2021 Portfolio Review

[cemanuel]

I'm planning two posts here. The first will be my sharing some numbers from 2021 with some brief comments. The second will have a couple of graphs related to my dividend income.

I'll apologize in advance for one thing. I didn't realize I'd be managing my Roth differently from my Taxable Account until May and didn't start tracking them separately - for many items - until September. So I don't have separate account information for everything, particularly related to dividends. This post is mainly about my taxable account but I'll note when it includes information from my Roth. Beginning in 2022 I'll be tracking the IRAs separately from my taxable account.

Some quick numbers:

2021 Portfolio Value Gain:

• Taxable Account: 32.27%
  
• Roth: 38.98%
  
• Total: 32.63%
  

Total (combined accounts) returns by year:

• 2017: 16.2% (opened accounts on 3/8/17)
  
• 2018: 1.58%
  
• 2019: 31.63%
  
• 2020: 13.57%
  
• 2021: 32.63%
  

Returns are calculated after subtracting account deposits from EOY numbers.

1/1/22 Portfolio Dividend Yield:

• Taxable Account: 2.52%
  
• Roth: 2.71%
  
• Total: 2.53%
  

2021 Dividend Increase over 2020, includes Roth: 2.45%

Current "organic" Taxable Account Dividend Growth Rate: 8.98% - this up from 8.48% on 1/1/21 but I'm not sure this means anything. That number included the Roth which was mainly REITs and BDCs which have slow to non-existent dividend growth. If I were comparing apples to apples I'm not sure this represents an improvement in my taxable account alone.

Account Activity:

This was my busiest year based on number of transactions since 2017, the year I opened my accounts. For the year I had 48 buys and 28 sells for a total of 76 trades. Trades by year since I opened my accounts:

• 2017 - 237
  
• 2018 - 67
  
• 2019 - 47
  
• 2020 - 38
  
• 2021 - 76
  

Taxable Account Positions closed: DUK, GILD, JNJ, MSM, PNW (9 positions closed in the Roth)
Taxable Account Positions opened: None (8 positions opened in the Roth, plus 3 stocks I also owned in the Taxable Account)

Discussion:

Changing the Roth Account Objective: I'll not talk about the Roth, or the IRA once I fire it up, much on this forum as they are not strictly DGI accounts though 11 of the 14 Roth stocks pay dividends and I suspect a similar proportion may make up the IRA. But it's important to share this to provide some context for the weak dividend growth over 2020.

Phase 1 - Conversion to traditional Dividend Investing: Prior to COVID my Roth was for RICs. I had mostly REITs along with three BDCs. When COVID hit several of my REITs cut or completely suspended their dividends. I decided then that I should get out of REITs and invest in more "traditional" DGI/Income stocks. So beginning in late 2020 but really picking up steam through March, 2021 I sold my REITs in favor of income stocks.

Phase 2 - Conversion to a Total Return Account: In May I seriously crunched numbers for retirement for the first time. I had always thought late 2022 would be a good time to hang it up. But this spring was the first time I checked to see if I could afford it. I won't go into details but will just say that COVID had a lot to do with this. I liked my pre-COVID job where I met with people and groups to work on things. I didn't like my COVID job where most meetings were over a computer screen and when we did meet in-person I had to keep people separated and masked.

So I ran the numbers and as part of this I ran through several scenarios using the IRS1040-ES worksheets to calculate my expected taxes. I would be generating about 80% of what I needed to meet my budgeted retirement expenses from Taxable Account Dividends. Until running the tax projections I thought I would make up this "gap" using dividends from my IRA. However it makes more sense to use stock sales from the taxable account which will be taxed at 15% rather than through IRA withdrawals which would be taxed at income levels, mainly 22%.

Once I realized this, using the IRA to generate dividends to live on made no sense. So I did a second conversion of the Roth to more of a TR account though I still do like dividends. I did not begin tracking this separate from my Taxable Account until September but my Roth dividends are roughly 60% less than they were at the start of the year.

Retirement: I took a little while to think it over but in June I began prepping as if I'd retire at the end of the year. I didn't make a final decision until September but started leaning that way. So beginning on July 1, I stopped doing two things; adding new money to my accounts and using dividends received to buy more stock. 1.22% cash may not seem like a lot but it is to me. When it comes to building income, my motto has been that cash is lazy money doing nothing for me. So I tried to make my money work by staying fully invested. No longer buying dividend-payers had some impact on my dividend growth though far less than the Roth moves.

Here is an image of my taxable account with stocks sorted by % dividend income contribution. I'll add a couple of explanatory comments at the bottom.

   

• The column Cost/share is calculated using my total amount paid for a stock minus dividends received, divided by number of shares I own. It does NOT include the impact of any sales of that stock.
  
• I included YOC just to demonstrate a nice characteristic of DGI. I don't use those for a lot; mainly a reminder to stay on track and, as an example, to ignore any voice which might tell me to sell, say, MSFT to increase my income. Its YOC is nearly equal to ADM - do I want to own ADM over MSFT?
  
• I hope the column headings are clear. I thought about expanding them but think you can figure what they are and the numbers will be small enough as it is.
  
