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Dividend and Expense Review – March 2020 – Lower Rates and Dividend Cuts

March 2020 – Stock Sales, Lower Rates and Dividend Cuts

We’re in a whole new world. One of lower rates, dividend cuts, employment loss and healthcare issues.

However, the financial stuff seems so much less important now. Yes, the stock market is volatile but other things really matter more.

The pandemic has changed the way we live. More importantly, it has brought to the forefront the importance of certain critical industries. On top of that, it has brought out the best in some people and I am in awe at the bravery of some of our front line workers.

There’s healthcare, transportation, grocery stores and other industries. I am thankful to all who put their lives at risk for the benefit of others. However, these people also certainly need to be rewarded more for this. That’s another thing that’s clear from all this. It’s great to say, hey thanks you brave souls, but it’ll be even better if we reward them.

After all, right now, many of those people are only doing this work because they have to, because the social safety net just isn’t there. That’s not a great look for our country or community.

One of the reasons I save so much money is because that’s the reality of life. I want to have flexibility when shit hits the fan but also to be able to help others in my community if they’re struggling.

Personally, I am lucky enough to be in an industry that allows me to work at home. However, not everyone has that. I hope the distinction becomes more clear to people and we reward those who matter so much to making sure our society runs well.

March was the first month where a lot of us who could be were at home. I started March in the office but finished it at home.

Luckily, I’m still employed and thankful to be able to make posts like this one. It’s really a difficult time for everyone right now but especially those who have already lost their jobs. The economic picture is bleak and there’s always worry about job loss. That’s one of the reasons the fed made certain moves to get ahead of these problems.

The fed made quick rate cuts that brought us to 0%. The lower rates translate to lower interest rates at banks and money market accounts.

I hold a bit of cash so the lower rates mean lower payouts. The Vanguard money market fund dropped from a ~1.7% yield to 0.6% in the space of a few weeks.

Lower rates are never a great sign and it’s quite possible we head even lower. After all, the economy is struggling and the future picture is murky.

The risk of a large contraction was one of the reasons I made some stock sales in January and February. I really wanted to fatten up my emergency fund plus I didn’t want to hold any more stock at the company I work for. After all, that’s double the risk! I make my income there and don’t want to have part of my stock holdings related to the industry as well.

At the end of January and through the end of February, I sold all of my stock freeing up quite a bit of cash. The timing turned out to be fortuitous as I made my last sale 2/24 and since then the stock has dropped over 25%. That left me with a whole bunch of cash right before the big drop.

I’m not about that market timing but this worked out well.

I’ve been putting that money back to work slowly. However, I do like the idea of holding a bit more cash right now but do want to deploy it soon. That means I have been near my 20% cash max as dictated by my investment plan.

There have been buys here and there and I plan to buy continually through the next few months. My regular 401k and HSA contributions have also gone into the market. I’ve also been putting more money into my dividend aristocrats portfolio.

However, the sale does mean that my dividends will likely suffer as a result.

I basically let go of 10% of my portfolio and have yet to replace it all as of today. On top of that, there were already some dividend cuts and freezes that will likely impact some of my index funds going forward.

The cash itself won’t generate much either as those lower rates mean lower cash yields. It was near 2% before but now it’s heading close to 0%.

The upside is that while my current dividends might suffer, future dividends should grow. I plan to allocate this money soon to make sure that happens.

The nice part is that I should now be getting much better yields than I was getting when I sold my company stock.

However, here I say should because the future is uncertain. I do think there will be more pain ahead and with that will come dividend cuts. That certainly puts some of my goals this year at risk as does the economic environment.

Who knows if my job is even safe? That’ll certainly impact all of these posts. I happen to think it is based on my industry but we’re certainly in uncharted territory now when it comes to the economy.

On the expense side, you’d think that working at home would make things cheaper. That’s definitely the case. However, March had some expenses that really changed that up.

First, I had a root canal on one of my teeth that’s still currently in progress. Second, on the day of the root canal, my car wouldn’t start which meant some car expenses came up too! What a day!

Still, given that I was at home most of the month, I’d wager it’s a solid month on the expense front. Given the economic environment and the quarantines we’re all under, I plan to save as much as I possibly can in the coming months.

On the dividend side, who knows. I do expect some cuts even in stalwart companies like the dividend aristocrats. Given that, the lower rates and my stock sales, it’s possible I actually see dividends shrink a bit in the next few months.

