January is over and it is time to report our achievements. We, in our company, decided that this blog would report our business trading revenue only and not my personal Dividend growth strategy. But then we received a few emails from our readers that they wished to see those dividend reports here on this blog as well as more dividend investing insights.

We listened and decided to keep and continue reporting and writing about dividend investing here. We would, however, split our report into two posts now on. One separate post, for dividend growth investing, and a second, separate post, for options trading reports.

Here is the first part – January 2017 dividend record.

I am happy to say that this month, our dividend income came in better than January last year.

Last year, we made $81.80 in dividends, this month, it was $87.13 dollars. I am glad to see that our dividend revenue came in higher than last year and hopefully this trend would continue in the following months. In 2015 and partially 2016 we saw a few companies in our portfolio slashing their dividends and two companies even stopped paying dividends entirely. This affected our portfolio and our dividend income. It seems the trend is reversing again and our dividends might be going up again.

Usually, when dividend companies cut their dividend, the dividend growth investors sell their positions in such companies. I didn’t do it and stayed invested. I had two reasons for this:

1) The companies which reduced their dividend were in oil business and my thinking was that oil glut will not last forever. I am invested in these stocks for long term. Sometimes in the future, they will be increasing the dividends again. I believed in those companies. And some are improving again.

2) The other stocks which cut the dividend entirely dropped in price so much that it made no sense selling them. For example Legacy Reserves LP (LGCY) stock dropped from ~$30 a share all the way down to 0.61 a share! It’s current price is $2.57 a share today. I invested in this stock at $12.40 a share and currently sitting on 86.94% loss.At some point I was losing the entire investment. So why selling. If the stock would go bankrupt, I wouldn’t lose any more money than I was already losing. Thus I decided to sit tight and do nothing. If the oil glut ends at some point and oil prices will go up again, this company may still be here and I may recover all money or even make money.

 · ROTH IRA investing/trading strategy

This is just a reminder of a strategy we use in our IRA account.

We primarily invest into high quality dividend growth stocks (exceptions are allowed, such as oil plays), reinvest dividends using DRIP and grow the dividends.

We also use options trading selling cash secured puts to buy the stock of our interest, collect dividends, sell covered calls, and sell the stock.

The options strategy is different than the one we use in our trading account. We do not roll the options to avoid assignment in the ROTH account as we do it in our trading account. So we sell a put and if the put ends in the money at expiration, we let it assign, buy 100 shares of the stock, keep the stock, collect dividends, and sell covered calls as long as we sell the stock again.

While holding the stock, we collect dividends. And because of the DRIP feature the dividends are reinvested. There fore at the beginning when we get assigned, we buy 100 shares. After the dividend is re-invested, we end up with, for example, 102.83 shares. When our covered calls are assigned and we sell 100 shares we still will have 2.83 shares carrying the dividend into the future and slowly growing.

You may ask why doing this and not keeping the stock? Well I want income from selling puts and calls while sitting on the stock would bring dividends only.

For this reason I have certain money in my ROTH account dedicated to be used for this purpose only – selling puts – getting into a stock – collect dividends – selling calls – getting out of a stock – selling puts – getting into a stock… and so on and on.

 · ROTH IRA dividend income

As I mentioned above my dividend income was better than last year. I made $87.13 in dividends and all dividends were reinvested back to the companies which generated them.

 
Here are some numbers:
 
Dividend Income = $87.13 (account value = $21,476.80 +3.37%)
The account is up 3.37% from previous month.

 
Monthly dividend Income:

This month, we didn’t purchase any dividend stock to our portfolio except dividend reinvestment and options triple play strategy, see below.

The goal for upcoming month is to save cash for dividend plays withing the account. We want to create enough revenue inside the account which can be re-invested into dividend stocks.

 
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. $2,767.42 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 $118.00 dollars income from options 4.26% return on invested capital.

This month, we traded options using stocks Ensco plc (ESV) and Energy Transfer Equity, L.P. (ETE).

For ETE stock we used a triple play – dividend capture strategy we described in this post. Currently, we purchased the stock to capture the dividend. The dividend ex-day will be in February 3. As soon as we purchased the stock via cash secured puts, we sold a new covered call. If the stock stays below our covered call strike ($19.00) then we should capture the dividend (if the stock stays above the strike we may get an early assignment, although I do not expect it since we trade long term contracts).

With all collected premiums our cost basis is $17.47 per share. We got assigned at $19.00 a share, expecting 0.28 a share dividend and hopefully sell the stock at $19.00 a share. This would leave us with a nice $153 cash or 9.53% profit or 83.98% annualized return.

The play is still under progress so I will be able to report it next month.

 · Our dividend investing outlook

Recently, I have seen many dividend investors I follow selling their dividend stocks in expectation of the market imminent crash. They are afraid that valuations of the stocks are too high and not justified. But because the stock market is expensive doesn’t mean that it cannot become even more expensive. Currently, the stock market is trading at 21 P/E and historically, it is not any overly high number. We still may see the market going higher.

And as Keith McCullough, the CEO of Hedgeye.com, who was a bear for the last few years, says that “Investors who are positioned for a correction are positioned for a failure”. We must not forget that the US economy is indeed picking up and strengthening. The growth will be at some point catching up with the market. But not only that, it will push it higher.

We also have a few seasonal historical trends such as Dow hitting and moving above 20,000 mark. While many are scared of this event and see it as an Omen for the market, historically, Dow actually went up higher whenever it crossed its “thousands” level (also other markets will follow although it is said that S&P 500 will lag the Dow).

My expectations are a further gains of S&P 500. But even if the market fails to make new highs and corrects I will consider it a great opportunity. However, I strongly refuse predicting the market and liquidate my positions just because I may think that the market is expensive and may crash. It took me about 5 years when I finally realized what I wanted from my investments and build them to the level I have them now. Liquidating it now would be destroying all I have built so far.

For example, when I invested in JNJ for the first time ever, my yield was 2.50%. Today, after patiently sitting on my investment and reinvesting the dividends, my yield on cost is 5.28%. If I sell it all today, I will be starting again with 2.50% from scratch.

When I was learning about dividend growth stocks and dividend growth investing, one of the rules I learned was that you stay invested even if the market crashes because you will be reinvesting the dividends into a cheap stock. And stocks like JNJ actually raised dividends during 2008 selloff.

Here is a 20 year chart of JNJ. I left the price axis and time axis out of the chart. Can you guess which of the selling dip is the Great depression selling?

And now, imagine that we are invested in this portfolio for the next 20 years. That’s exactly the same time frame as in the chart. If the next 20 years would look similar, there is no reason to freak out about today’s prices you may consider too high.

Did you guess which sell off on the chart was 2008? Well, check it out here whether you were correct or not. And now tell me, why should you be selling when you are in for this time horizon?

Let me know what you think!