Month in Review – August 2018

Well if you were hoping for an uptick in volatility like I was, you were probably a little disappointed with August. Mr. Market continues to languish along in the summer doldrums. I feel like it’s going to get exciting soon though. Here’s hoping.

While my options trading strategy certainly does a lot better when volatility picks up, the buy and hold portion of the portfolio still chugs along during the slow times, and we continue to save a very high percentage of our income.

So let’s take a closer look at what actually happened in August.

Portfolio Summary

Metric

End of August 2018

End of July 2018

Total Invested

$472,421.58

$469,679.46

Market Value of Total Invested

$516,353.71

$503,824.71

Allocation % – Equity

56.93%

58.40%

Allocation % – Bonds

17.59%

17.41%

Allocation % – “Other”

2.74%

3.14%

Allocation % – Cash

22.70%

21.02%

Income Assets – Invested

$257,512.73

$264,227.03

Income Assets – Market Value

$275,893.15

$276,032.85

Projected Annual Income

$10,154.27

$13,360.01

Invested Yield

3.94%

5.06%

Market Yield

3.68%

4.84%

Stock Purchases

No stocks purchased this month. This is the first time in a long time that I haven’t bought ANY stocks. For a while I had the sharebuilder plan automatically buying VCF on the first Tuesday of every month, but now that Capital One has sold their self-directed brokerage business, they’ve shut down the sharebuilder feature.

I still have about $3,500 earmarked for VCF investment. I guess I’ll have to buy it through limit orders or something.

Casino

In May I officially retired the UVXY trade. It was fun (and lucrative) while it lasted, but it’s time to move on to something else.

In June I started dabbling in sports betting as an alternative investment. Yeah I know. My wife rolled her eyes too.

This deserves its own explanatory post at some point in the near future. I just need to get around to writing it, and building up some data to talk about.

So far I’ve made money in July but then lost money this month in August ($245.24 to be exact). I expect a fair amount of variance, although I’ll admit that this represents a bigger downswing than I was hoping to experience. I’ve been playing around with the system as well, which probably increases the variance.

I promise I’ll give more details than this at some point. Just not this month.

Pay Days

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

Total investment income of $181.22 with a taxable total of $-211.07. We’ll call it 10 “pay days” with 30 individual payments received.

Options premiums represent $72.00 of that total.

Capital gains made up $-779.60.

Which leaves $1,099.89 of actual bona fide dividends (plus $34.17 of P2P lending income less $-245.24 of sports betting losses).

Yes you read that right. I had over $1,000 in dividend income, but I “gave up” most of it to account for losses.

On August 16th I liquidated my stake in MIN, which crystallized the big capital loss of $779.60.

MIN was one of my closed end funds (CEF) in the inherited IRA account. The purpose of the CEF portfolio is to generate roughly the annual required minimum distribution (RMD) for that account.

MIN has what’s known as a “level distribution policy” which means they always distribute the same annualized percentage (8.5%) of NAV. If the capital gains and interest earned by the fund’s holdings don’t earn that annualized percentage, then you’re going to get some of your original capital returned to you to make up the difference.

When I posted that tweet announcing the trade, I didn’t realize that MIN had gone ex-div two days before. So technically I got one more dividend payment in August, which brings the total of dividends received to $809.51.

So the total return over 2+ years is slightly less awful than I represented in the tweet, but I’d still call that a wash. I have no interest in holding a fund that just gives me my own money back.

It was time to cut bait and unfortunately that dragged down August’s income metrics.

Lending Club

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.

No loans were charged off this month. Yay!

However, in aggregate, the bad loan situation worsened month over month. At the end of July there were 5 loans listed as late. At the end of August we are now facing a total of 8 late loans. Yikes.

It’s not all bad news, though. A couple of the late loans last month appear to have gotten straightened out. This is inferred since the number of extremely late (31-120 days) loans dropped from 5 to 3, with none getting charged off.

The number of bad (charged off) loans we’ve invested in so far comes in at 18 out of 257 or 7.00%.

Oh well.

Month

In Grace Period

Late (16 -30 days)

Late (31 – 120 days)

Charged Off (aggregate)

End of 2017

0

0

6

8

January 2018

1

0

4

9

February 2018

0

4

1

13

March 2018

0

2

3

13

April 2018

0

1

4

14

May 2018

2

1

6

14

June 2018

1

0

5

16

July 2018

0

0

5

18

August 2018

3

2

3

18

I’m glad I started tracking this stuff last year. It should be fun to continue to follow it through 2018.

Lending club’s algorithm is suggesting I should write down $96.96 worth of principal for the five loans that are late, but as the eternal optimist, I’m going to continue to wait until the loans are actually charged off before I recognize the loss.

That is up significantly from what it suggested last month ($77.04), which reflects the worsening situation fairly well.

Comparisons

Month over month, investment income was down -90.9% compared to $1,998.33 in July.

I don’t worry too much about month over month comparisons because of the way I count “income”. Options activity and capital gains are likely to be erratic. But that’s how I count it, so it is what it is.

I now have over 4 years (!) of data on my income tracking sheet.

So I’ve been including this table in this segment to look at longer term trends:

AUGUST – INVESTMENT INCOME HISTORY

Year

Dividends

Options

Capital Gains

P2P (Gambling)

Total

2015

$413.64

$0.00

$0.00

$0.00 ($0.00)

$413.64

2016

$288.21

$511.61

$99.88

$27.96 ($0.00)

$927.66

2017

$399.71

$48.87

$877.66

$19.53 ($0.00)

$1,745.77

2018

$1,099.89

$72.00

-$779.60

$34.17 (-$245.24)

$181.22

Pretty cool huh?

Rather than totally recreate this table, I’m just lumping my new sports betting endeavors in with the Lending Club income. They’re both in taxable accounts. They’re both highly speculative and a little “unconventional”.

Raises

Three of the regular dividends received in August represented an increase over the previous distribution. Let’s discuss them in order of increasing percentages.

First up we have FAST with an 8.1% raise, which is a very nice increase for a stock that is yielding 2.75% as of market close on Friday.

But what’s even better is that it’s the second raise this year! In Q1 the distribution jumped from $0.32/share to $0.37/share which was a 15.6% raise.

With this latest increase, the company is on track to pay $1.54/share in dividends in 2018. Compared to $1.28/share paid in 2017, that represents a 20.3% YoY increase.

Woo hoo!

Next we have CAT who served up a 10.26% increase. This was welcome news after some rough years. The company narrowly avoided losing its dividend champion status in 2017 with a meager $0.01/share (1.3%) increase in the distribution.

Finally we recognize SBUX with a whopping 20% increase. This raise was a little earlier than expected since the last raise (also 20%) was only three quarters ago. Starbucks generates a massive amount of free cash flow and generously shares it with shareholders.

The share price has been essentially flat for the last two years while the dividend has DOUBLED! At some point I expect investors will realize that the company has made the transition from hypergrowth story to cash cow and will drive the yield back down towards its 5 year average. Until that happens, I think SBUX looks very attractive from a DGI perspective.

So there you have it. August has drawn to an end, and the days are starting to get shorter again.

This central bank fueled “bubble of everything” just keeps on pumping. The music is going to stop at some point. I don’t believe anyone can really be properly positioned for when that happens, but hopefully we’re psychologically prepared. In the meantime, I guess we should just enjoy the good times?

What do you think? Should I have locked in those losses or let MIN limp along for a while longer? Think I’m crazy? Stupid?

Let your voice be heard in the comment section below!

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