However, I hope to be back to growing soon as I use some of that new freed up cash to buy new securities.

Historically, March is a solid month for me. That’s because I own a lot of index funds that pay quarterly. Last March, I collected $2076.86 in dividends.

March Dividends

Lower Rates

March comes in at $2009.62!

It’s still a good number but it is lower than 2019. It’s the first reduction in dividends in a while. However, it is not unexpected. After all, I did sell some stock recently.

Last year, the stock I sold paid out nearly $300 in March and I’ve yet to replace most of it so it’s reasonable that I see a drop this year.

The drop is small, only 3.2% but it’s never great to see a reduction! However, I know that this might be more common as dividends will get cut and lower rates impact my cash yields so I’m not too concerned about it. After all, this is a long term game and dividend cuts do happen during tough economic times.

Despite the drop this month, I’m still up 2.65% this quarter which is nice.

At least this time, the reduction is driven by something I controlled, a stock sale.

That might not be the case in future months! I do hope to get back to growth as I put a lot of that cash back to work in the market. However, I wouldn’t be surprised if dividend cuts hurt in the near term. S&P 500 dividends dropped 25% during the 2008 recession and it’s possible the same happens this time around.

One bright spot on the dividend side is the growth in my M1 Finance account. I’ve been putting more money into that account which yielded $45 in dividends in March. That’s not much but up from $9 last year and $23 in February. That account is still a small % of my overall funds but a lot of my new cash is flowing into it which should make those numbers grow quickly.

As always, this money gets re-invested right into dividend paying securities. Now, that the prices are lower, the yields are higher too which means the money goes further when it comes to generating dividends. March’s income re-invested will increase my annual income by $58.28 based on my portfolio yield.

On top of the dividends, I also received $549.49 in capital gains from my mutual funds which get reinvested as well.

Steve, my dividend employee, had a solid month on an hourly front. His hourly wage for the month was $12.06 and that brings the annual wage to $5.03/hr.

That’s decent and Steve’s best months are still ahead as shown by the graph below.

We’ll see if I get back to growth in the months ahead. The truth is that there’s a lot of uncertainty in the air.

Still, I’ll be glad to get any dividends I can and re-invest them at lower price. I do know that stocks will eventually come back and dividends will grow again even if they shrink in the coming months or years. On the risk side, I have some exposure to sectors like REITs and energy that will be impacted in a big way.

We’ll see what sort of dividend cuts we experience and what that means for dividends this year. As I always say, I’m a long term investor so bad results in the short and mid-term won’t impact me much. However, it’s never great to see negative results and I’m hopeful we see improvement sooner than later.

If I had to guess, I’d say we’re a long way away from seeing sustained growth again but I hope I’m wrong.

March Total : $2009.62
2020 Total : $2514.77
Portfolio monthly hourly wage : $12.06/hr
Portfolio annual hourly wage : $5.03/hr

March 2020 Expenses

March is generally a month where I save about 40% of my income.

However, this year’s circumstances are a bit different. After all, I was forced to stay home for a good portion of the month. That meant higher indoor expenses but lower outdoor expenses.

I was expecting this to be a solid month. However, a few unexpected things came up.

First, I had some tooth pain develop that turned out to need a root canal. I was lucky enough to squeeze that in before the major lock downs happened and am now pain free. However, I do have a follow up visit later this month but the entire treatment is paid for already. Insurance covered a good portion of it. However, I still had to shell out quite a bit and I have to do another one later this year too.

Secondly, on the day of the root canal, my car failed to start. What a day! My wife ended up driving me after driving back from work but the end result of that was that I needed a new battery. Luckily, AAA delivers those but unexpected expenses were had.

Last year’s savings rate was 47.40% so let’s see how this March compares.

My savings rate for March was 44.09%. Adding in employer contributions brings that number to 50.98%.

On a gross income basis, I saved 33.3% of my income which jumps to 38.51% with employer contributions.

One of my financial goals this year is to hit a savings rate of 50%+ in at least 8 months. I didn’t hit that this month but am hopeful I can do that in April since it’ll be a full month of staying in at home.

However, these goals are becoming less important as this year progresses. It’s important to me to save money but I also know that I have to be realistic about income and expenses when times are tough. There’s always a risk of job loss(although I think my job is pretty safe) and on the expense side, I might have to be more charitable this year to help those who are struggling and suffering.

