Building Passive Income to Fund our Early Retirement. I'm Neil and I have been an active stock and option investor since 1996. I started building the Daily Dividend Investor portfolio in mid-2010 because I was determined to build a income stream that would help ride out the stock market swings of the previous few years. I use a stock screening service to gather my list of Monthly Dividend..
Eight long months ago, I was so excited to have a $5000 one day (unrealized) gain in the DDI portfolio. Yet my enthusiasm was definitely tempered by my concern of a good sized pull back. Since that last post, we have had a few up and down waves in the market, but yet no sizable pull back to date. The Dow has gone from about 21,000 on March 1st to hovering around the 23,400 mark today. We’ll continue to enjoy the upward rise….and hope that any correction is small and short lived!
Cleaning the Cobwebs
Shortly after my last post in March, I went through the DDI Portfolio and did some house cleaning. I sold off shares of:
AA – Alcoa
DBD – Diebold
DLR – Digital Realty Trust
NFLX – Netflix
TPL – Texas Pacific Land Trust
WDC – Western Digital
NAT – North American Tanker
Some of the shares such as DLR and TPL had some nice gains. A few had turned into dogs, including DBD and NAT. And for some reason I thought it would be a good idea to put Netflix into the portfolio as a potential “future dividend payer” – but decided I should stick to current dividend stocks. Needless to say, I missed out on about a 50 point run in NFLX – but as they say, hindsight is 20/20. But I’m ok with that as I’m working towards being more systematic about the day to day management of the DDI Portfolio.
Creating the Systems
One of my goals early on for the DDI Portfolio was to come up with a systemized process for buying, holding and selling the companies that make up the portfolio. I have to admit, I’ve often just shot from the hip over the years when buying and selling and while I’ve done well, I probably could have done BETTER.
In September and October of this year, I decided that the cash balance in the Portfolio was a little too low for my liking. If we did see a large pull back, I’d like to have some cash available to pick up some potential bargains. Additionally, I’d like the Portfolio to be liquid enough that I can start taking distributions on a regular basis without having to look for what to sell each time I need cash.
I came up with the following first pass at a systemized process for operating the Portfolio. The first goal is to let your winners “run”, so while I’m not opposed to taking some gains, my first focus would be to trim the losers. Selling losers isn’t as easy as it might sound. If you believe in the fundamentals or the “moat” of a given company it’s hard to give up on them and sometimes it just takes a little time to work through a down period for the company. As an investor though, at some point you have to say enough is enough and stop the bleeding before it goes too far.
I decided that at the end of each quarter, I would review the DDI Portfolio and make the following sales:
Any position down 10-15%, sell 25% of the current holding
Any position down 15-20%, sell 50% of the current holding
Any position down >20% sell 100% of the current holding
Applying the System
After reviewing the DDI Portfolio and applying the new “Sell” rules listed above, I was able to sell some underperforming assets and raise the cash position in the DDI Portfolio to about $30,000.00 or about 5%. I am satisfied with where the DDI Portfolio sits currently with regards to company holdings as well as cash flow and cash balances. I’m optimistic that applying these sell rules moving forward should help to keep a healthy cash balance as well as keeping the portfolio losses in check.
Final Adjustments for 2017
One of the many goals I’ve had for the DDI Portfolio over the last few years, was to see the account balance grow to $500k. After reaching that milestone a little over a year ago, the portfolio has been stable within the $500-$600k range even with some losses and a number of cash distributions.
Since the portfolio has remained consistently above the $550k mark for the majority of the year, I have decided to transfer about $50k from the Wells Trade account that holds the DDI Portfolio and fund a new account at Charles Schwab where I plan to create the DDI 2 Portfolio. I haven’t decided what the emphasis or goal of the DDI 2 Portfolio will be just yet, but I’m thinking about possibly taking some more aggressive positions such as using options to try and “juice” the income returns. Longer term goals include growing both DDI Portfolios to at least $500k each! Once the funds have arrived at Charles Schwab, I’ll post some updates on my future plans – stay tuned.
So I wasn’t planning on doing another DDI portfolio update so soon, but after logging into my Wells Trade account today and seeing a $5000 GAIN I was blown away. Of course, the gains are great and I hope they continue – but the real question remains, how sustainable is this current market rally? The markets seem to be in love with President Trump, but I’ll be the first to admit, I’m getting a little nervous about a possible LARGE SCALE pullback.
Where do you think this market is headed? Are we going to 25,000 on the DOW or 15,000?
Are you buying, selling? Both? Let me know what you’re adding or removing from your portfolios!
Here’s to your investing success!
