Passive Income – Quarter 1, 2017

New Years arrived with a bang, with a significant uplift in my passive income portfolio on the 2nd week of 2017. This was no doubt, triggered by Mrs. Mays speech regarding a ‘hard Brexit’. This resulted in a crippled pound which is tied to a chunk of my overseas holdings…boom! The pound has since gone up and down like a yo-yo, but all is good.

passive income

Re my dividend investing, one of my New Year resolutions ideas is to stick to only Dividend Achievers, Aristocrats or Kings. And I’m a man of my word. I will say, I didn’t necessarily stick to the S&P 500. I snapped up some UK versions also.

It was also a bit of a spending flurry this quarter, catching a bunch of stock on discount. Because buying on discount is my number one priority for each and every dividend growth stock.

So, the dividend stocks to buy this quarter were:

Q1 Dividend Growth Stock Purchases

Medtronics

So, first spend was a global medical device company called, Medtronics (MDT). It was on a bit of downturn after poor Q3,2016 results. It failed to meet revenue expectations, hence the share price dropped.

Apart from this glitch (production hold-ups), their annual report looks promising. It’s already acquired Covidien, which frees up several Billions in cash. And they plan to sock that money into stock buybacks, R&D, more acquisitions and debt reduction.

Ok, their dividend yield is not huge (2.4%). But it’s an S&P 500 Dividend Aristocrat that’s been increasing dividend payouts for the last 39 years. Not to be sniffed at.

Qualcomm

I also purchased Qualcomm (QCOM) after their dispute with Apple. I was really excited about this one. I caught them on a downturn and bought with a considerable discount. It is quite a long winded and complicated affair.

The essence is, Qualcomm’s business model is fairly unique. As in, they have a lucrative royalties arrangement with Apple, on every phone. As well as any additional storage or peripherals. Qualcomm charge royalties based on a device’s total value, not just the value of the mobile chips inside the device. This licensing business model is now under scrutiny by the courts.

I think Qualcomm’s business is quite established and diverse enough to overcome this scenario. But we’ll see.

Royal Dutch Shell

After Qualcomm, I managed to secure Royal Dutch Shell (RDSB) on discount. I needed one more Oil and Gas stalwart in my portfolio and the metrics with Shell look promising.

Royal Dutch Shell, the oil company, has an even longer history of consistent dividend payments – it has grown its dividend every year since the end of the Second World War.

The fund, called the UK Dividend Aristocrats, contains only 30 shares. They qualify for inclusion if their dividends meet several criteria.

First, the dividend must have been increased or held steady for at least the past 10 years. Second, the yield cannot exceed 10pc, as a very high yield is often a sign that the market expects a dividend cut.

Third, the company must be profitable and not paying dividends from reserves or borrowings. Constituents must also have a market value of at least $1bn, currently equivalent to £625m. Once a list of companies meeting all these hurdles has been drawn up, the fund buys shares in the 30 with the highest dividend yields.”

Source: Telegraph

Vodafone

Next up was Vodafone (VOD). A UK Dividend achiever with 16 years CAD (consecutive annual dividend increases), bought on discount and a complimentary partner to AT&T (existing telecoms position in portfolio).

From a growth perspective, Vodafone has been in the doldrums for years now. But maybe that’s all about to change? One core reason behind this is currency, as a large chunk of its business is carried outside Europe.

On paper they look like underperformers, however, according to their annual reports operating performance is on an incline. Foreign exchange and Brexit make their financials appear skewed.

With an emerging presence in India, massive network in place, healthy dividend and lowly valuation…Vodafone looks a perfect fit for the dividend growth portfolio.

warren buffet quotes

Next Plc

Apparel didn’t really fit into my overall dividend plan. Other industries seemed to overshadow the textile/clothing industry. However, something caught my eye with Next plc (NXT)…and who could argue with these metrics?

Discount of 33%, P/E of 8.6, healthy enough balance sheet, pay out ratio of 34%, a CAD of 16 years and an enviable 8.1% dividend yield. That’s the holy grail of dividend growth investing…high yield, low payout ratio.

