We’re right in the middle of a beautiful summer here and that means it’s time for another big dividend month for those of us who invest largely in mutual funds and ETFs.
ETFs and mutual fund largely pay on a quarterly basis which makes December, March, June and September the big cash inflow months.
I do own a few individual stocks in my portfolio that pay outside those months and will likely buy more in the future if there are some good values out there. I’m not a dividend growth investor but most of the securities I own do happen to pay a dividend of some sort. I also don’t target securities that pay on a specific month just to fill out my non quarterly months so these quarterly months will likely remain a big portion of my yearly dividend total.
United Healthgroup(UNH) is one individual security I own and I mentioned it before in some of my previous updates.
I have sold about 2/3rds of my original position in the last year as the price had gone above what I considered to be fair value. The stock has increased about 12% since then so maybe I sold a bit prematurely but the piece of mind of not having a big percentage of your portfolio tied up in one security was worth it.
The reason I mention it today is because UNH approved a 33% dividend increase in June that was paid out last month. The stock has been a big dividend grower lately with six straight years of dividend increases in the double digit range. The stock went from a payout of .03 annually in 2010 to .625 quarterly.
That’s a pretty huge increase and one I think will continue as long as the for profit healthcare system continues in this country. UNH is a cash cow and even at their current dividend yield of 1.5%, their payout ratio is a low 31.7% meaning they have a lot of room for dividend growth.
My average purchase price of the remaining shares was around $40 years ago. I like stocks that have potential to appreciate their dividend as well as their price. The company only paid a tiny dividend when I bought it but the cash flow was healthy enough that I thought it might become a dividend grower in the future which helped make my decision easier as there was some additional potential beyond price appreciation.
A yield of 1.5% may seem low but it’s not for those of us who saw the potential in the company years ago. Not only did I get price appreciation from $40 to over $140 on the stock but my yield on the original purchase price of $40 is around 6.25%.
That’s not bad at all especially if I expect it to grow more. That’s why I held on to 1/3rd of my shares despite feeling that the company has hit fair value. The dividend appreciation potential adds something that a free cash flow analysis has a hard time capturing in a low interest rate environment like this. I’m not surprised that the stock has continued rising since I sold it nor am I upset as the money went into other securities that were more diversified and also saw price appreciation.
Let’s get back to the dividends for the month. I mentioned last month that I was hoping to break the $1000 mark after almost hitting it in March and the dividend bump from UNH certainly helped.
There was some market turbulence with the BREXIT vote but that means I just reinvested this months’ dividends at a lower price. Not a bad deal for us long term investors.
The goal for June was to break $1000 and I killed with a $1161.49 total! That’s not a bad month and actually not that far from what I take home in my paycheck after all the deductions. It’ll certainly feel good when one of these quarterly months that’s not December comes out to more than what I take home every two weeks.
The UNH dividend bump certainly helped as the taxable total is becoming a bigger part of the overall chunk in these quarterly months. I am now maxing out my 401k and Roth IRAs for the first time in a while. That’s thanks to a bump in pay and decrease in living cost due to having a live in girlfriend. Splitting costs and earning slightly more money(I’m still not one of those lucky 100k+ earners but maybe one day) certainly helps me invest more in taxable accounts meaning higher dividends there.
The $1161.49 total for the month represents a 17.7% increase over what we saw in March, a comparable month and most of that is driven by additional contributions into all my accounts and dividend increases in some of my individual and ETF/fund holdings.
After two off months for Steve, my hard working portfolio employee, there was an uptick in business this month leading to an hourly wage of $6.97/hr. I spoke to the seasonality of his work before and it’s clear in the graph above as he does really well about four times a year and struggles in the other months. I wonder why that is! I guess there must have been a lot of lawns to mow this month that helped him bump his earnings.
Adding that to his total for the year brings his overall hourly wage to $2.55/hr. That’s above the minimum wage a server gets but unfortunately poor Steve doesn’t get any tips to make up the shortfall to the minimum wage so I’ll have to keep working to support him for quite a bit longer.
My goal for the year was to get the annual hourly wage to $4.50/hr which might be tough despite the growth in dividends from March to June but I’ll keep pumping money in each month. December is the biggest month of the year for me as the graph clearly shows so it’ll be down to the wire to see whether that $4.50/hr target will be hit.
Contributions are a big part of increasing dividends but reinvesting them certainly helps too. The $1161.49 earned this month reinvested at the average 2.5% yield my portfolio gets will mean $29.03 in extra dividends per year or $2.42 per month. That doesn’t seem like a lot of money but it all adds up in the end.
That’s it for June. I was happy to see the quarterly total above $1000 and hope I can keep it above there each quarter barring any market calamity that brings with it huge dividend cuts(I’ll blame it on Steve being lazy if that happens). It’ll be nice to see the quarterly dividend total above my take home paycheck but I don’t think that’ll happen until 2017. It’ll be even nicer to see it above my monthly take home pay – not just the bi-weekly paycheck but we’re still a ways away from that.
I’ll see you all in a week for portfolio update and an expense update later in the month.
June Total : $1161.49
2016 Total : $2554.88
Portfolio monthly hourly wage : $6.97/hr
Portfolio yearly hourly wage : $2.55/hr