Our highest payer for the month: Exxon Mobil with $170.63. Many of my larger payers are in Energy, Banking and REITs. Will they be able to sustain dividend payments going forward? I don’t know. Are they going out of business any time soon? Doubtful. I’m buckled up for the long haul, and ready for some more cuts next quarter.

June 2020: Dividend Increases Announced

None.

June 2020: Dividend Cuts/Suspensions Announced

Simon Property Group (SPG) announced a -38.1% decrease, which was actually better than the 50% cut I was expecting. Still, it drops my estimated annual dividend income by -$259.23. So far this year, our annual projected income has dropped -$984.13 due to cuts and suspensions.

Including the raises announced earlier in the year, we’re now looking at a net projected lost income of -$755.31 annually. It might not seem like much, but it will take an eye popping $18,900 of fresh capital invested in a stock earning 4% to make up for that decrease. I always talk about the magic and power of dividend growth, and the reality of the flip side is not as fun to discuss. But, it is what it is.

Stock Transactions: June 2020

As we continue to spend most of our time on the sidelines stacking cash, we are still reinvesting all dividends received, and dollar cost averaging on a much smaller scale. We made 15 small cash buys in June. Some of them were simply to reach 100 shares so I could initiate covered calls. Like many of you, I’m currently unemployed. Going on 9 months now. So I need to make sure we can pay the bills first and foremost.

Ticker/Name# of SharesShare PriceAmt. InvestedEst. Annual Income
Ares Capital (ARCC)35$15.00$525.00$56.00
Brookfield (BEP)10$47.03$470.30$21.70
Cardinal Health (CAH)10$51.55$515.50$19.50
KeyCorp (KEY)55$12.06$663.30$40.70
People’s United Financial (PBCT)100$11.30$1,130.00$71.00
iShares Preferred and Income Securities ETF (PFF)15$34.75$521.25$30.00
PPL Corp. (PPL)40$25.25$1,010.00$66.40
Prudential (PRU)10$59.76$597.60$44.00
Royal Dutch Shell (RDS.B)20$31.24$624.80$25.60
Southern Company (SO)10$52.88$528.80$24.80
AT&T (T)54$29.90$1,614.60$112.32
Valero (VLO)10$57.00$570.00$39.20
Walgreens Boots (WBA)15$41.26$618.90$27.45
Wells Fargo (WFC)85$26.08$2,216.80$173.40
Exxon Mobil (XOM)12$44.25$531.00$41.76
Total: $12,137.85Total: $793.83
* = New Position6.54% avg. yield

We had seven DRiP (dividends automatically reinvested) purchases in June:

Ticker/NameAmt. Reinvested# of SharesShare PriceEst. Annual Income
Dominion (D)$54.37.66$83.40$2.49
Johnson & Johnson (JNJ)$48.12..33$147.90$1.25
3M (MMM)$74.94.48$43.03$2.88
Qualcomm (QCOM)$56.60.64$88.12$1.67
Southern Company (SO)$65.951.13$58.84$2.80
United Parcel Service (UPS)$73.91.73$100.98$2.80
Exxon Mobil (XOM)$53.791.12$48.11$4.87
Total DRiP: $427.68

Total: $18.76

4.39% avg. yield

We had no sales in June.

June Transactions: Takeaway

  • Cash invested $12,137.85 + DRiP reinvested $427.68 = $12,565.53 total invested in June.
  • These investments add approximately $812.59 of annual passive dividend income.
  • Even with these additions, our estimated forward annual dividend income is down to $16,958.17 from $17,439.54 at the end of April when I last calculated it (due to dividend cuts/suspensions). That’s a -2.76% decrease on my projected annual income. So sad.
  • Moving forward, I can still expect to pocket an average of $46.46 of passive income each and every day without lifting a finger! That’s down from $47.78 from April. In my bachelor days, this might have been enough to live off of. But with two kids, a wife, and a dog, and living in a ski town and having a healthy addiction of traveling and mountain biking thousands of miles a year, I’ve still got a lion’s share of work to do to achieve 100% financial emancipation. But the groundwork has been laid, and I wouldn’t change a thing.

We continued making strategic additions to existing positions and deployed some dry powder throughout the month. We try to balance purchases between safe dividend stalwarts and some higher-yielding, riskier players. Building a reliable and ever-growing dividend income stream remains goal #1.

Diversification Checkup: Sector Allocations

Stock SectorCurrent % of PortfolioGoal % of Portfolio
Basic Materials3.37% (was 3.05%)5%
Communications6.13% (was 5.6%)5%
Consumer Cyclical4.52% (was 4.45%)5%
Consumer Defensive5.83% (was 5.52%)8%
Energy16.49% (was 17.36%)12%
Financial11.06% (was 11.02%)10%
Healthcare11.91% (was 13.07%)10%
Industrials10.58% (was 10.64%)10%
Real Estate/REIT9.95% (was 9.67%)12%
Technology10.50% (was 10.62%)10%
Utilities7.86% (was 7.35%)10%
Misc. (ETFs, Funds)1.74% (was 1.68%)3%
100%100%

As you can see in the chart, there was only one notable change from last month:

  • A nearly 1% increase in my Communications sector allocation. This is due to purchases of AT&T we made this month.

