The Retiree’s Dividend Portfolio: John’s November Update

As we head into the last trading day of 2022, I am placing emphasis on potential sales from the Taxable Account. The focus isn’t selling for the sake of selling but to see if it makes sense to reduce a position in the red or trim a position in the green while avoiding significant changes to the tax burden in John and Jane’s accounts.

The other reason for the sales is that there are certain positions whose dividend yield and growth prospects aren’t that attractive when compared to a certificate of deposit options that now offer a yield that a retiree can live on.

For example, John and Jane’s recent brokered CD with a 3.35% yield on 3 months can now be invested into a one-month CD paying a whopping 4.35%. For a retiree like John and Jane, these kinds of yields really make it difficult to keep money invested in the market because income and capital preservation is the goal. Over the last decade, weak CD yields have forced many investors to look at dividend-paying stocks to supplement the income that was missing from CDs.

If you are a retiree now is the time to make sure that your portfolio is balanced because the position of the Fed to the rapid escalation of yields has indicated that the next ten years are going to look nothing like the last ten. It’s possible that you feel comfortable with your strategy and that dividend-paying stocks are likely to keep paying dividends but the risk/reward benefit for a retiree maintaining a stock-heavy portfolio is diminishing quickly.

As someone who helps others with their portfolios, it has become a much more complicated task to make sure that I put on the right hat when analyzing different portfolios. The risk tolerance for my portfolio is much higher than the risk tolerance I have when looking at a retiree’s portfolio (this has had a significant crossover in the last 10 years where similarities were once acceptable, they may be anything but OK now).

Background

For those who are interested in John and Jane’s full background, please click the following link here for the last time I published their full story. The details below are updated for 2022.

• This is a real portfolio with actual shares being traded.
• I am not a financial advisor and merely provide guidance based on a relationship that goes back several years.
• John retired in January 2018 and now only collects Social Security income as his regular source of income.
• Jane officially retired at the beginning of 2021, and she is collecting Social Security as her only regular source of income.
• John and Jane have decided to start taking draws from the Taxable Account and John’s Traditional IRA to the tune of $1,000/month each. These draws are currently covered in full by the dividends generated in each account.
• John and Jane have other investments outside of what I manage. These investments primarily consist of minimal-risk bonds and low-yield certificates.
• John and Jane have no debt and no monthly payments other than basic recurring bills such as water, power, property taxes, etc.

The reason why I started helping John and Jane with their retirement accounts is that I was infuriated by the fees they were being charged by their previous financial advisor. I do not charge John and Jane for anything that I do, and all I have asked of them is that they allow me to write about their portfolio anonymously in order to help spread knowledge and to make me a better investor in the process.

Generating a stable and growing dividend income is the primary focus of this portfolio, and capital appreciation is the least important characteristic. My primary goal was to give John and Jane as much certainty in their retirement as I possibly can because this has been a constant point of stress over the last decade.

Dividend Decreases

No stocks in John’s Traditional or Roth IRA put/decreased dividends during the month of November

Dividend And Distribution Increases

Two companies paid increased dividends/distributions or a special dividend during the month of November in the Traditional and Roth IRAs.

• Apple Hospitality (APLE)
• WestRock Company (WRK)

Apple Hospitality – 2022 has been the year of the comeback for APLE. The dividend was re-initiated in April 2021 at $.01/share per quarter and then increased to $.05/share per month in March 2022. Another increase in September 2022 to $.07/share per month and now to $.08/share per month not including the special dividend announcement. RevPAR (Revenue Per Available Room) is one of the most important metrics for a hotel REIT. APLE has seen steady growth in RevPAR and it should be noted that only 61% of locations met or exceeded RevPAR figures with management noting this as a potential opportunity in the most recent investor presentation. I think it is reasonable to expect that APLE will work to get the other 39% of properties to maximize RevPAR as one of their primary 2023 objectives.

APLE stock price looks reasonable at the current share price, but as mentioned in my introduction, I am much more focused on investing funds in secure certificates moving forward. I would need to see a stronger risk/reward scenario before I would consider increasing the size of this position.

