Dividend Harvesting Portfolio Week 98 Update: $759 Projected Dividends

CPI came in at 6.5% and is declining quicker than it rose. While the markets are still well below their highs, they are responding well and starting 2023 off in positive territory. The Dividend Harvesting Portfolio has had two consecutive strong weeks as it went from being down -$381.38 in week 96 to being down -$69.54 in week 97 and then finished week 98 up $180.07 or 1.84% on invested capital. I cannot stress this enough, I am thrilled with how the Dividend Harvesting Portfolio has held up, as it only spent 3 weeks with double-digit losses on a percentage basis based on invested capital. Algonquin Power & Utilities Corp (AQN) delivered some unwanted news, and after having a horrible year, management cut the dividend by 40% to strengthen its financial and strategic position. The day before this news was announced, I dollar cost averaged into this position; talk about horrible timing. This is actually a great investment lesson and why I built the Dividend Harvesting Portfolio the way I did. I have 80 positions in the Dividend Harvesting Portfolio, and I have a rule that no single position can exceed 5% of the portfolio. I had 3 shares of AQN, and after I added 2 additional shares to decrease my cost basis, it still only represents 0.34% of the overall portfolio. Through extreme diversification and a set of investment rules, the Dividend Harvesting Portfolio continues to mitigate downside risk. I am not selling AQN as it will still have a 6.52% yield, and I want to see how they utilize the freed-up capital to strengthen the company. I will probably add some shares into the weakness to reduce my cost basis further.

At the end of week 98, the Dividend Harvesting Portfolio finished with an account value of $9,980.07 and is back in the black by 1.84% or $180.07. In the 2^nd week of 2023, the Dividend Harvesting Portfolio generated $37.75 of income from 21 individual dividends. In week 98, I went yield hunting and added to my positions in the JPMorgan Equity Premium Income ETF (JEPI), PIMCO Dynamic Income Fund (PDI), and PIMCO Corporate & Income Opportunity Fund (PTY). With the remaining capital, I dollar cost averaged into AQN by adding 2 additional shares, bringing my share count to 5. After reinvesting the 21 dividends and making my weekly investments, the projected annual income increased by $13.36 or 1.79%. After just 2 weeks, I have generated 9.26% of the income I generated in 2022, and I have collected 5.63% of the dividends that were generated. I strongly suspect that the Dividend Harvesting Portfolio will generate around $1,000 of dividend income in 2023. The snowball effect is starting to pay off as I am seeing effects each week on my projected annual income after reinvesting the dividends. I am excited to see how this portfolio progresses throughout 2023 and beyond.

I allocate capital toward big tech, funds, dividends, and growth outside of my retirement accounts. These are not my only investments, but I did open a separate account, so I could easily track and document this series. I intentionally created broad diversification throughout the Dividend Harvesting portfolio so I could benefit from sector rotations and mitigate my downside risk. Investors who are too exposed to growth companies or large-cap tech have gotten crushed as the investment landscape changes. On the growth and tech side of my investments, I am feeling the pain as some of my favorite companies, including Alphabet (GOOGL, GOOG), Amazon (AMZN), and Meta Platforms (META), have been taken to the woodshed.

I am going to address a question that continues to surface. I am not trying to beat the market with this portfolio. I love index funds and am invested in several index funds. I love dividend investing due to the stream of cash flow it generates. I don’t want 100% of my assets outside of real estate tied to an S&P index fund. I have created a personal investment strategy that works to achieve my investment goals, and having a stream of income generated from dividends is part of my investment strategy. Low-cost index funds are one of the best investments anyone can make in my opinion, and the Dividend Harvesting portfolio is not meant to be a substitute for an index fund. I have read many questions about dividend investing and wanted to start a portfolio from the ground up and document its progress to disprove many misconceptions, including that you need a large amount of seed capital to make dividend investing work for you.

This series has never been about hitting a target yield, generating a certain amount of profit, or beating the market. I had two specific goals with this series. The first was to create a blueprint for constructing a dividend portfolio by documenting the journey starting from the beginning. The second goal was to illustrate how allocating capital each week toward investing, regardless of the amount, would be beneficial in the long run.