• I'm not crazy about how much of my dividend income comes from MO and ABBV - even LYB is at the edge of being too much. I'm not going to do anything about it but it's not ideal.
  
• DGR numbers come from Fidelity and may not be completely up-to-date. Whenever a stock I own increases its dividend I go and check the numbers in Fidelity so some have not been updated in several months.
  
• Once a company announces a freeze I apply a 0% DGR to it. T does have a DGR but I know it won't be increasing it so I give it a 0 both here and when calculating "organic" dividend growth.
  

I don't know how to wrap 2021 up from an investing perspective. At the start of the year I set a goal of increasing my dividend income by 10%. I did not. But I changed what I was doing too. I could make a couple of other excuses - take away three specials paid in 2020 and I would have made it - but the bottom line is I didn't. However I did find I had enough to retire and with a comfortable safety margin - this may not be part of investing but it's pretty important to me.

I have no idea how my value gain did compared with the S&P. I suspect OK but I will not be comparing the Taxable Account to the market next year as I will be making some withdrawals from it, including through stock sales.

For next year my one main goal is to increase dividend income by 6% in my Taxable Account. I will be selling some AAPL from time-to-time but it's a small income contributor.

I have no imminent plans to sell anything but what I do with T remains an open question. I could decide to lock in my $3k in tax losses early, wait until after the spinoff or do something else. I'm reasonably happy with everything else I own.

The biggest investing concern for 2022 will come after 2/19 when I rollover my 403b to an IRA. But that won't be a DGI account so I won't discuss it here much and will try to minimize Roth discussion as much as I can.

[cemanuel]

These two images are graphs representing my total dividend income by quarter since I opened my accounts in March, 2017. One is a bar graph, the other a line graph with trend line. I'll offer comments after the line graph.

   

   

You can see from the line graph that my dividend growth was doing great until the 2nd quarter of 2020. As may have been true for many of us, my dividend income suffered as, with COVID, a couple of my common stocks and several of my REITs either cut or suspended their dividends. But by the 4th quarter I had sold some of those such as DIS and OXY and other companies had announced hikes. It took a little while but by the 4th quarter the DG seemed to be back in place. 

So the 2020 impact was something that happened to all of us, with varying impacts - I know some people who had no cuts but this was not me. 2021 was something I did to myself. I suspect that all of the declines came when I converted the Roth first from a RIC account and then to a TR rather than DG/Income Account. I expect overall DG to resume in 2022.

Unfortunately I did not track dividend income separately by account until September.

On the plus side, Fidelity statements include an estimated forward cash flow. Those are separated by account. Once I receive those statements, probably next Tuesday or so, I'll add a comment in this thread with what they indicate. 

Again, I'm happy to answer any questions except for anything involving dollar figures.

[fenders53]

Up and to the right, just like we like it. You have steady dividend growth and of course you are in control of the yield. Mne has been choppy the past 5 years as I was experimenting with this style of investing. I was a growth investor before and will tip toe a bit back in that direction to find my happy place.

And I noticed you mentioned "organic" growth. It is a useful term when discussing year over year performance. I lowered my yield at least a half point this year. It would be inaccurate to say that was a failure. Nor would it necessarily be a big win if I sell all my FANG stocks and buy 10,000 shares of XOM next week. I would like to see that dividend payout post though.

[cemanuel]

(01-01-2022, 10:41 AM)fenders53 Wrote: Up and to the right, just like we like it.    You have steady dividend growth and of course you are in control of the yield.  Mne has been choppy the past 5 years as I was experimenting with this style of investing.   I was a growth investor before and will tip toe a bit back in that direction to find my happy place.  

And I noticed you mentioned "organic" growth.  It is a useful term when discussing year over year performance.   I lowered my yield at least a half point this year.  It would be inaccurate to say that was a failure.  Nor would it necessarily be a big win if I sell all my FANG stocks and  buy 10,000 shares of XOM next week.  I would like to see that dividend payout post though.  

Well, it was steady until a little over a year ago. I think I know why that changed and would do it again but would prefer the upward trajectory to have kept going. Hopefully it picks back up though overall dividends will be a fooler - the IRA is the equivalent of new money and will skew things. But I'll have better tracking for the separate accounts next year.

I could have swapped out everything paying under 2% for 4% yielders and made my income target but the cap gains hit would have been monstrous. This way works too.

My de-REITing represents both a failure and a success. I was experimenting with them in the Roth to see if I wanted to own a chunk of them in the IRA. Based on the results they're not something I should be investing in - so that was a failure, but I also learned this, so it was a success. Better to find that out in 2020 than 2023 when I was thinking of having as much as 20% of the IRA in them.

[ken-do-nim]

Awesome summary, and I think it's amazing that you can retire on a 2.53% yield; of course as we discussed you will also supplement with periodic Apple & Google sales.

[cemanuel]

(01-01-2022, 11:45 AM)ken-do-nim Wrote: Awesome summary, and I think it's amazing that you can retire on a 2.53% yield; of course as we discussed you will also supplement with periodic Apple & Google sales.

