Don't Pre-pay Your Mortgage

This past week the old discussion of the pro's and con's of paying of your mortgage early flared up again. While good points were made on both sides of the argument, I'm firmly of the opinion that it doesn't make sense to pay off your mortgage early while you can enjoy a low interest and tax write-offs.

Of course, as all things personal finance, it's personal. In my case, a 3.875% interest rate, and the ability to deduct interest from my income makes it a no-brainer to pay the minimum amount. If I had an extra $1000 each month I could put that in LendingClub or in Dividend Stocks and expect at least a 4% return, very conservatively. My returns are higher than that.

Sell: ARLP

In the aftermath of the election the market went all sorts of crazy. I sold my ARLP position when it jumped up several points. It was on my sell list for a while, given their Div Cuts, and uncertain future. The stock has been recovering, and while it may continue to climb for some time to come, this was a good point for me to sell. I used the proceeds and existing cash to invest in a position in O.

This makes a huge dent in my dividend income, as ARLP paid well. I'm selling mainly because I have additional overhead to complete forms for ARLP's special tax structure. This wipes out most of my income. Second, they qualified for a sale after cutting their dividend. I want stocks that can grow their div over time, even if slowly.  ARLP served me well -- while I took a loss on the stock, they paid me around $920 in dividends over the years. I knew they were a high paying div stock and I knew the risks involved. Again, this income helped me get my dividend machine going, and allowed me to get into other positions.

I waited until after their last div payout of the year, and got lucky with a coal industry bump after the election. I'm happy to get this off the books in 2016.

Portfolio Report November 2016

In November I finally sold ARLP and used the proceeds and dividend earnings toward buying O. This checks a long-standing goal of getting out of ARLP. O is my first monthly dividend payer, so my month-to-month and month-year-ago comparisons will be off for the coming 12 months.
My LendingClub experiment is going well. Every loan paid on time in November, and proceeds were automatically re-invested.

HCP Spins Off QCP, cuts dividend

HCP spun off QCP on October 31. As a result, and as expected, HCP cut their dividend by 35%. This will have a real impact on my portfolio, as HCP is my largest position. Of course, with QCP being a brand new company, little is known about how they will handle dividends. For now I'm going to assume no dividend, and see when some data comes out. I'll hold on to the stock at least until they report a quarter on their own and provide some guidance on dividends.

Same thing for HCP. They will need to prove to me how they perform and handle dividends over the next quarter or two. There are other REITs like NHI or O that may be more attractive if HCP or QCP cannot deliver.

Portfolio Report October 2016

Several changes in October. HCP cut dividend after it spun off QCP. More on that later. Also, I put $2500 in a LendingClub account to experiment with a new mostly passive income stream. No other transactions for me.

Dividend Earned in October: $176.66

Dividend Expected in November: 668.41. Lower than August due to HCP cut, but still above November 2015.

Dividend Earned Trailing twelve months: 5,526.11

Dividend Expected Forward twelve months: 5,314.90.  A drop due to HCP cut, but excluding anything that QCP may produce.

LendingClub accrued interest: $24.40

LendingClub expected total payments November: $75.42

LendingClub Update November 2016

Last month I put $2,500 into LendingClub.  I select automated investing with a mix that's just below 'safe, lower returns', going for 'still safe, better returns'.  I opted to split my money into 100 x $25 notes. These were picked up relatively quickly, and loans were issued usually within a week.  There's one note hanging, stuck in Review. I'm not sure what's going on there. According to LendingClub documentation the loan can sit in that status up to 30 days before it's either issued, or canceled. If canceled, my $25 will be released and automatically put towards another loan that matches my investment mix target.

LendingClub Experiment

This year has been great for stocks, including dividend stocks. I have not put any fresh capital into my stock portfolio, and only re-invested proceeds just once. I've been on the sidelines most of the time, waiting for two conditions: sufficient dividend proceeds to build up cash for another investment round, and good entry points for quality dividend stocks. I'm right at a point where the first condition is satisfied and will be more actively looking for good stocks.

I've been wanting to diversify from dividend stocks, and stocks in general, but never found a good options. I don't want to be a landlord, it's too much hassle, too illiquid, and too much of a gamble unless you do it large scale. So when I recently read about LendingClub, I figured I'd give it a try. LendingClub is a peer-to-peer lending company. There are others like Prosper, but LendingClub came best out of the reviews I read.  They did have some fraud issues earlier this year, but that seems to be behind them now. I'm not going to review LendingClub here, but I'll share some experiences.

High level the system allows people to get a loan, with each loan chopped into small notes that are backed by investors. For example a note can be $25, so a $10k loan is backed by 400 notes. As investor you invest in notes from different loans to reduce your risk. There are different loan grades based on the applicant's credit rating and other factors. The return is based on the interest rate and reduced by any loans that are written off if they default.

It's only been a week, so no real numbers yet. I opened an account, transferred $2500 into it, and had to wait a few days for it to clear. I signed up for Automatic Investments, where you select a risk/return profile and the system will invest for you. I figured this is good for a start to get a feel for the system.  On Monday my money was in the account and gradually used to fund different loans. You'll have to wait until a loan is fully funded (e.g. investors have picked up all the notes to back the loan), and then the loan gets issued. Within a week 90% of my notes were in issued loans, and I expect my first payments early November.  The remaining 10% are being issues, meaning their loans are fully funded, and I expect them to be issued early next week.