Holy Crap! DDI Portfolio makes $5000 Gain in one day! - YouTube
Ok, so it took me a while….but I just uploaded part 2 to my YouTube Videos “The 2 Things Dividend Income Investors Must Know”. In this video I show you how using MorningStar – http://www.morningstar.com can make finding and evaluating dividend paying stocks quick and easy!
Bonus! – In this video I also show you one of my recent additions to the DDI Portfolio and *why* I was so excited to find this diamond in the rough. Take a look and let me know what you’re investing in as this market continues to climb higher and higher in early 2017!
The 2 Things Dividend Income Investors Must Know - Part 2 - YouTube
So I just published a quick video on YouTube showing how well the DDI Portfolio has performed over the last year as well as since inception. How well did the DDI Portfolio do compared to the S&P500? Watch the video and see for yourself. Let me know how your income investing is going – always interested in hearing what others are up to!
Daily Dividend Investor Portfolio Update - February 2017 - YouTube
Today I sold some shares of one of my best performers and picked up a few shares of a couple new names. Over the last few months I’ve been mostly focused on adding new names to the DDI Portfolio in an effort to “Fill in the holes”. After all, the goal is to generate income *EVERY* day!
Looking back over the last 8 years while building the DDI portfolio, I believe I’ve built a good base of companies that have worked hard to provide an increasing stream of monthly income. After watching the destruction of the 2007 Global Recession it’s not unfathomable that the DDI portfolio could take a 60% haircut or more from current levels. And I know we’ll see a pull-back in the market sometime in the future, it’s just part of how the market works, but my intuition tells me that what we saw starting in 2007 was likely a “once in a lifetime” event.
When to sell?
One of the things I’ve struggled with in building the DDI portfolio has been if / when to sell a position. Way back in the day, I proclaimed that my holding period was much like Warren Buffet – that is “forever”. But then just a year or two later after seeing some fantastic gains, I panicked and ended up selling a good number of positions. I sold my position in Costco (ticker: cost) a few years back for around $110/share only to buy it back last October for $150/share – whoops!
Today I sold 100 of my 300 share position in Health Care Trust of America (ticker: HTA). This was originally a private REIT that was sold to accredited investors back in 2007 at between $9 – $9.50/share. Today the share price is near the $30 mark and so I decided to sell a portion of this holding to redistribute into other companies. My thinking moving forward is to start “harvesting” the DDI Portfolio of any holdings that reach 100% appreciation. My plan is to take some percentage, probably 100% of the original investment, and cash it in. I’m still working out the details, but my intention is to have a “hard and fast” plan that I can stick to.
As I’m now focused on filling holes in the portfolio, I’m looking for companies that will pay out on days that my current holdings don’t. The goal here is to try and reach “BINGO!” each and every week. BINGO! is a catchphrase I came up with to describe any week that I get a dividend payment everyday, Monday through Friday.
WARNING! There is an inherent flaw in what I’m proposing to do here by owning companies that will pay each and every weekday – and I’m guessing you’ve already figured it out. By buying companies based on their payout dates, and not completely on their financial worthiness, I could be setting the DDI Portfolio up for some oversized losses.
For now, it’s a risk I’m willing to take. What I often find when searching for companies that payout on a certain day is that there are several to choose from. Many of these companies tend to be smaller niche-y firms that have been around for 20, 30 or more years and have a good record for dividend payments. Also, by the sheer fact that the DDI Portfolio is over diversified, a hit taken by any one company isn’t going to sink the over all income stream or capital gains of the DDI Portfolio.
Case in point – in 2015 I purchased about 20 shares of United Development Funding IV (ticker: UDFI) and started collecting some nice oversized 7%+ dividends. By early 2016 UDFI had been accused of fraud and possibly running a ponzi scheme – both the dividend *AND* the shares were halted! Now I not only lost my income stream but couldn’t even get what was left of my principal out! I originally paid $1768 for 100 shares in August 2015 and sold those same shares after trading resumed in December 2016 for $429.00 – taking a little over a $1300 loss. With the DDI Portfolio currently valued near $550,000.00, this loss represents less that 2 tenths of 1% of the total portfolio value. I believe it’s a small price to pay and really, short of not buying the shares, I don’t think that I could have foreseen the problems before they happened.
Goals are one of those things that if you don’t write them down *AND* pay attention to them, they are of little value. Looking back over my successes in life, I’ve noticed that when I write my goals down and spend even just a few minutes a day acting on them, or even just thinking about *HOW* I might be able to achieve them, it’s likely I’ll be successful in completing them.
The DDI goals aren’t as specific as I’d like them to be, but it’s a start. I think they should also be more of a stretch, but for now I’m focusing on writing them and achieving them!
