Q1-2018 Dividend – The Dividend Report

I love dividend stocks and believe dividends provide a great source of passive income. Quarterly, I provide updates on my dividend income and if I buy dividend stocks.

Using ‘The Dividend Report‘ section of my blog, I share my progress. I will also share dividend growth stock ideas. Additionally, I will share why I buy or sell. Dividends are truly a wonderful thing.

The Dividend Report Q1-2018

For over a year, I’ve worked towards the same goal. I want my average dividend income to provide $1,500/month. My plan  will have dividends providing 25-33% of my monthly income.

Q1-2018 Dividend Income

The past quarter was rocky for the stock market. The S&P 500 jumped up almost 10% in January. Since then, its been a wild ride. The market recorded a lost for the quarter; this was the first time in almost two years.

In times of volatility, it’s easy to be fearful of the market. However, if you can keep your cool, market volatility also gives great buying opportunities for stocks.

The recent drop in the market presented several buying opportunities. I bought 5 new stocks and added to 2 existing positions (more on my buys later). The recent purchases will not be reflected in this quarter’s dividend income. Going forward, the new stocks will provide a great source of dividend income.

The graph below shows my dividend income history since 2013:

The table below shows my dividend history since 2013:

Q4-2017 vs Q4-2016

Last year’s Q1 dividend income was $334.60. This quarter I received $492.98 dividends. This is $158.38 or 47.33% more compared to last year. This was largely due to the dividend increases that I outlined in last quarter’s report, buying low cost index funds every week, and maxing out my 401k. On a go forward, I expect my recent stock purchases to further increase my dividend income.

This quarter vs. last quarter

My Q1-2018 dividend income was $334.60. Last quarter (Q4-2017), my income was $2,092.46. Are you scratching your head wondering why there is such a big difference?

I certainly did when I first noticed this trend. A few of my funds do not pay dividends in the first quarter. Additionally, a few of my funds also pay two dividends in the fourth quarter. This seasonal trend will continue. Thankfully, my dividends continue to grow when you look at the same time periods of each quarter and on an annual basis.

Last four quarters of dividend income

The past year (Q2-17 to Q1-18)  year my total dividend income was $3,809.66. Last report, I made $3,651.28 from dividends. This is a 4.3% increase for compared to the previous 4 quarters; I am very happy with this increase.

There are two main reasons for the increase. First, I  continue to max out my 401k. This will be the third year in a row of achieving this goal. Regularly contributing to a 401k is one of the 6 steps to a 6-figure net worth.

Second,  10 of my stocks increased their dividend. This means I own the same amount of shares. Each share now pays me more for owning the same great company. How awesome is that?

My average monthly dividend income is now $317.47 ($3,809.66 / 12 months = $317.47), which is 21.16% of my current goal of $1,500/month. Previously I was at 20.28% of my goal. For the rest of 2018, I am hoping to significantly improve my dividend income. I would like to reach my dividend goal by no later than 2019. This is a lofty goal but worth a shot.

I will work towards this goal by contributing the maximum amount to my 401k. Additionally, I will continue to purchase low cost index funds on a weekly basis. Furthermore, I will buy dividend growth stocks as I opportunities to buy them at discounts.

New Dividend Growth Stock Purchases

I bought 5 dividend growth stocks this past quarter. I bought more of 2 stocks that I already owned.

Dominion Energy Inc. ($D) – I absolutely love this company and have followed them for years. This was also a new purchase. Dominion is a utility company in the mid-atlantic region that provides electricity. The company also operates a liquified natural gas (LNG) business. In fact, Dominion is the first company to ship LNG internationally. Combine this with their recent acquisition of SCANA, Dominion offers a company with great assets in an industry with high buriers to entry. The company has a very healthy balance sheet and highly predictable revenues. Utility companies are basically legal monopolies. Best yet, the company’s dividend is approximately 5.0% AND the company is committed to increasing their dividend 10% annually through 2020.

Exxon Mobil Corporation ($XOM) – I don’t believe Exxon needs an introduction. However, if you’ve lived under a rock your entire life, Exxon is the world’s largest oil, gas and mineral company. The company has a ‘Triple -A’ or ‘AAA’ rated balance sheet and considered a dividend aristocrat. This means the company has successfully increased their dividend for 25 or more consecutive years. This was a new purchases as well.