I'm curious about a few things. First I want to see how long I can keep a 'perfect record', meaning no defaults, charge offs or even late payments. I have some high risk loans in the mix, and I expect it won't be long. Second, I'm curious to see how quickly I get back enough money to buy another note.  Now that my initial investment is put to work, I'm debating if I should re-invest the returns in a different way -- more risky or less risky.

The next item I want to learn about it the secondary note market. I'm sure people have figured out the right time to sell a note to optimize their profits. Notes that are way past due could be charged off, or possible sold for a dime on the dollar to recoup at least some of the initial investment. I'll have to read up on it and see what I want to do. The easy thing is to just let things ride, but I want to see how much time it takes to manage it for more optimal returns. After all, I'm actively building a passive income portfolio.

Dividend Report September 2016

September saw the first payment of TRTN, which I'm happy about. The stock is still not doing well, but as long as they keep paying the dividend, I'll hold on.

• Income: $ 482.65
• Trailing 12 months: $ 5,516.83
• Forward 12 months: $ 5,662.10

In October I expect $ 176.66 in income.

Dividend Report August 2016

This month is lower than the May earnings. In May we had TAL paying out, and the newly merged company TRTN pays out in September, so we should see the boost there. We're still up, from August last year.

RY pays out in Canadian dollars, so there's always a slight currency fluctuation; I'm not deducting the foreign tax withholding, as I'll get that back in my taxes. RY also announce a dividend increase, which is why we love them.

• Income: $ 754.25
• Trailing 12 months: $ 5,447.45
• Forward 12 months: $ 5,651.60

2016 goal is to have $5900 in projected dividend income. So I'm roughly $250 short of that goal, and we have four months left to invest.  I plan to sell ARLP this year, which brings a lot of cash, which I won't be able to replace. So hitting the goal is going to be tough.  On the other hand, I do have one car payment ending later this year, which will help catch up investments early next year. It's around $1000 and I plan to put half towards a new car fund (cash until I've built up a comfortable level), and the other half will go into the dividend portfolio.

My cash position is slowly growing from div income the past couple of months. I'm not a point where I want to jump in yet -- plus various div stocks are overvalued at the moment. I plan to dump ARLP, and use the proceeds plus all cash to get into a new position, or possibly add to an existing one.

In September I expect to earn $ 482.65, including the first payout from TRTN as mentioned above, and my first income from TGT.

Triton Announces New Dividend

Triton International (TRTN) started last year when TAL merged. I wrote about this last Fall. My TAL shares converted to TRTN shares. It was a bit of a gamble holding on to the stock, as no one knows if they keep their promises.

Dividend Report July 2016

It feels great to go on vacation and come back to a nice stash of cash in my dividend account. It's why we love dividend investing -- steady income. Plus, we're not anxious about missing any big ups or downs in the market. Vacation is all about unplugging, and financial peace of mind is a big part of that.

• Income: $ 176.66
• Trailing 12 months: $ 5,337.34

This was a 'catch-up' report as we were on vacation, more in August.

Buy: TGT

Finally, a drop in the market, and I picked up 90 shares of TGT, adding $216 to my dividend income. My total forward income is now $5,745.89. My goal for 2016 is $5900 forward div income, and I want to say this is 'yellow'. I'm only funding this with div income, no fresh capital, so I think I can find another $155 in div income to meet that goal. However, it's not all about that one goal. I have ARLP and TAL on my sell list. Both of these have cut their div, but are still generating quite a nice sum. I'll sell sometime this year, but I'm not sure that I will be able to cover the $550 drop in div with other stocks. I'm willing to take the short term hit though, if it means a more stable growth portfolio in the long run.

Sell: COP

As I have mentioned before, COP cut their dividend and landed on my watch to sell list. I waited a bit and COP nicely recovered from their bottom, and I was able unload all my shares at a minimal capital loss. Including dividends I came out well ahead. I'm still in CVX, and will remain so unless their also cut their dividend. They haven't raised, but with oil prices recovering who knows where the future will take us.

I haven't sold stocks in a long time, and I'm happy with COP's ride overall. It helped me with my div strategy and gained me solid divs. It feels good to sell a stock that cut their div.

Meanwhile the proceeds from COP will add to my growing pile of cash, and I'm looking to buy soon. But I haven't made a purchase yet this year.

Dividend Report May 2016

May was a good month. Pretty mellow overall. No trades. 

Stats:

• Income: $ 753.19
• Trailing 12 months: $ 5,144.63
• Forward 12 months: $5,599.89

Markets have gone up quite a bit, making it attractive to dump COP, TAL and ARLP. I haven't pulled the trigger yet.

ARLP Div Cut

Not unexpectedly, ARLP cut their dividends. The coal industry has been under pressure from low natural gas prices in the short term, but also by an aggressive move away from coal as energy source. Several countries have set goals to increase energy from renewable sources. I believe energy demand will keep growing, and I'm not yet convinced that renewables can keep up. Having said that, the better investment would be in an NEE (that I also own), or SolarCity etc.

