Wow, what a crazy few months. Q3 has been extremely busy, hence my lack of consistent posts. I’ve been able to make a few videos here and there, but unfortunately, writing consistent posts became extremely difficult and fell a few notches down on my priority list. Well, that’s about to change. Thankfully my time is about to free up a bit and should allow me to write a little more consistently.
The first thing I would like to take care of is updating all of you on the purchases I made over the past few months. I had a few weddings and business expenses that didn’t leave much capital to allocate towards my dividend growth portfolio, but I did manage to initiate a few small positions. I figure a single post to catch up would be better than outlining each purchase individually.
Apple Inc (AAPL)
This was by far the biggest position I initiated in June. Apple Inc (AAPL) has always been one of my favorite companies and I decided I should go ahead and pull the trigger and acquire a few shares. So, I went ahead and purchased 10 shares at $93.67 per share for a total cost of $936.70. I bought the share prior to the 7-1 stock split, but calculated the cost basis post split.
Overall, AAPL has been amazing these past few years. The release of the iPhone 6 and iPhone 6 plus have only helped accelerate their revenue growth during Q3 and Q4. I also believe the release of their iWatch in early Q2 of 2015 should help them diversify their product line and provide a new offering for their extremely loyal customer base.
From a financial perspective, AAPL has a fairly low yield of 1.65% and only adds $18.97 to my annual dividend income. However, they only started offering a dividend two years ago and with a payout ratio of only 24.9%, they have plenty of room to increase dividends further in the future. Apple is, by definition, a cash generating machine that I believe has a new found mentality of rewarding shareholders moving forward.
Walt Disney Co (DIS)
In addition to AAPL, I also initiated a small position in The Walt Disney Company. This happened to be another low yield dividend company, but I believe the growth potential for Disney far outweighs the concerns over their low dividend. Disney has proven time and time again that they are an entertainment giant that takes pride in the work their studios release. Just look at all the hype over their blockbuster hit Frozen. Even though the revenue generated from Frozen only moves the needle a tiny amount (Disney is huge!), its the quality of their product that sealed the deal for me.
In addition to their feature animated movies, DIS has a diverse revenue generation system ranging from films, amusement parks and retail products. This allows them to capitalize in multiple ways form the success of any individual venture. Thus, during their most recent dip I purchased 7 shares at $88.04 per share for a total cost of $616.28. At a .095% yield, this purchase added $6.02 to my total annual dividend income. At face value it doesn’t seem worth it, but DIS only has a 25.5% payout ratio and boasts an annualized dividend growth of 29.1% over the past 3 years. Their consistent dividend growth paired with the capital appreciation of their price per share helped me decide to initiate a position.
Banco Santandar (SAN)
The last position I initiated this quarter was in Banco Santandar (SAN). This purchase came a little out of left field. My other two purchases in DIS and AAPL represent purchases in two fundamentally sound, but low yield companies. Thus, I decided to take a little bit of a gamble and buy a higher yield company. So, I purchased 40 shares of the Spanish bank SAN at $9.64 per share for a total cost of $385.62.
I believe this too be a high risk position, but the reward outweighs the risk if everything goes according to plan. The Spanish financial system has been trouble since the recession and turn around should be in short order as the global economy begins to improve. With a yield of 6.94% this purchase in SAN adds $31.06 to my annual dividend income and boosts my portfolio dividend yield up to 3.07% (my goal is to keep it around 3%). Since it’s only a small position, I figure it will help me keep my metrics in line with my overall goals while presenting a small opportunity for tremendous upside if the Spanish financial system does get back on track.
401k and IRA
This was the primary reason I was not able to invest much into my dividend growth experiment. As we near the end of the 2014 tax season, I felt the need to increase my contributions to tax sheltered accounts. Since I haven’t met the caps of $17,500 for 401k and $5,500 for IRA, I felt this should be my highest priority. Thus, I increased my salary allocation to my 401k in June and my IRA on OptionsHouse. This, along with an increased investment in some business opportunities, significantly decreased my personal cash flow.
I realize not all dividend growth investors aim to maximize their contributions to their tax sheltered accounts, but I have chosen to do so. The power of dividend investing is still no match for the safety a 401k and IRA provide. Especially since contributing to these accounts will decrease the percentage of my income that is taxed, allowing me to keep more of my hard earned money over the long run. It’s a personal choice and this happened to be the course of action I found most favorable.
Well, that’s it for my purchases over the past few months. Overall, these purchases added $1938.60 of capital to my dividend portfolio and will generate $56.05 in annual dividend income. As always, I have set them to DRIP and reinvest all dividends by purchasing additional fractional shares.
As a result of these purchases, my overall dividend portfolio is now up to $216.74 in annual dividend income! This represents $18 a month moving forward. This might not seem like much, but constant reinvestment of these dividends along with increasing my capital allocation moving forward makes me feel confident that this investment strategy is working. I’ve probably only checked my portfolio once a month over the past 4 months and have never felt this much at ease investing. The comfort and peace of mind this strategy provides is truly unparalleled. Plus, my annual dividend income generated by portfolio will now, essentially, pay for all my transaction costs (2 trades/month) once I ramp up the amount I am investing each month. Now I just can’t wait to see where I am 5, 10 and 15 years from now!