Too many people are under the illusion that you need tens of thousands or even hundreds of thousands to benefit from investing. Instead of using my real dividend portfolio as an example, I decided to start a new account, fund it with $100, and add $100 weekly, providing a step-by-step guide to dividend investing. This methodology doesn’t have to be used for dividend investing, and it could be as simple as an S&P index fund or a Total Market fund. Hopefully, this series is inspiring people to invest in their future to attain financial freedom.

A Historical Recap of the Dividend Harvesting Portfolio’s Investment Principles and Historical Performance

Investment Objectives

• Income generation
• Downside mitigation through diversification
• Capital appreciation

Below are the fundamental rules I have put in place for this Portfolio:

• Allocate $100 weekly to this Portfolio
• Only invest in dividend-producing investments
• No position can exceed 5% of the Portfolio
• No sector can exceed 20% of the Portfolio
• All dividends & distributions are to be reinvested

Below is a chart that extends from week 1 through the current week to illustrate the Dividend Harvesting Portfolio’s Progression

• Blue line is my initial investment $100 in week 1, $1,000 in week 10, etc.
• Red line is the account value at the end of each week
• Yellow line is the annual dividend income the Dividend Harvesting Portfolio was projected to generate after that week’s investments and dividends reinvested

The Dividend Harvesting Portfolio Dividend Section

Here is how much dividend income is generated per investment basket:

• Equities $224.63 (29.60%)
• ETFs $194.45 (25.62%)
• CEFs $146.48 (19.30%)
• REITs $143.18 (18.87%)
• BDCs $48.48 (6.39%)

Collecting dividends can serve many functions in a portfolio. Some investors utilize dividends to supplement their income and live off. I am building a dividend portfolio for myself 30 years into the future. In 2022, I collected $490.76 in dividend income from 533 dividends. This has allowed the Dividend Harvesting portfolio to stay in the black while growing the snowball effect. In week 2 of 2023, I collected $37.75 in dividends, and in 2023 I generated $45.44 in dividend income. YTD I have generated 9.26% of my 2022 dividend income from 30 dividends which is 5.63% of the dividends generated throughout 2022.

These dividends allow me to gain additional equity in my investments while increasing my future cash flow in down markets. This style of investing isn’t for everyone, but if you’re looking to generate consistent cash flow while mitigating downside risk, this method has worked for me. I am hoping to collect around $1,000 in dividends in 2023, which will be reinvested.

In December, I generated $63.44 in dividend income, a YoY increase of 124.49% or $35.18. It’s going to be interesting to see how this chart progresses throughout 2023 and what the YoY growth rates will be.

I haven’t added new positions since week 90, and the Dividend Harvesting Portfolio has 604 individual dividends flowing through its portfolio on a weekly basis.

The goal of generating enough income from the dividends to purchase an additional share per year has been the never-ending project of this portfolio. There are now 17 total positions generating at least 100% of their share value in dividends within the Dividend Harvesting portfolio.

The Dividend Harvesting Portfolio Composition

Many of the readers have asked if I could break down the individual positions within these sectors. I created pie charts for each individual sector and have illustrated how much each position represents of that sector of the Dividend Harvesting portfolio. Since I only have 1 position in Food & Staple Retailing and Industrials, I did not make a chart for those. 3M (MMM) and Walgreens Boots Alliance (WBA) represent 100% of those sectors. The charts will follow the normal portfolio total I have constructed. Please keep the ideas coming, as I am happy to add as much detail to this series as I can.

In week 98, ETFs remained the largest section of the Dividend Harvesting Portfolio’s composition. Individual equities make up 43.76% of the portfolio and generate 29.60% of the dividend income, while exchange-traded funds (“ETFs”), closed-end funds (“CEFs”), real estate investment trusts (“REITs”), business development companies (“BDCs”), and exchange-traded notes (“ETNs”) represent 56.24% of the portfolio and generate 70.40% of the dividend income.