I’m not a “stickler” for exact allocations and won’t buy purely based on sector. I do, however, like having a guideline to make sure we stay the course.

Top 10 Holdings: Ranked by Position Size

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

Ticker/NameRankingPercentage of PortfolioAnn. Div. Income
AbbVie (ABBV)1 (was 1)4.60% (was 4.15%)$632.48
AT&T (T)2 (was 3)4.18% (was 3.51%)$822.68
3M (MMM)3 (was 2)3.74% (was 3.70%)$396.49
Broadcom (AVGO)4 (was 5)3.74% (was 3.30%)$433.81
Exxon Mobil (XOM)5 (was 6)3.26% (was 3.27%)$725.19
United Parcel Service (UPS)6 (was 8)2.99% (was 2.89%)$308.08
Energy Transfer (ET)7 (was 4)2.85% (was 3.43)$1,395.49
Qualcomm (QCOM)8 (was 10)2.78% (was 2.49%)$224.33
Cardinal Health (CAH)9 (NA)2.74% (NA)$292.50
General Dynamics (GD)10 (NA)2.56% (NA)$201.52
Johnson & Johnson (JNJ)7 (was 8)2.62% (was 2.54%)$179.82
Dominion (D)9 (NA)2.58% (NA)$337.84

As a rule of thumb, I 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 June

Cardinal Health and General Dynamics crept up into the #9 and #10 spots, just eking out Johnson & Johnson and Dominion. Other than that, everything was pretty much status quo. AbbVie has run up a bit, and I purchased more AT&T so they solidified the #1 and #2 spots.

Top 10 Holdings: Ranked by Income Generated

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

Ticker/NameRankingEstimated Annual Income% of Portfolio Income
Antero Midstream (AM)1 (was 2)$1,402.28.27% (was 7.33%)
Energy Transfer (ET)2 (was 1)$1,395.498.23% (was 8.00%)
AT&T (NYSE:T)3 (was 6)$822.684.85% (was 3.81%)
Exxon Mobil (NYSE:XOM)4 (was 4)$725.194.28% (was 3.86%)
AbbVie (ABBV)5 (was 6)$632.483.73% (was 3.62%)
Brookfield Property (BPYU)6 (was 8)$523.693.08% (was 3.00%)
Ares Capital (ARCC)7 (NA)$495.942.92% (NA)
Iron Mountain (NYSE:IRM)8 (was 9)$477.552.82% (was 2.74%)
Wells Fargo (WFC)9 (NA)$459.002.71% (NA)
Enbridge (ENB)10 (was 10)$457.252.69% (was 2.63%)

Simon Property got kicked off the list with their -38.1% cut, and Tanger Factory Outlet was sadly removed as well. I’m nervous, but mentally prepared for the upcoming months, as many of my top payers are on the chopping block, for sure. Financial names after the Fed stress tests, as well as Energy and REITs are all hanging on by a thread.

As with position size, I try not to let any single position generate over 5% of the portfolio’s total dividend income. Again, this rule is not hard and fast, but it helps keep me accountable. AM and ET are now responsible for over 8% each of our total dividend income. This is a bit scary because both are in extreme jeopardy of being cut themselves. Only time will tell.

Covered Call Premiums Received in June and YTD

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

In the month of June, I initiated 18 new covered call options and collected $658.90 in premiums.

Year to date, I’ve initiated 29 covered call options. So far, 15 have expired and 1 was called in. 13 are currently open, and YTD I’ve received $1,018.90 in premiums. When you factor this into my passive income, it’s more than made up for the dividend cuts and freezes announced so far in this recession.

The Whole Enchilada: The Blue Chip DRiP Portfolio As Of 6/30/20

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. Many of our holdings were still in the red during June, but many have surprisingly recovered for the time being. Again, I don’t think this will last for long, as I feel we’re in the middle of a bear-market rally. But most importantly, lots of green (no pun intended) came in from the dividend income stream.

The current balance of this account stands at $286,000. With approximately $328k invested, that’s an unrealized capital loss of around $42,000 or -12.8% not including dividend income received. That’s up from the -$55,000 or -16.77% we were down at the end of April. I’ve been mentally prepared to see paper losses over 50% since I became an investor. The markets will go up and down, and I’m prepared for much more down than we’ve just seen. I don’t intend on realizing any of these losses, nor was I cocky in January when high fives were flying with all-time highs. Here’s what I focus on: our passive income stream, which unfortunately took another hit this month:

  • 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 = down 2.76% since 4/30/20, but still up 10.58% 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 real money, that is being deposited to my account almost daily. This is where I concentrate my energy on the way to financial emancipation. A bear market, recession, or depression will not veer me off course.

The New Normal

Whatever your investing plan or strategy is, I 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 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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