I've been very fortunate. Had some good returns from property and pretty much every sale of those was for more than I expected. The stocks haven't been bad either.

I've also never had a massive negative life event I had to fight through. We've all had bumps and I've had my share but never a mountain.

Though to give myself a little credit, I was never a complete idiot either.

[fenders53]

That is what is nice about being truly knowledgeable in financial matters. If we decide we need double or half the income from our ports next year we can do it with knowledge of the potential advantages and disadvantages. It's likely I will need more income than my port can provide for a year, then potentially only need pocket change after year 2 of retirement. That's not so hard to arrange.

[cemanuel]

Yes, I always say I have three raises coming in retirement:

age 62 - SS eligibility - not a guarantee I take it but I could
65 - Medicare
67 - Mortgage paid off

If the 6% div increase happens each of the next 3 years and inflation settles down AND my budgeting before retirement approximates what I actually spend, then by 62 I'll be about where I need to be re living off dividend income alone from my taxable account.

But I could decide I need more than one BAT - Big-Ass Trip - each year or something.

[fenders53]

Inflation will settle down but it may do some damage first. Just a few years ago I convinced myself a 4% average annual return from my portfolio was quite sufficient if it had to be. 4% can obviously turn into 1% for years while inflation is cooking at 4-6% so that plan had to be adjusted before I dig a hole. I'll need to go back to more equity exposure but there will be a time and place for that soon enough.

When I started investing I didn't realize all these date choices to my pensions would be so important to me. And my near free medical insurance at age 60 is like gold. Remember when $200 would buy a decent enough health care plan?

[ken-do-nim]

(01-01-2022, 04:54 PM)cemanuel Wrote: Yes, I always say I have three raises coming in retirement:

age 62 - SS eligibility - not a guarantee I take it but I could
65 - Medicare
67 - Mortgage paid off

If the 6% div increase happens each of the next 3 years and inflation settles down AND my budgeting before retirement approximates what I actually spend, then by 62 I'll be about where I need to be re living off dividend income alone from my taxable account.

But I could decide I need more than one BAT - Big-Ass Trip - each year or something.

My goal for 2022-23 is to ramp my Vacation account savings up to $7200 annually to take 1 BAT and several smaller ones a year.  If I were retired I'd probably want 3 large and 9 small; one a month 

I had never thought about "retirement raises" before; I like that term.  In my next decade of life, at some point, child support will drop off.  My mortgage doesn't get paid off until I'm 77 though 

[fenders53]

(01-01-2022, 08:07 PM)ken-do-nim Wrote:

(01-01-2022, 04:54 PM)cemanuel Wrote: Yes, I always say I have three raises coming in retirement:

age 62 - SS eligibility - not a guarantee I take it but I could
65 - Medicare
67 - Mortgage paid off

If the 6% div increase happens each of the next 3 years and inflation settles down AND my budgeting before retirement approximates what I actually spend, then by 62 I'll be about where I need to be re living off dividend income alone from my taxable account.

But I could decide I need more than one BAT - Big-Ass Trip - each year or something.

My goal for 2022-23 is to ramp my Vacation account savings up to $7200 annually to take 1 BAT and several smaller ones a year.  If I were retired I'd probably want 3 large and 9 small; one a month 

I had never thought about "retirement raises" before; I like that term.  In my next decade of life, at some point, child support will drop off.  My mortgage doesn't get paid off until I'm 77 though 

If you keep making 50% a year in your port maybe you can pay it off a little early.  Just add some more leverage lol.

[cemanuel]

My goal for 2022-23 is to ramp my Vacation account savings up to $7200 annually to take 1 BAT and several smaller ones a year.  If I were retired I'd probably want 3 large and 9 small; one a month 

A big retirement key for me which will have long-term implications is this:

I live on ten acres with some older outbuildings. When I was in my 30's I could keep up with it on weekends and evenings with the occasional longer staycation.

These days I fall behind. Just can't go 10-12 hours straight. and in the summer, after sitting outside in AC, I'm worthless stepping out into 90-degree heat in the afternoons (different if I start early and my body adjusts through the day, so long as I drink plenty of water). But I've always taken a full week off each May and October (no October this year to save vacation days to be paid for). During those weeks I gain without killing myself - 6-8 hours of work time in 2-3 hour increments.

So a huge test, once spring gets here is can I maintain this place the way I want to where I enjoy the time spent messing around outside or do I come to look at this as a burden? That will decide if I stay here or move in the next 2-3 years.

But work at home has always replace a lot of vacations for me; so far I mostly enjoy it.

I will be doing a LOT of day trips. Part is COVID make-up time. There are so many people I haven't seen for two years. Quite a few will be getting a call from me asking if they want a visitor for a day.

I had my 1st 10 retirement trips planned and was alternating between international and domestic trips with the domestic likely being a bit cheaper, international a bit over my annual $10k budgeted. But I'll be going domestic until COVID settles down - I don't want to be stranded in, say, Corsica because of some quarantine regulation. So instead of a Med cruise (I'm not a cruise person but this would be an exception), this summer will be Yellowstone, just after Labor Day.