Don’t forget about the ‘special dividend’ which is forecasted to yield around 3.8 %. Which is not shown on the dividend yield above.

This is what Investomania say…“In order to provide greater certainty to its investors, Next has stated that it expects to pay quarterly special dividends of 45p per share for FY 2018. It expects to remain strongly cash generative, with surplus cash from operations of between £255 million and £345 million. Therefore, Next remains highly appealing as an income stock in my view, with it forecast to yield 3.8% from special dividends alone in FY 2018.

Is Next plc too good to be true with these price to earnings?

The only thing that worries me from these metrics is the price to earnings. A low P/E ratio does not necessarily mean that Next plc is undervalued.

With the textile industry having an average P/E of 27, it could mean the market believes Next plc is heading for trouble in the near future? Very low growth rates are in store…or maybe it’s just an attractive buying opportunity. Only time will tell.

Target

Target (TGT) has raised it’s dividends for an incredible 45 years in a row…wow. Of course, this is an other S&P 500 Dividend Aristocrat. How could I resist, especially buying with a 30% discount.

Retail in general is in the doldrums though. Hence the amount of basement bargains on offer. Ecommerce is one big reason why Target is in the kosh. It’s only starting to catch up digitally, with the likes of Amazon. It’s number two of the big retailers in the US of A. Walmart of course, being number one.

The downside of Target, is the fact they only have stores in the Unites States. Geographical diversification would be nice, however, their growth could be capped due to their limited presence in one country.

It has dipped it’s toe into the digital side of things, but ecommerce still represents a very small slice of their business.

Chevron

Another big O&G player and an S&P 500 Dividend Aristocrat in the making. 29 years of continuous dividend increases.

Couldn’t believe I caught Chevron (CVX) on the operating table. It has a very strong history of dividend growth and increasing annual payouts.

But that’s it, no more Oil and Gas in the portfolio. General rule is, you shouldn’t have more than 3 similar equities in your portfolio i.e. more than 3 in the same industry.

Brookfield Renewable Partners

I’m actually quite excited about , the last dividend growth stock to be purchased this quarter. I have to be honest here…I broke the rules. It’s neither an achiever or aristocrat. I’m taking a punt, as it’s only raised it’s dividend 4 years in row.

Why take the punt?

I’m excited because it’s in the renewable energy business (hence the name) and that market is only going to skyrocket (as fossil fuels teeter out in the future) . It owns, operates, and develops renewable power generation facilities. The bulk of it’s business is hydroelectric, as opposed to wind and sun. And hydroelectric is considered a little cleaner.

It’s economic moat appears to be the high barrier to entry, less reliance on subsidies (as opposed to wind and sun) and long-term contracts with clients.

It does carry some debt, however, it’s sustained a ‘BBB’ credit rating from Standard and Poor’s. More to the point, it has a very generous 6% distribution with potentially high dividend growth to come.

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I made a school boy error with Royal Dutch Shell (RDSA). This is the Dutch version, hence you have to pay more tax on their dividends. RDSB is the version you want. No panic. I’ll sell RDSA once it’s back in the black and make a tidy profit to boot.

Going forward, I want to make things more transparent. So, I’m using screenshots instead of tables.

I’ll only keep the dividends table, as the graphic on Hargreaves and Lansdowne (my broker) is a bit confusing.

Dividend Reinvestment

Savills (SVS) is back in the black. Savills ranked number 1 in my little dividend ranking system.

Hence, I reinvested all my accumulated dividends into my highest ranking stock I own the least, at the start of Q1, 2017.