The dividend was increased from $.07/share per month to $.08/share per quarter. This represents an increase of 14.3% and a new full-year payout of $.96/share compared with the previous $.84/share. This results in a current yield of 6.1% based on the current share price of $15.70.

WestRock Company – The November earnings announcement that covered the Q4-2022 earnings was a mixed bag with positives like record quarterly sales of $5.4B but this was actually short of expectations (it’s not common to see a company to reach record sales but dismiss it by saying it came in less than expected). The primary bearish argument that has been mainstream is concern that containerboard pricing is at risk of collapse but this assumes that the companies most responsible for the use/production of containerboard wouldn’t cut back the supply to match the demand.

WRK is one company that we recently added shares of in the lower $30/share price range. Similar to APLE, I think WRK is trading at a reasonable valuation but for the sake of John and Jane’s needs, the dividend yield of 3.15% is not currently substantial enough when compared to certificates paying over 100 basis points more yield.

The dividend was increased from $.25/share per quarter to $.275/share per quarter. This represents an increase of 10% and a new full-year payout of $1.10/share compared with the previous $1.00/share. This results in a current yield of 3.15% based on the current share price of $35.29.

Retirement Account Positions

There are currently 38 different positions in John’s Traditional IRA and 22 different positions in his Roth IRA. While this may seem like a lot, it is important to remember that many of these stocks cross over in both accounts and are also held in the Taxable Portfolio.

Below is a list of the trades that took place in the Traditional IRA during the month of November.

Below is a list of the trades that took place in the Roth IRA during the month of November.

For more details/insight into these trades and the rationale please see my trades summary article through November 27th (link at the end of the article).

November Income Tracker – 2021 Vs. 2022

November’s income for the Traditional IRA and Roth IRA were up considerably year-over-year. The average monthly income for the Traditional IRA in 2022 is projected to be up about 32.3% based on current estimates, and the Roth IRA is looking to grow by an astounding 22.8% year-over-year. This means the Traditional IRA would generate an average monthly income of $1,453.50/month and the Roth IRA would generate an average income of $692.75/month. This compares with 2021 figures that were $1,098.38 and $564.25 per month, respectively. We are on track to generate approximately $5,800 of additional dividend income in 2022 from the combined dividends in the Traditional and Roth IRAs when compared to FY-2021 dividends received.

It should be noted that a large amount of the increase in dividend income in the Traditional IRA can largely be attributed to the significant special dividend paid by Healthcare Realty (HR). For more information please reference the July update.

SNLH = Stocks No Longer Held – Dividends in this row represent the dividends collected on stocks that are no longer held in that portfolio. We still count the dividend income that comes from stocks no longer held in the portfolio even though it is non-recurring.

All images below come from Consistent Dividend Investor, LLC. (Abbreviated to CDI).

Here is a graphical illustration of the dividends received on a monthly basis for the Traditional and Roth IRAs.

Based on the current knowledge I have regarding dividend payments and share count, the following tables are a basic prediction of the income we expect the Traditional IRA and Roth IRA to generate in FY-2022 compared with the actual results from 2021.

Below is an expanded table that shows the full dividend history since inception for both the Traditional IRA and Roth IRA.

I have included line graphs that better represent the trends associated with John’s monthly dividend income generated by his retirement accounts. The images below represent the Traditional IRA and Roth IRA, respectively.

Here is a table to show how the account balances stack up year over year (I previously used a graph but believe the table is more informative).

The next images are the new tables that indicate how much cash John had in his Traditional and Roth IRA Account at the end of the month, as indicated on his Charles Schwab statements.

The following two tables provide a history of the unrealized gain/loss at the end of each month in the Traditional and Roth IRAs, going back to the beginning of January 2018.

John has finally begun taking disbursements from his Traditional IRA, and he has opted to receive $1,000/month. Based on the dividend income generated he could take up to $1,400/month from the Traditional IRA before his withdrawals would start to negatively impact his principal. Our goal for John is to maintain withdrawals below the dividend income generated for as long as possible.

