mouu007
Another month, another step towards financial freedom.
And this was a pretty significant step, indeed.
June 2023 was my best month ever in terms of passive income.
My dividends were up by 51.97% on a year-over-year basis.
Nick’s Data
This pushed my year-to-date dividend growth up to 34.55% (compared to the first 6 months of 2022).
And most importantly to me – in terms of the journey towards financial freedom…this was the first month that my passive income stream was large enough to cover my mortgage and my car payment combined.
Granted, I continued to reinvest the funds because I’m not quite to the distribution phase of my dividend growth journey yet and I’m still focused on accelerating the compounding process; however, it feels good to know that in a pinch, my passive income could pay my largest bills if I needed it to.
Looking back at my historic dividend performance, my June 2023 result was more than twice the size of any month’s worth of dividends that I received in 2020.
June of 2023’s dividends were roughly 3x the size of my best dividend month from 2018.
I first started tracking my monthly dividends back in January of 2014…and June of 2023’s total was approximately 16x the size of that first month’s total.
That’s how compounding works.
That’s what sleeping well at night with blue chip dividend payers is all about.
Nick’s Data
I’m Absolutely Loving Higher Interest Rates
As I’ve highlighted throughout 2023, this significant y/y dividend growth is largely due to the rapid rise in interest rates that we’ve witnessed over the last 12-18 months and the fact that my cash position is now yielding nearly 5% (up drastically from the 0.04% that I was previously receiving from my checking account).
And, as I discussed in my last article, now that the broad market averages are making their ways back towards all-time highs – meaning that it’s time for me to start rebuilding my bear market buckets so that I can take advantage of the next sell-off just like I did the prior one – I’m so thankful for these higher rates because it makes stashing cash much easier.
For someone like me who prioritizes passive income when thinking about asset allocation, it was extremely difficult to stay disciplined and keep dry powder on the sidelines.
The last time that I found myself building up a sizable cash position (2019) it was a bummer to set it aside because I wasn’t able to generate meaningful yields.
But now it’s quite easy for me to hoard cash since Fidelity’s SPAXX money market fund offers extremely low risk, solid liquidity, and a ~4.75% yield (which will probably be headed higher in the coming months if the Fed raises rates again like they’re currently expected to).
This money market fund is where I’m holding most of my cash at the moment because I prefer its non-existent volatility to short-term bond funds.
I do own shares of the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) and the WisdomTree Floating Rate Treasury Fund ETF (USFR) to juice that cash equivalent yield a bit (both of these funds have SEC yields greater than 5.2% as I write this), but those require a closer watch due to interest rate sensitivity and at this point in time, I’m content to leave a bit of yield on the table so that I don’t feel super stressed to focus too much of my attention on the bond market.
Moving forward, I suspect that SPAXX will continue to dominate my cash equivalent allocation because frankly, after a decade of zero interest rate policy, I couldn’t be happier to generate 4.75% with my cash.
June Selective Reinvestment
I love the dividend growth investing strategy so much because of the reliable triple threat compounding that plays out over time.
Every time that I buy shares of dividend growth companies with new savings, I’m increasing my share counts, and therefore, my dividend payments, every quarter.
Because my focus is on dividend safety and dividend growth prospects, I can also expect to receive reliable (and even predictable) annual raises from these companies.
And finally, every quarter when these payments are made, I can accelerate the compounding process by reinvesting the money into new shares of DGI stocks.
Overall, my organic dividend growth target (annual raises + reinvestment) is 10-12% (currently my portfolio’s yield is ~2.2% so I’m essentially looking at 8-10% dividend growth + my reinvested yield).
Assuming that I’m able to hit that ~10% mark on an annual basis, my passive income stream will double every 7 years or so.
That means it will quadruple if 15 year’s worth of time.
And that’s my relatively conservative baseline which doesn’t involve additional capital investments and/or the mid-single digit yields that my cash is throwing off these days.
With that in mind, the first trading day of the month is always one of my favorite days because it’s when I make my selective reinvestments, which in my mind, is like throwing fuel on the compounding fire that I’m constantly cultivating.
Of course, it was a great day on 6/1/2023 because I was able to put my May dividends to work, adding to 6 of my portfolio positions.
I bought shares of:
- Rexford Industrial Realty (REXR) at $53.24 (this is a beaten down blue chip REIT in the industrial space that offers a very concentrated exposure to warehouse properties surrounding the port of Los Angeles).
