DGI Adventure 03-02-2017 Month in Review – February 2017

Well the shortest month of the year is over. This month’s brevity, however, belies its significance. It was extremely busy.

Most importantly we bought a second house and moved to Denver, CO. Month to month our total liquid assets dropped substantially as a result of the 20% down-payment. Of course we didn’t lose that money, it’s just invested in something that isn’t liquid (our house) so it doesn’t show up on these updates anymore. These updates are strictly tracking liquid assets.

Prior to packing up the cats and the houseplants and tearing across the western US in a savage 20 hour burn, we managed to complete *nearly* all of the construction projects we had deemed necessary to get our California property “renter ready.” I’m happy to report that we have a tenant moving in soon, and will be enjoying rental income starting in March. Awesome!

I have not been as diligent as I would have liked at documenting our trades and stock purchases. I blame the move. March still might be a little crazy while we get unpacked and settled into our new life at altitude, but theoretically I should be able to get back to more regularly documenting all of our investing moves.

There have been several times this year where I’ve had to lump together a number of trades into a single post. And that fails to mention the fact that “The Great Catfishwizard Taxable Liquidation” was practically glossed over in last month’s update.

I’ll have at least one more post that will have to summarize multiple trades. Probably this week. Sorry.

Anyway, let’s dig into February.

Portfolio Summary

Some commentary:

The effect of our down-payment is pretty evident in the month over month slide. However I’ll note that even after this massive capital outlay, February’s total “wet worth” is still up over $45K year over year, which is a 14.58% increase from this time last year. I feel pretty good that we were able to sink $60K into a second property and still show that kind of growth in liquid assets.

Also, my “Projected Annual Income” figures have been goofy for a while now. I suppose I owe the audience an explanation.

I have to admit that I was tracking this largely in imitation of other DGI bloggers. I have come to realize it’s a pretty silly metric.

For one thing, dividends aren’t guaranteed, and setting goals around projected 12 month income figures runs the risk of “counting one’s chickens before they’ve hatched”.

Secondly, since I generate a lot of my investment income through options, it can be a highly variable figure. For consistency’s sake I have always annualized the income I receive from selling an option. For example, if I sell an option for a premium of $100 and the trade is in force for 30 days, I will project that premium to an “annualized” income of $1,216.67, because if I made $100 every 30 days for 365 days, that’s how much I would make.

There’s a logic to counting it that way, but the result is that my projected income bounces all over the place depending on volatility in the market and how many trades I have open. Dividends may not be guaranteed, but they’re at least pretty stable regardless of market conditions. The same cannot be said for options.

So the flaw in counting it this way is that I’m highly unlikely to be able to make the same $100 trade every 30 days 12.166666 times in a row.

I’m okay with it though because it acts as a barometer for the portfolio. Even though the actual income I earn over the next 12 months is unlikely to exactly equal the projected value, I do at least get a sense of the aggressiveness of the portfolio’s current positions.

In that vein I happened to sell an SPY put on 2/28 that was open for one day before it expired yesterday on 3/1. I made $32.90 in premium, which if I could do that 365 days a year works out to $12,008.50 “annually”. Obviously that’s impossible for a multitude of reasons, but since the position happened to be open at month end, it made it’s way into this update, and bore mentioning in my opinion.

I’ll cover that trade in my February catch up post later this week. I do intend to get a little more aggressive with my SPY put trades as the ex-div date approaches (quadruple witching), and so my projected annual income should reflect that aggressiveness for the next few weeks.

See? It all comes together.

Stock Purchases

1 stock purchased. 1 new position; projected annual income increased by $41.60 based on current dividends.

02/06/17 – JNJ: 13 shares purchased @ $112.80/share. My wife set a bunch of limit orders in her ROTH IRA at the beginning of the month, and this was the only one that executed. Long time readers may remember the first investment thesis posted in September of 2015. In hindsight, she would have been better off just buying it at $91/share back then rather than monkeying around with limit orders but so it goes. Thou can’t time the market so thou shalt not try to.

Annual projected income is increased by $41.60 based on the current annual dividend of $3.30/share, but I expect management to announce an increase next quarter.

I also purchased more UVXY puts. The new positions, which are still open, are:

2 contracts of the UVXY 18JAN19 20.00 P (bought 2/23/17 for $13.27425/share)

I have no way of projecting what kind of income these trades will generate, but I am pretty confident they will be positive. 

The positions I liquidated this month, netted a ~70% annualized return.

All UVXY put trades are documented in the “UVXY” tab of the Dividend Income Tracker.

For the uninitiated, I am shorting UVXY because it is the worst ETF ever. I use long put positions so I can avoid the use of margin and do these trades in tax-advantaged accounts.

Additional exploits can be found here, here and here.

Pay Days and Raises

Dividend Income Tracker is published back at the mothership and has been updated.

Total investment income of $1,402.42 with a taxable total of $3.17. We’ll call it 9 “pay days” with 28 individual payments received.

Options premiums represent $368.31 of that total.

Capital gains represent $796.24 of that total.

Which leaves only $234.70 of actual bona fide dividends (and $3.17 of P2P lending interest).

Is this even a dividend blog anymore?

IDK…I’d like to think it is….

Lending club income is aggregated into a single income record for simplicity’s sake. It actually arrives as a lot of small payments over the course of the month. In December I experienced my first “charged off” loan, and this month I officially had to write off one more, which is why the “income” was so low. Now there are two loans that are late (between 31 and 120 days), and four that are in the grace period. Although the charge off is a bummer, the other categories kind of improved over last month:

This should be fun to track. This table will grow with each monthly update.

Lending club’s algorithm has suggested I write down $56.20 worth of principal for the loans that are late or in the grace period, but as the eternal optimist, I’m going to continue to wait until the loans are actually charged off to recognize the loss.

Comparisons

I’m not going to bother with month over month comparisons since the capital gains recognized from the “The Great Catfishwizard Taxable Liquidation” has completely distorted those data. We can return to that feature next month.

Year over year on the other hand represents a nice bump. In February of 2016 I earned $636.07 in passive income. This month represents a 120% increase over that total.

Raises

One of the dividend distributions received represented a raise:

OHI paid $0.62/share compared to $0.61/share in the previous quarter. That represents a 1.64% increase, which may not sound like much, but considering that OHI has raised the dividend every quarter for 18 consecutive quarters, it’s pretty sweet. Last February’s distribution was $0.57/share, so year over year the dividend is up 8.8%.

At a 7.6% yield, it’s starting to get into the maybe too good to be true territory? IDK…I still don’t really understand REITs.

Now that we bought the house, I don’t have much of an excuse for the amount of cash on the sidelines. I want to get more aggressive, but can’t help feeling like this rally is a kind of a “melt up”.

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