Table of Contents
Rates are Rising and the February 2022 Dividend Review
Everywhere you look, rates are rising as are costs. The fed has raised rates and it seems like they have plans to do that a few more times this year and next. That’s all to combat inflation which is through the roof and doesn’t show much sign of abating. Mortgage rates are rising too. We bought our house in December of 2020 with a 2.75% mortgage rates and today mortgage rates sit north of 4.5%.
You can see the volatility in all these items in the graph below. It’s not a memecoin chart that you’re looking at, it’s the mortgage rates in the past few years.
It does seem like there’s at least a level of normalization back to the pre-pandemic times with mortgage rates but it’s hard to tell if they’ll go higher given the rough inflation numbers we’re facing. Looking at the graph, it sure seems like we bought right around the right time.
Timing the market doesn’t work in the long run but it feels nice when you buy basically at the bottom when it comes to mortgage rates. Home prices and rents have continued to rise despite the fact that rates are rising so it’s nice to have the mortgage locked in at a low rate given the inflationary pressures we’re seeing.
The uncertainty in all these items, as well as more global conflicts, has certainly been seen in the stock market as well. Tons of volatility there especially in the tech space.
As all this happens, payouts to investors are rising too. There’s been plenty of dividend bumps in the last few months and as rates rise, so do bond payouts for those who invest there. Yes, in the short term, it’ll mean lower prices on bonds especially if you have exposure to long term bonds but short term and intermediate rate bonds shouldn’t move as much and all will eventually start to pay out better yields.
Bonds are still paying 2-3% at most which isn’t all that enticing given 8%+ inflation but hopefully that starts to even out more as time passes and inflation, hopefully, eases. Even stocks with their 2.5% yields will continue to lag inflation but at least those will also eventually provide price appreciation as earnings grow.
For me, I keep investing and ignore the volatility. My allocation is mostly in stocks(92.5%) but I do hold some bonds to help smooth out the process. The nice thing about having a little bit in bonds is that it helps guide my investing pattern. Not too long ago I was buying bonds as stocks were soaring and now I’m back to buying stocks as they have fallen off their highs.
I’ve actually been buying quite a bit of growth lately in my M1 Account since many stocks in the growth space have fallen off a cliff. I’ve mentioned in previous updates that growth seemed frothy but now it’s back to interesting levels.
As rates rise and bond prices fall, I might get back to buying bonds eventually as those yields start to rise especially if stocks continue their recent run. It’s the nice benefit of having and tracking against an asset allocation, you get a sense of what’s over/under valued in relation to your historical norms based on that alone.
Today’s market is an interesting dynamic but as a long term investor, I’m ok pumping more money in and not worrying about the short term prices. In fact, I wouldn’t be surprised if this recent recovery is short-term in nature and we see a more long term recession based on what’s going on in the world today. However, since you can never really time the market, I’ll just continue to do nothing but invest.
On the dividend side, February is another small month but one where I’m expecting some growth. I bought some individual stocks that pay in February last year and have also pumped more money into those M1 accounts that pay on a more regular basis.
Most of my money still sits in mutual funds and ETFs that pay quarterly but these smaller months should start to grow more as I invest more outside of that area.
Last year in February, my dividends came in at $297.72 so let’s see where they sit today.
This year’s dividends come in at $413.61, a sizable 38.9% boost over last year.
That’s a big difference over the 3.7% increase I saw in January. This doesn’t mean I’ll start seeing big growth going forward as this bump is primarily driven by a purchase of a stock I made in June, BTI. This stock pays dividends quarterly and this is the first February that benefits from that. I bought a small position of BTI in June and have grown it a bit since then but as it rose in price, I’ve stopped buy and have a full position at this point.
May should see a similar boost in growth due to the same stock paying out for the first time in that month and then August and November will have an overlap in pay so growth should be smaller.
On top of that, my M1 accounts continue to grow as this February saw a 29.1% boost on that front and that should grow more as I’ll start putting more money into those funds now that I’m maxing out all my tax-advantaged accounts earlier in the year.
Steve, my dividend employee, earned himself $2.48/hr., a decent number for these off months. YTD, he’s sitting at $2.04/hr. so still quite a ways from being able to retire but that number will tick up as we get into March and the bigger months ahead.
As this number grows, more and more money gets re-invested into stocks and bonds and helps the compound growth snowball roll. You can see that in 2017, I was still below $100 and through investing and re-invested, I’m sitting north of $400 in a smaller month like February.
All this money re-invested will boost my forward income by $11.99 annually. That’s a small number but will help every year going forward and I’m getting to a point where even these smaller months and their re-investments are worth more than I was investing per month when I first started investing in 2008.
That’s especially true in the bigger months like March which is coming up and a real boost to overall annual income as you can see in the graph below.
February growth boosted that month up quite a bit and now I’ve got March which is a sizable month and I’m already seeing those dividends start to roll into my accounts and get re-invested into more shares.
The nice thing about dividends is that as long as they keep coming, even stock price volatility isn’t as painful because I always know I’m getting more shares at better prices which will fuel future growth and returns.
While rates are rising these days and things are getting more expensive, my yields should start to go up as well as bonds start to pay a bit more and any additional purchases there will mean a higher yield. In addition to that, dividend growth should eventually start to mirror higher prices and higher revenues on the stock side. We’ve already seen some of that as dividend growth rates this year have been quite impressive and will hopefully carry through to solid growth rates for me.
Overall, February was an excellent month and bodes well for some of the goals I set this year on the dividend side.
Looking forward to March, warmer weather and a good year for everyone!