The one goal that I’m primarily focused on presently goes to the heart of what the DDI Portfolio is all about, DAILY INCOME.
I track the performance / income of all my investments daily so I always have a good idea about how much income is being produced and when it’s being deposited into my accounts. Looking back over the last couple of months, I noticed that a trend is forming with regards to the DDI income stream. In most weeks, I’m achieving income 4 out of 5 days – while this is great, my goal is 100% daily income throughout the week, month and year. As I wrote about previously, discounting the fact that dividends aren’t paid on weekends or holidays, I wasn’t sure I could really get to 100% daily dividend income. As I dug deeper and found some new tools for dividend investment research, I now believe it, actually I KNOW it’s possible to get dividend income DAILY!
So that’s my current focus – DAILY dividend income. While I was able to achieve 5 out of 5 days of income back on April 28th through May 1st – I’m looking to make that a consistent reality moving forward. Today, I just added shares of CME Group (Ticker: CME) – yield is about 2.4% but they tend to pay “BONUS” dividends which can bring the yield up closer to 5% or higher. I just made the cut-off (x-div June 8th) for the next dividend payout later this month.
What are your investment GOALS? Add a comment below – I think it’s helpful to see what others are doing to push our own boundaries.
Over the last week I’ve been checking out a bunch of other financial bloggers and I’ve come to realize, cash flow and passive income is great, but what’s better is “WHAT” it buys you.
For some people that might be fast cars, big houses and parties every night, but really for me the big win is FREEDOM, the freedom of TIME that the passive income provides. A good friend of mine once told me, “I’m not afraid to lose money in business, I can always make more money.” But the thing we can’t get back is TIME – time is really what I want.
As I read a lot of the finance blogs, my own included, there’s always a bunch of talk of increased earnings and price valuations, what the market is going to do now that we’re in an election year and on and on.
At the end of the day though, the real goal for me is to increase my cash flow so that I can spend more time doing the things I enjoy without having to worry about the “responsibilities” of life (taxes, mortgages, insurance, etc…)
For now, more freedom means I get to spend more time with my kids before they go off to college in a few more years. Time spent helping their teachers at school, the coaches on their softball and track teams and just being “present” in their lives. I know this time for my kids is short and I don’t want to miss it working a 40-hour-a-week job. That’s why passive cashflow is important to me.
In the future I hope to spend more time traveling (Europe, South America, Cruising, etc. ) with my wife . But for now, I get to live vicariously through the blogs of some of my new found writers. Take a look at few I’ve listed below, I think you might enjoy seeing the ways they’ve created financial independence to gain more time and freedom in their lives.
Finally, what about you? Leave a comment or drop me a line – how are you building financial independence in your life? What steps are you taking to fulfill your life passion? Why is passive income important to you?
Here’s a short list of some of my new favorite “Financial Independent” bloggers:
Weekly DDI Income Update – Week of May 16th – $4134.88
One of the motivations for writing this blog is to track my progress in building the DDI portfolio over a long period of time. It’s interesting to look back and see how far the portfolio has come.
I was just reviewing a post from November 2012 where I was so excited to have $623.77 in monthly income! Hey, 600 bucks is nothing to sneeze at, but I’m way past that now with a current monthly goal of $2000/month.
A little over a year ago, before oil started to slide in price, the DDI portfolio was hitting between $2000-$2400/month, but since a good deal of the DDI income comes from oil royalty stocks (SBR, CRT, BPT, etc…) the income has taken a hit. So I’ve been trying to shore-up the income stream with some other diversified holdings while waiting for oil prices and the royalty stocks to recover.
The good news is that oil has bounced back from the low $30/bbl range and is now closer to $50/bbl which should help the DDI income stream start to recover.
In the mean time I’m continuing to monitor the weekly income and add to the portfolio when I have excess cash to deploy.
For the week of May 16, 2016 the DDI portfolio had 11 income paychecks with payouts on 4 out of 5 days! The total payout for the week was $462.88 in cash + 100 shares of Alliant Energy (LNT) worth $36.72/share. While I’m not planning to sell the Alliant shares now, the total cash payout is equal to $4134.88!
I took a few minutes this morning and did a search to find how many stocks make a monthly dividend payment. Take a look at this quick video to find out how many monthly dividend stocks are out there – you might be surprised!
I’ve been collecting questions from readers of the blog and folks checking out the YouTube channel over the last few months and finally sat down and put together this Q&A video. I hope this will give you a little better sense of how I think about and manage the DDI portfolio.
Take a look and let me know if you have questions about the Daily Dividend Portfolio – you can drop me a line at email@example.com or leave a comment here or on the YouTube Channel.