Dividend Income for Q1 2017

DateTickerCompanyDividend (£)   
TOTAL424.48
31/03/2017BPBP Plc47.89
27/03/2017RDSBRoyal Dutch Shell Plc B42.12
27/03/2017RDSARoyal Dutch Shell Plc A36.46
24/03/2017QCOMQualcomm Inc19.45
23/03/2017SWKStanley Black & Decker Inc 12.82
17/03/2017FLOFlowers Foods Inc23.47
17/03/2017SSESSE Plc44.94
17/03/2017SUSS&U Plc28.84
14/03/2017UTXUnited Technologies Corp15.33
14/03/2017TGTTarget Corp19.29
07/03/2017BABoeing Co23.26
23/03/2017PFEPfizer Inc24.84
22/02/2017APUAmericas Partners Corp30.88
20/02/2017AAPLApple Inc12.44
03/02/2017TAT&T29.05
20/01/2017CAHCardinal Health13.40

Re the dividend funds, there’s an increase of 193.21gbp this quarter (compared to Q4, 2016). And 424.48gbp has accumulated in my broker account for this quarter.

Average Dividend Yield

From now on, I’m adding an overview table of all individual dividend yields (see table below), including the average yield. The average dividend yield is important, as you can estimate how much capital is required to reach your desired level of passive dividend income.

TickerCompany Dividend Yield (%)
AVERAGE DIV YIELD4.76
APUAmerigas Partners Corp8.34
AAPLApple Inc1.63
TAT&T Inc4.64
BABoeing Co3.16
BVSBovis Homes Group Plc5.23
BPBP Plc7.10
BEPBrookfield Renewable Energy Partners6.54
CAHCardinal Health2.18
CVXChevron Corporation3.94
DPWDeutsche Post3.21
FLOFlowers Foods Inc3.32
MDTMedtronic Plc2.09
NXTNext Plc10.10
PFEPfizer Inc3.74
QCOMQualcomm Inc3.88
RDSARoyal Dutch Shell Plc A9.00
RDSBRoyal Dutch Shell Plc B9.00
SUSS&U Plc3.58
SVSSavills Plc3.06
SSESSE Plc5.91
SWKStanley Black & Decker Inc1.79
TGTTarget Corp4.36
UTX United Technologies Corp2.35
VODVodafone Group Plc6.11

Dividend yields will, of course, vary slightly over time, as share prices go up and down. But it gives me a good guesstimate of how much capital I still need to contribute.

Dividend Funds Overview

The screen shot from my Hargreaves and Lansdowne (broker) account below shows the state of play after Q1,2017:

dividend funds

 

dividend funds

As you can see, there is 68,748.26gbp of capital in the dividend funds.
A profit of 8,182.19gbp/ +13.62% has been made so far.

Investment ISA

The investment ISA has surged this quarter. Up 19.75% from Q4 2017.

Its total gain is 53.76%/ 8291.67gbp.

investment isa

P2P Lending

Ratesetter

p2p lending

The Ratesetter account has increased 7.34gbp this quarter, to 14.23gbp
The ROI has increased 0.4% to 2.6%.

Mintos

p2p lending

 

The Mintos account has increased 25.68 Euros this quarter, to 1038.39 Euros.
The ROI has decreased 0.27% to 11.82%.

Twinos

p2p lending

 

The Twinos account has increased 66.47gbp this quarter, to 2574gbp.
The ROI has decreased 0.39% to 9.65%

The p2p lending accounts are moving in the right direction. However, Mintos and Twinos ROI has taken a hit, as it gets harder to take advantage of 12% plus loans…due to the size of investors piling in. I think if you’re making 10% plus in this day and age (with a buyback guarantee), you’re doing very well.

Just out of interest, I carried out a case study on Mintos. Hopefully it answers some of your questions on P2P lending. If not, feel free to comment.

Rental Income

Total rental income this quarter is 1680.04gbp. These are deposits for upcoming rentals in Spring, Summer and Autumn.

When the rental season finishes, I will deduct any letting agent fees, maintenance, repairs and bills from my total. And compare to last season.

SIPP

The SIPP (pension) has gone up 4.59%, to 29.18% this quarter.

Takeaway

An income stream is starting to develop with the dividend funds. Although, there’s a long way to go.

From next month, I’m confident with putting more money into the P2P lending accounts (Mintos and Twinos). I feel more comfortable after tweaking parameters during my Mintos case study.

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