The current dividend yield is 4.11%, which is great compared to the S&P 500 average of 1.7%. The company’s share price has dropped almost 12% from the recent highs and is offering the highest dividend yield in decades. The company also believes their earnings will double by 2025; this will be no easy task. However, if they are able to execute, shareholders will be rewarded with share price appreciation and further dividend growth. I believe the company will be able to execute even in a competitive market. Exxon has reduced the cost to produce oil which will allow them to be profitable if oil prices drop. Additionally, Exxon’s PEG ratio is less than 1.0, which implies the stock is undervalued. 

Johnson & Johnson ($JNJ)  – J&J is an iconic company with several brands. The company produces medical equipment, pharmaceutical and consumer package goods. J&J is also a dividend aristocrat and has an impressive drug pipeline. The company has a long track record of rewarding shareholders. The stock dropped about 15% from recent highs. I will gladly own this company which is offering a 2.7% dividend yield. Their balance sheet is strong and earnings are expected to grow. This was also a new purchase.

Allergan Plc ($AGN) – I mentioned my desire to buy Allergan last Dividend Report. Well, thanks to the turbulent times in the stock market, I purchased this company at a 15% discount from recent highs. This is a new purchase.

The firm offers some great products like Botox, which has dozens of uses. The company also has a competitive line of generic drugs. Allergan has an interesting pipeline of drugs being developed as well.

The valuation is relatively cheap. The stock currently trades at ~10 x forward P/E. There are some legal headwinds still facing the stock. However, the risk reward seems modest and the company recently started paying a dividend.

Kinder Morgan Inc. ($KMI) – Kinder Morgan owns and operates an amazing pipeline business. Many investors may shy away from this company as Kinder Morgan committed the cardinal sin of cutting their dividend by 75% in 2015. This was during the meltdown in the oil markets.

Prior to the dividend cut, KMI funded their growth and pipeline projects through offering new stock to investors. The company also operated as a master limited partner (MLP) which is no longer the case. The company stopped funding their operations through stock offerings. The business now runs on the cash flow generated by the business.

Over the past two plus years, the company aggressively paid down debt, reduced their leverage, and strengthened their balance sheet. Kinder Morgan’s management made the appropriate call to cut the dividend a few years ago. Additionally, they’ve done a great job repositioning the company for future success.

Moving forward, I expect the dividend to recover and grow nicely over time. Last October, the company’s management team announced the dividend would increase 60% in 2018. Additionally, the company stated their intentions to increased the dividend 25% in 2019 AND 2020. For many company’s this would be a stretch. However, after spending a great amount of time reviewing the company’s financials, I believe there is significant room for future increases. I fully believe there will be a large dividend increase in 2018. I am also optimistic of future increases.

Disney ($DIS) – Why wouldn’t you want to own the Most Magical Place on Earth? I’ve owned Disney for a long time and thrilled to own the company despite the stock under performing for almost two years. Disney offers a diverse conglomerate and is attractive below $100/share. I recently added to my position during the pullback.

Content is king and when it comes to content nobody does it better than Disney.

Disney owns and operates theme parks, resorts and cruise ships. The studio/entertainment business is the envy of all. Disney movies, like Black Panther, continue to set record after record. Star Wars and Marvel will continue to provide great opportunities for the company.

I am not worried about the noise around ESPN subscriptions dropping. In fact, I am very excited to see the future earnings growth of Disney’s content once their streaming service launches.

Oh, and less I forget, Disney sells a ton of merchandise.

I don’t see this company slowing down anytime soon. The recent drop in share price and longer term consolidation represents a great buying opportunity. The company is also committed to growing their dividend. This is a company I plan to hold for the next 20 years and gladly added to my position over the past quarter.

The company’s earnings are growing north of 20%, the dividend payout ratio is ~27% and the current evaluation is dirt cheap relative to their growth.

Kraft Heinz Co ($KHC) – lastly, but certainly not least, I added to my existing position in Kraft Heinz. The additional purchase lowered my stock basis. This was the first time since owning the stock that I’ve had this opportunity. I do not expect sexy growth out of Kraft Heinz but I am content with collecting a 4% dividend annually.

The company is exploring ways to increase revenues through international expansions. Additionally, the company is developing products in the organic and ‘healthier food’ categories. I consider this a great bond alternative and a defensive investment in a turbulent market. Whats your dividend income like?