Dilok Klaisataporn
Dilok Klaisataporn
The thing I hate most about the start of the year is updating estimates and reviewing numbers. There is a lot of room to make errors when dealing with page after page of excel files. Even though I loathe this task, it's still refreshing to establish a new baseline of numbers and begin to set some expectations and goals in a market where planning ahead even a few months is a difficult thing to do.
January was a fairly active month for the Taxable account which is not known for seeing a lot of activity because we want to avoid creating unnecessary Taxable consequences for our retirees John and Jane. For those who are new to this series, this is a real portfolio and while the articles are more limited in size/scope you can check the YouTube link at the end of the article to see six years of documented history and screenshots covering everything from cash-on-hand to unrealized gain-loss.
We added to a few existing positions in January with the biggest move adding another $10,000 to the Schwab Value Advantage Money Fund (SWVXX) and only one sell followed by another five buys.
2024-1 - Taxable Account Trades (Charles Schwab)
Air Products and Chemicals (APD) - It's not very often we see APD's share price revert below its normal PE Ratio with the five year average coming in at 25.12X and the 15 year average coming in at 21.64X. The current PE ratio is sitting just below the 15 year average. If that's not compelling enough consider that APD is one of the top 30 most held stocks according to Goldman Sachs (GS).
Verizon (VZ) - With the improvement in share price we took the opportunity to cut back the highest costs shares in the position. We don't think VZ is bad by any means but when the opportunity arises we will always seek to capitalize (especially because shares were recently added in the mid-$30/share range).
Rithm Capital (RITM) - This mortgage REIT has been performing well and even with the challenging environment it has managed to right-size itself to produce stable earnings and continue acquiring competitors. If it drops below $10/share we plan to add even more.
Hormel Foods (HRL) - There are things to like and dislike about HRL. The stock price has become attractive and the company has a business model that is not being challenged by Amazon (AMZN) and other massive entities that continue to push into new areas of business that most of us never imagined 10 years ago. The downside is that earnings growth has been non-existent and the question is how much further will it fall? The current price has dropped to a point where we are willing to take that gamble. Goldman includes HRL as one of the companies with weak pricing power that has the ability to outperform in 2024.
Helmerich & Payne (HP) - Shares were purchased prior to their most recent earnings beat and Q2-2024 looks promising with even more active rigs expected to be online by the end of the quarter. If the share price falls into the low $30/share range we would look to add more.
Eaton Vance Tax-Advantaged Dividend Income Fund (EVT) - We continue to add to this position in small tranches and has continued to provide high yield sustainable income with exposure to a number of companies that are not held in the Taxable portfolio (none of the top 10 holdings are in the Taxable Account currently). The fund also has a somewhat surprising exposure to preferred shares (11%) and bonds (8.1%).
For the full review of the article please check my YouTube videos (link in my profile). These videos delve into previous account balances and other data points collected over six years of documenting John and Jane's portfolios. So if you are looking for what has driven the numbers you see below my videos address this in substantially more detail.
The images below are focused on what is happening now and moving forward.
The first image shows what has happened year-over-year with the portfolio in terms of what holdings are generating income.
2024 - January - Taxable Dividend Breakdown (CDI)
The next image has been updated from my forecasting articles to look at how much the income has grown on a monthly basis and separates out what income is from dividends and what comes from CDs/Money Markets, etc.
2024 - January - Monthly Income Growth Tracker (CDI)
The difference with the image above is that I made the 3%/5%/7% categories represent what the income total would need to be in order to say what 3%/5%/7% growth over 2023 would look like. In our first month of January we can say that the income was an increase over 2023 of 22.20% which far exceeds our original baseline expectations.
January is normally a light month when it comes to income and the only exception in the past has been that the occasional special dividend might be received. Even when we account for the CD/Money Market income we can see that the dividend growth and trades that capitalize on selling overvalued and low dividend yields in favor of undervalued higher dividend yields has generally speaking paid off over time.
While its uncommon for there to be a lot of activity in the Taxable Account (with regards to trading) it is entirely dependent on market conditions. Investors one thing that has always remained true is that we favor keeping more cash on hand to the point where some might even criticize our strategy. The reason for doing this is that the market is never going to wait for you to reallocate funds from your money market account so that you can purchase shares of a company at the 52-week-low marker.
Ultimately, what we are doing with John and Jane's portfolios is managing cash-flows and re-allocating funds which can strengthen or take away from those cash-flows. If we are strengthening a cash-flow it's because we need to see opportunity/advantageous entry points while taking away from a cash-flow can be justified by concerns about the ability to sustain the payout or because we are trimming back high-cost shares so that we have more capital to allocate to stocks that are undervalued.
John and Jane are still continuing to withdraw $1,700/month so even though the amount they draw isn't fully covered by the cash-flows this month we are expecting to see plenty of coverage in the following months. While I don't expect that we will continue seeing 22% increases in income it's still a great way to start 2024.
If you found this article interesting and are interested in even more in-depth reviews of John and Jane's portfolio please consider following me on my YouTube Channel.
John and Jane are long all holdings mentioned in this article except for Amazon and Goldman Sachs.