In times like this, financial goals become less important and other things take center stage. I am so privileged to be in a position right now where I’m able to save money and hope that continues. However, I also want to be able to help others more when I can and plan to do so in the future.

On top of that, unexpected expenses may arise as well despite some others disappearing. For example, we had a trip to Spain planned in May which is now cancelled. We already booked our flights and are still waiting for refunds there. That should help me save more money in the next few months. On the other hand, I have to be reasonable about health spending and the risk of something increasing on that end.

My root canal was a good example of that. I also know I have another ahead of me this year. The root canal before insurance cost $1,700! Insurance covered a lot of it this time but given that dental insurance has an annual max of $1,500, the rest is up to me. I also have to put on a crown on the tooth which will cost quite a bit.

I’m hopeful my family and I can stay healthy and keep employed but I have to be ready to react if that doesn’t happen. That’s why I’m less concerned about those goals now than when I set them in the beginning. It’s possible I fail in a big way this year. However, that’s not so much a concern because so many things are changing. Now, if I end the year employed and my family healthy, it’ll be an amazing success.

Still, let’s run down this month’s expenses.

Rent was #1 as usual.

Groceries were #2. We stocked up a bit to prevent the need of going out too much. We didn’t hoard anything though, just bought a bit extra and some for the local food pantry. No 8x packets of toilet paper here! On top of that, since we didn’t out much, we just ate more food at home as well which spiked the grocery bill.

Health bills were next. It was that root canal. I expect health to be a bigger expense this year due to some dental work. On top of that, who knows what will happen with our health this year. Hopefully, all is well but you never know. It is a pandemic after all.

Health insurance was next and I’m glad to be able to have that during these trying times. However, the fact that it’s tied to my job makes me nervous. It really reinforces my opinion that universal healthcare is the way to go. It’s hard to see many people lose their job because of health concerns and then lose their insurance alongside that as well.

Car expenses were next and driven by a new car battery. Those AAA guys are super nice. They made a stressful situation very easy even if I had to pay a bit more for the service. I’m also still paying for parking at work despite working at home. I’m trying to get that cancelled ASAP. I just hope it’s easy to re-instate whenever we get back to work.

Beyond that, there’s nothing crazy. I ordered some dog food early and some extra medicine for my dog just to have it in case we can’t leave the house for a bit. On top of that, we had my mom’s birthday which involved a few gifts. This was before the lock downs and likely the last time I’ll see my mom in person for a while. It’s a weird time we’re living in right now.

On the restaurant front, we got some take out pizza a few times. Curbside delivery is nice and I really want to still support some local business that are struggling in this climate.

In the end, this was a solid month. The annual trend is still good as the savings rates continue to be solid.

Overall, I’m lagging a bit behind 2019 when it comes to savings rates. However, I’m only 1% behind. Going forward, I’ll be forced to stay inside and not spend money so we’ll see how that goes. Our vacations are all cancelled and as long as we keep our jobs, we should be able to save a lot.

We’re stocking our emergency fund just in case things do go awry. This is such an unprecedented situation that it’s hard to guess what might happen next.

However, I hope to be able to save as much as I can when I can do it. I am hopeful to be able to do that but like all, I’m worried about what might happen next. April is really the first full month where the quarantine impacts the entire month so we’ll see how that plays out.

On the dividend side, lower rates will impact both bond and cash yields in the smaller months. I also expect a decent amount of dividend cuts to impact the payouts in the short to mid-term. The reality is that a lot of corporations are now bringing in a fraction of their revenue. That’ll lead to lower earnings and the potential for dividend cuts will increase.

The plan, as always, is to keep buying through thick and thin and wait to for it to recover. It’ll happen eventually but who knows when. I do have extra cash that I continue to deploy and think that will help long term returns.

As I buy today, the yields I get are much higher than they have been recently even if I consider potential cuts. Those cuts won’t last forever and will eventually recover so these seem like good buys in relation to everything else that’s out there.

Bear markets often have a tendency to stick around a while so we’ll see how this one does. I guess it’s technically not a bear market anymore cause we went up 20% from the bottom and we seem to be up today too! It’s a real odd time to invest but that’s the beauty of long term investing, you never really worry about timing.

However, it still certainly feels like a bear market and I’m sure that there’ll be a lot more volatility ahead. We’ll see how things go but here’s to more months like this one where I can save a lot and stay healthy.

Right now, I’m healthy, employed and safe. That’s a success in this environment. Hopefully, you’re all healthy safe and doing well too.

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