I have a 20% maximum sector weight, so when a singular sector gets close to that level, I make sure capital is allocated away from that area to balance things out. In 2022, I will make an effort to even out these portfolio percentages. As more capital is deployed, the bottom half of the portfolio weighting will increase.

Industry	Investment	Portfolio Total	% of Portfolio
ETFs	$1,838.07	$9,980.07	18.42%
REIT	$1,797.50	$9,980.07	18.01%
Closed End Funds	$1,442.22	$9,980.07	14.45%
Oil, Gas & Consumable Fuels	$957.49	$9,980.07	9.59%
Communication Services	$668.19	$9,980.07	6.70%
Technology	$674.42	$9,980.07	6.76%
Financials	$612.17	$9,980.07	6.13%
Consumer Staples	$585.01	$9,980.07	5.86%
BDC	$533.41	$9,980.07	5.34%
Utility	$285.97	$9,980.07	2.87%
Pharmaceuticals	$234.20	$9,980.07	2.35%
Industrials	$135.34	$9,980.07	1.36%
Food & Staple Retailing	$112.14	$9,980.07	1.12%
Independent Power & Renewable Electricity Producers	$102.39	$9,980.07	1.03%
Cash	$1.55	$9,980.07	0.05%

Click to enlarge

In week 98, Verizon (VZ) remained my largest holding and crept past 4.5% of the portfolio. I am keeping a close eye on VZ as I want to add an additional share, but it’s too close to the 5% level.

Week 98 Additions

In week 98, I added to the following positions:

• JPMorgan Equity Premium Income ETF (JEPI)
• PIMCO Dynamic Income Fund (PDI)
• PIMCO Corporate & Income Opportunity Fund (PTY)
• Algonquin Power & Utilities Corp (AQN)

JPMorgan Equity Premium Income ETF

• I added another share of JEPI in week 98, and I believe I have added 3 shares over the past 2 months of JEPI. I am a big fan of JEPI as it yields 11.42% and is positioned to do well when the markets turn. Unlike covered-call ETFs, JEPI allocates 20% of its fund to ELNs to generate additional income and invests the other 80% in traditional equities. I plan on adding more JEPI in the future.

PIMCO Dynamic Income Fund

• I just wrote a dedicated article on PDI (can be read here), and I am becoming more and more of a fan of this closed-end fund from PIMCO. PDI has generated 145% of its initial share price in income since inception, and when the dividends are netted from share declines, there is a 10.89% annualized return. I am continuing to build a position in PDI as it hasn’t missed a month of generating income and has produced $26.55 in dividend distributions, $8.28 in special cash dividends, $0.90 in long-term capital gain distributions, and $0.46 in short-term capital gain distributions since its inception.

PIMCO Corporate & Income Opportunity Fund

• I was down a bit on PTY and, after doing some research, decided to dollar cost average into the position again. PTY has a strong income track record that spans almost 2 decades and has produced $32.89 in dividends, $1.10 in special cash dividends, $3.11 of long-term capital gains, and $0.84 in short-term capital gains to its shareholders for a total of $37.94 of income since inception.

Algonquin Power & Utilities

• Well, I lowered my cost basis prior to the dividend reduction. I am not selling my position, as AQN represents 0.34% of the overall portfolio. I want to see what management does and if they stand by their word about improving the financial metrics. AQN still has a generous dividend yield after the reduction, so it’s not that big of a setback.

Week 99 Gameplan

I think I am going to add a share to New York Community Bank (NYCB) since it dropped off my list of generating a share per year from dividends due to a share price increase. I am also looking at Tekla World Healthcare Fund (THW), so it can generate 1 share per year annually from its dividends. Outside of these, I may add to Intel Corporation (INTC) prior to earnings.

Conclusion

The Dividend Harvesting Portfolio is back in the black, generating $758.88 in projected annual income, a portfolio yield of 7.6% across 79 income-producing positions. Week 100 is around the corner, and I will be adding new positions or to current positions that the readers suggest. Please leave your best income ideas in the comment section, and they may end up in the Dividend Harvesting Portfolio. 2023 has started out well, and regardless if this is a head fake or not, the Dividend Harvesting Portfolio is ready for anything the market will throw at it.