I like to show readers the actual unrealized gain/loss associated with each position in the portfolio because it is important to consider that, in order to become a proper dividend investor, it is necessary to learn how to live with volatility. The market value and cost basis below are accurate as of the market close on December 29, 2022.

Here is the unrealized gain/loss associated with John’s Traditional and Roth IRAs.

The last two graphs show how dividend income has increased, stayed the same, or decreased in each respective month on an annualized basis. Now that we are in our fifth year of tracking, the trend for each respective month of the year has begun to show interesting trends for when income increases year-over-year.

Conclusion

I wanted to end this article with a few examples of stocks where I see limited upside for the stock price and the dividend yield is not comparable to what can be received on brokered CDs. This doesn’t mean we are going to sell all of these stocks; however, it does mean that I am going to consider reducing or eliminating the positions in favor of higher-yield CDs.

• Aflac (AFL) – 2.33%
• PepsiCo (PEP) – 2.53%
• Chevron (CVX) – 3.19%
• General Dynamics (GD) – 2.02%

Now, I know I am going to get some harsh comments asking why I would pull back or eliminate positions in solid companies like the ones mentioned above. I want to reiterate that I am focused on stocks that are at or near their 52-week highs and are currently offering a dividend yield that is sub-par when compared with the historical yield.

There is no doubt that these are great companies but we are at a point where the upside argument doesn’t make enough sense, especially when it comes to John and Jane’s intended goals/purpose. This will also be a way to boost their income by moving from the yields mentioned above to yields that are in some cases double the current yield being received.

November Articles

I have included the links for John and Jane’s Taxable Account and Jane’s Retirement Account articles for the month of November below.

The Retirees’ Dividend Portfolio: John And Jane’s November Taxable Account Update

The Retiree’s Dividend Portfolio – Jane’s November Update: Federal Reserve Stirs The Pot

The Retirees Dividend Portfolio – Account Transactions Through November 27

Article Format: Let me know what you think about the format (what you like or dislike) by commenting. I appreciate all forms of criticism and would love to hear what I can do to make the articles more useful for you!

In John’s Traditional and Roth IRAs, he is currently long the following mentioned in this article: AFC Gamma (AFCG), Aflac (AFL), Apple Hospitality REIT (APLE), Avista (AVA), BP plc (BP), Brixmor Property Group (BRX), Crown Castle (CCI), Canadian Utilities (OTCPK:CDUAF), Chatham Lodging Trust (CLDT), Chevron (CVX), CSX (CSX), Dominion Energy (D), Deere (DE), Digital Realty Preferred Series J (DLR.PJ), Duke Energy (DUK), Eaton Vance Floating-Rate Advantage Fund (EAFAX), EPR Properties (EPR), EPR Properties Preferred Series G (EPR.PG), General Dynamics (GD), Healthcare Trust of America (HTIA), Iron Mountain (IRM), Kinder Morgan (KMI), Kite Realty Group (KRG), Lowe’s (LOW), Main Street Capital (MAIN), Masco (MAS), Altria (MO), New Residential Investment Corp. Preferred Series B (NRZ.PB), Realty Income (O), Oshkosh (OSK), Occidental Petroleum Corp. (OXY), Bank OZK (OZK), Bank OZK Preferred Series A (OZKAP), PacWest Bancorp (PACW), PepsiCo (PEP), iShares Preferred and Income Securities ETF (PFF), VanEck Vectors Preferred Securities ex Financials ETF (PFXF), Pinnacle West (PNW), PIMCO Income Fund Class A (PONAX), Nuveen Nasdaq 100 Dynamic Overwrite Fund (QQQX), Global X Funds Nasdaq 100 Covered Call ETF (QYLD), STAG Industrial (STAG), Sun Communities (SUI), Southwest Gas (SWX), AT&T (T), Toronto-Dominion Bank (TD), Truist Financial (TFC), T. Rowe Price (TROW), Cohen & Steers Infrastructure Fund (UTF), Valero (VLO), Umpqua Holdings (UMPQ), Ventas (VTR), WestRock (WRK), Warner Bros. Discovery (WBD), and W. P. Carey (WPC).