- Diageo (DEO) at $169.12 (I’ve added to DEO several times here in the $170 area lately; to me, this is a defensive SWAN – sleep well at night – type of stock that I’m happy to buy at fair value).
- S&P Global (SPGI) at $365.97 (this is one of the widest moat companies in the entire world that I’ve been happy to slowly, but surely build up using these monthly reinvestments; the yield here is low but I believe that SPGI will be a top-tier dividend grower over the coming decade or so).
- CME Group (CME) at $179.11 (CME is trading at a significant discount to its historical average and it was up against long-term support here in the $180 level so I couldn’t have been happier to add to my position here; remember, CME’s yield looks deceptively low because the company has a habit of paying special dividends).
- Zoetis (ZTS) at $162.74 (Zoetis is the global leader in animal health from a bio-pharma perspective with a stellar divid; I recently initiated this position and now I’m looking to fill out the position and average down my cost basis any time that I have a chance when the first trading day of the month rolls around).
- Palantir (PLTR) at $14.71 (this is my monthly “lottery ticket”; a compelling, yet speculative, high growth pick that I’ve been buying on a monthly basis since late 2021.
Looking ahead, I can’t wait to receive the dividends that these new shares will generate and reinvest them in the future.
June Trades
Outside of my monthly reinvestments, I made 7 trades – all buys.
On 6/2/2023, I made two trades, both in the healthcare sector.
I initiated a position in Agilent Technologies (A) at $116.53 to go alongside the Danaher (DHR) and Thermo Fisher stakes that I’ve been building in recent months.
A is another solid dividend growth name that dipped below my $120.00 fair value estimate recently.
When that happened I was happy to buy shares; looking at A’s fundamental growth outlook I believe that these are shares that can compound at a 10-15% annual clip over the next 5 years or so from a total return perspective.
FAST Graphs
Yes, growth here is slowing a bit (which is consistent with industry performance in the post-pandemic era); however, A shares haven’t dipped below the current support range since 2015 and this leads me to believe that downside is fairly limited from here.
The yield here isn’t high (like DHR and TMO, A’s dividend yield is less than 1%); however, I believe that A’s EPS growth prospects imply double digit dividend growth moving forward from here and therefore, I’m happy to stash these shares away as a long-term holding.
To bolster my yield here a bit by adding to my Pfizer (PFE) position at $38.27.
This purchase meant that I have now re-bought all of the PFE shares that I sold last year at $51.91. My PFE cost basis is now $38.25. My goal is never to be a market timer, but this trade worked out nicely. After selling in the $52 area I was able to buy back those shares at a ~26% discount.
On 6/14/2023 I added to my UnitedHealth Group position at $455.25.
As I said earlier in the year, I think fair value here in the $485/share area and therefore, I was very happy to average down into this blue chip position in the $455 area.
FAST Graphs
Shares of UNH recently dipped down to their trailing 10-year average P/E multiple…and this, combined with UNH’s future double digit EPS growth prospects lead me to believe that shares are likely to compound at a 12-15% rate from here (conservatively).
UNH remains near the top of my watch list because of its reliable fundamental and dividend growth. Don’t be surprised to see me continue to add to this position in future monthly updates so long as shares continue to trade at a discount to my FV estimate.
On 6/28/2023 I made 2 more trades, adding to my Thermo Fisher and Rexford positions.
I bought TMO at $508.38 and REXR at $51.10.
I think there’s a strong argument to be made that both TMO and REXR are best-in-breed companies (names like Danaher or Prologis are right there as well, but fundamentally speaking, it doesn’t get much better than TMO/REXR in their perspective industries) and therefore, whenever stocks like this trade at discount to my fair value estimates, it’s an easy decision to buy shares.
I believe that REXR is worth about $55/share and that TMO is worth about $550/share and therefore, both stocks were near that -10% threshold at these recent purchase prices.
On 6/30/2023 I made my final 2 trades of June, adding to my REXR and CME positions at $52.13 and $185.97, respectively.
I mentioned this before, but as you can see below, CME appears to be trading up against a long-term support range here in the $185 area.
FAST Graphs
Looking at the pink line on the chart above you’ll notice that this 21.5x P/E range has served as a firm floor for shares throughout the past decade.
Does that mean that CME won’t fall through this level moving forward?
Of course not.
But, it does show that the market has a tendency to buy CME when it dips this low and with fundamental growth prospects remaining in place moving forward, I believe it’s more likely than not that this trend holds true.
I love it when I see limited downside due to strong fundamental support, growing fundamentals, and a rising dividend…well, the decision to buy shares is an easy one.
Nicholas Ward’s Dividend Growth Portfolio
|
Core Dividend Growth |
55.33% | ||
| Company name | Ticker | Cost basis | Portfolio Weighting |
| Apple | (AAPL) | $22.79 | 9.53% |
| Microsoft | (MSFT) | $72.84 | 4.40% |
| Broadcom | (AVGO) | $234.30 | 4.03% |
| BlackRock | (BLK) | $462.83 | 2.14% |
| Starbucks | (SBUX) | $48.10 | 1.72% |
| Qualcomm | (QCOM) | $76.44 | 1.71% |
| Lowe’s | (LOW) | $148.99 | 1.56% |
| Comcast | (CMCSA) | $38.54 | 1.48% |
| Johnson and Johnson | (JNJ) | $114.02 | 1.46% |
| Cummins | (CMI) | $217.77 | 1.41% |
| Merck | (MRK) | $73.71 | 1.24% |
| Raytheon Technologies | (RTX) | $80.22 | 1.22% |
| PepsiCo | (PEP) | $97.58 | 1.18% |
| Lockheed Martin | (LMT) | $354.14 | 1.17% |
| Parker-Hannifin | (PH) | $255.96 | 1.00% |
| Brookfield Infrastructure | (BIPC) | $31.06 | 0.99% |
| Deere & Co. | (DE) | $347.85 | 0.99% |
| Bristol Myers Squibb | (BMY) | $49.47 | 0.97% |
| Texas Instruments | (TXN) | $106.72 | 0.96% |
| Broadridge Financial Services | (BR) | $148.90 | 0.95% |
| Honeywell | (HON) | $126.18 | 0.92% |
| Cisco | (CSCO) | $23.80 | 0.89% |
| Coca-Cola | (KO) | $40.25 | 0.83% |
| Essex Property Trust | (ESS) | $223.54 | 0.81% |
| Brookfield Renewables | (BEPC) | $33.49 | 0.80% |
| Illinois Tool Works | (ITW) | $130.90 | 0.77% |
| Amgen | (AMGN) | $136.07 | 0.74% |
| Air Products and Chemicals | (APD) | $234.91 | 0.71% |
| Ecolab Inc. | (ECL) | $143.58 | 0.69% |
| L3Harris Technologies | (LHX) | $192.50 | 0.66% |
| AvalonBay Communities | (AVB) | $163.23 | 0.61% |
| Brookfield Corporation | (BN) | $29.89 | 0.58% |
| Diageo | (DEO) | $133.15 | 0.57% |
| Canadian National Railway | (CNI) | $115.92 | 0.53% |
| Linde | (LIN) | $350.18 | 0.51% |
| Camden Property Trust | (CPT) | $114.29 | 0.51% |
| Northrop Grumman | (NOC) | $385.78 | 0.48% |
| Rexford Industrial Realty | (REXR) | $52.11 | 0.45% |
| Prologis | (PLD) | $118.30 | 0.42% |
| Sherwin Williams | (SHW) | $219.30 | 0.39% |
| Hershey | (HSY) | $213.40 | 0.35% |
| Digital Realty | (DLR) | $49.87 | 0.31% |
| Republic Services | (RSG) | $123.71 | 0.30% |
| Alexandria Real Estate | (ARE) | $130.96 | 0.29% |
| Hormel | (HRL) | $42.99 | 0.26% |
| Medtronic | (MDT) | $76.02 | 0.24% |
| Carlisle Companies | (CSL) | $228.31 | 0.22% |
| McCormick | (MKC) | $35.71 | 0.21% |
| Mid-America Apartments | (MAA) | $163.02 | 0.17% |
| Automatic Data Processing | (ADP) | $223.33 | <0.10% |
| McDonalds | (MCD) | $232.10 | <0.10% |
| Waste Management | (WM) | $161.37 | <0.10% |
| High Yield | 10.51% | ||
| Realty Income | (O) | $62.34 | 1.82% |
| British American Tobacco | (BTI) | $37.50 | 1.09% |
| W.P. Carey | (WPC) | $65.23 | 1.05% |
| Agree Realty | (ADC) | $65.85 | 0.97% |
| AbbVie | (ABBV) | $79.08 | 0.95% |
| Enbridge | (ENB) | $39.33 | 0.94% |
| Toronto Dominion Bank | (TD) | $65.06 | 0.61% |
| Altria | (MO) | $44.30 | 0.59% |
| Crown Castle | (CCI) | $140.53 | 0.51% |
| National Retail Properties | (NNN) | $36.99 | 0.51% |
| Federal Realty Investment Trust | (FRT) | $114.86 | 0.50% |
| Pfizer | (PFE) | $38.25 | 0.48% |
| Royal Bank of Canada | (RY) | $100.18 | 0.29% |
| Verizon | (VZ) | $45.20 | 0.20% |
|
High Dividend Growth |
12.90% | ||
| Visa | (V) | $99.46 | 2.52% |
| Nike | (NKE) | $62.68 | 1.22% |
| UnitedHealth Group | (UNH) | $484.60 | 1.00% |
| MasterCard | (MA) | $90.44 | 0.97% |
| Accenture | (ACN) | $270.99 | 0.96% |
| Home Depot | (HD) | $250.58 | 0.87% |
| Thermo Fisher | (TMO) | $541.81 | 0.83% |
| Danaher | (DHR) | $240.13 | 0.80% |
| Intercontinental Exchange | (ICE) | $97.23 | 0.61% |
| S&P 500 Global | (SPGI) | $338.61 | 0.60% |
| ASML Holding | (ASML) | $643.47 | 0.53% |
| Zoetis | (ZTS) | 176.61 | 0.45% |
| Booz Allen Hamilton | (BAH) | $75.49 | 0.39% |
| MSCI | (MSCI) | 469.41 | 0.37% |
| Constellation Brands | (STZ) | $172.19 | 0.32% |
| Carrier | (CARR) | $32.67 | 0.25% |
| Agilent Technology | (A) | $117.41 | 0.21% |
| Non-Dividend | 6.60% | ||
| Alphabet | (GOOGL) | $44.34 | 4.14% |
| Amazon | (AMZN) | $88.17 | 1.95% |
| Chipotle | (CMG) | $1,298.41 | 0.22% |
| Salesforce | (CRM) | $233.58 | 0.19% |
| Palantir | (PLTR) | $10.79 | 0.10% |
|
Special Circumstance |
7.80% | ||
| NVIDIA | (NVDA) | $37.19 | 2.96% |
| Walt Disney | (DIS) | $91.92 | 1.33% |
| Blackstone | (BX) | $95.86 | 1.03% |
| Owl Rock Capital | OBDC) | $13.64 | 0.86% |
| CME Group | (CME) | $183.73 | 0.40% |
| Main Street Capital | (MAIN) | $39.25 | 0.39% |
| AgCo | (AGCO) | $114.38 | 0.30% |
| Ares Capital Corp. | (ARCC) | $17.16 | 0.28% |
| Brookfield Asset Management | (BAM) | $23.67 | 0.14% |
| Otis | (OTIS) | $58.65 | 0.11% |
|
Cash Equivalents |
6.81% | ||
| Fidelity Treasury Money Market Fund | (SPAXX) | $1.00 | 4.61% |
| WisdomTree Floating Rate Treasury Fund ETF | (USFR) | $50.40 | 1.47% |
| SPDR Bloomberg 1-3 Months T-Bill ETF | (BIL) | $91.63 | 0.73% |
| Cash | 0.05% | ||
| Most | Recent | Update: | 06/12 |
Conclusion
Overall, I couldn’t be happier to be a dividend growth investor.
Sure, I might pay a bit more in taxes than someone who is buying and holding non-dividend paying stocks.
And sure, I suppose that it’s possible that if these companies didn’t line my pockets with dividends every quarter and reinvested that money into their business there’s a chance that they could grow faster.
But, at the end of the day, it doesn’t get any better than knowing that I’m making money while I sleep.
I rest easy knowing that what was once a fairly small (but steady) drip of dividend dollars has evolved into a faucet stream today.
It won’t be long before that faucet turns into a full-on waterfall and I don’t have to do anything to achieve this experience except have the patience and discipline to own shares of the very best companies in the world.
To some I know this all sounds like hyperbole, but I can assure you, the joy of turning invested capital into a reliable, repeatable stream of passive income is real.
It’s something to be celebrated and that is exactly why I write these articles every month.
I hope you all had a wonderful June as well and here’s to the markets treating us all as well during the second half of 2023 as it did during the first 6 months of the year.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
Be the first to comment