Still I think ARLP isn't completely dead. I do believe gas prices will go up, which will increase coal demand, bringing coal prices up as well.

Having said all that, their dividends were unsustainable with the lower revenues and earnings per share. So they had no choice but to cut div. And that puts them on my sell list. Like with COP, I won't sell on the news. I was already going to sell ARLP this year for tax and other reasons. I'll see what the stock does for the next few months and exit at a proper time for me. 

Dividend Report April 2016

April saw dividend cuts. In particular ARLP was a big hit, reducing my dividend income by roughly $130 annually. Offsetting this loss were increases by IBM (7.7%), and JNJ (6.7%). TAL, CVX, and HCP all maintained their previous payout, as expected. No transactions for my portfolio.

Stats:

• Income: $ 176.66
• Trailing 12 months: $ 4,961.31
• Forward 12 months: $5,494 -- a huge drop due to ARLP

In May I expect a record month of $822 in div income. I have money sitting idle, and I can't wait to add it to my portfolio. I'm debating if I should put in my div earnings first, or sell from my sell list (COP - cut, ARLP - cut, TAL - cut) and then invest the whole lot into another stock. 

Dividend Report March 2016

March didn't offer any good buy opportunities. Looks like when stocks were on sale earlier in the year, I didn't have enough cash to invest, and now that I have several months worth of dividends earnings, stocks are overbought.  So no transactions this month. COP came back up along with oil prices. I'll be looking to sell in the next few weeks.

My portfolio value has gone up nicely with the rest of the market. No smarts or luck here, just not selling when things tanked in Jan and Feb, but riding the wave down and up again.

March stats:

• Dividend income: $ 436.10. No surprises.
• Trailing 12 months: $ 4889.93.
• Forward 12 months: $ 5622.72. Slightly higher than last month, due to dividend increases. Not growing fast, as I haven't put money back into the portfolio.

Expected in April: $ 176.66. 

Oil Ups and Downs

With the recent dividend cut of COP, the stock is on my sell list. Why not sell right away ?  I would take a significant loss selling now. I believe the oil price will rise in the next few months, and I would be able to sell at a much better price.  Of course timing the market isn't a good strategy, but I believe some patience can be rewarding as well. In the mean time COP keeps paying me, albeit less than before.

Coal exit

One of my poorest performing stocks is ARLP. This one has lost much of its value, but keeps paying dividends. I purchased the stock because of its high dividend, understanding the risks. I wrote about this last year.
It paid me well, but it's time to move on for two reasons.

First, there's a hidden cost in this stock. Given that it is a limited partnership, at tax time this requires extra K-1 forms. Since my tax preparer charges by the form, extra forms mean extra cost. Since ARLP is the only stock using that form it eats up my proceeds from this stock. I believe the net income is not worth it, and I'd rather take the loss. The stock already paid me a dividend this year, meaning I'll have to use the form in 2017 when I file my 2016 taxes. My plan is to milk the stock for its dividends this year, and sell after the last payment of the year.

It's not the only reason I'll sell. The coal industry as a whole has been under pressure the past several months. I believe coal to be part of the energy landscape for some time to come, as we nowhere near have renewable capacity to fill the void. Having said that, I believe there will be come consolidation (read mergers) in the industry, and ongoing pressure on revenue. This is of course bad news for dividends. At some point the industry may reach an equilibrium with a few producers owning all the capacity and running a profitable business. In the mean time I plan to exit coal by the end of the year.

Dividend Report February 2016

I invested heavily in HCP in December. It is my largest position, and it saw a huge downturn this past month. They are still holding on to their dividend payouts, and I'll hold on to the stock as long as they do. The large position means that the middle months of each quarter will generate a good amount of income.

COP cut dividends, and the company is on my sell list. The price is heavily tied to the oil price. I plan to sell on an (oil) upswing and use the proceeds to grow one of my other positions. I'm still exposed to oil with CVX, which has maintained and not grown their dividend.

The reason I called this blog Active Passive is exactly because I have to stay active to generate passive income. I wish I only picked winners and could just buy and hold, but it doesn't work that way.

Other stats:

• Dividend income: $ 721.70. Slightly higher than what I expected, due to currency fluctuations affecting RY payout.
• Trailing 12 months: $ 4,835.76.
• Forward 12 months: $ 5,581.96. This is a drop from last month, as COP cut their dividends.

In March I expect $ 436.10 in dividend income. I've now saved up two months worth of dividend income and plan to make a purchase in March.

Tax-Free Dividends in Retirement

 I'm not a tax adviser. I hear things, read up on them, and apply them to my situation. I hope this can help some people out. Do your own research or get professional help.

Many people have standard 401k accounts. It's great as it gives you a tax break now (more money to invest!), but you'll pay taxes when retire and start withdrawing. The idea is that your income is lower during retirement, and hence you'll be in a lower tax bracket. Sounds great. But have what will your income be in retirement. A disciplined dividend growth investor may end up with a sizable portfolio and passive income.

From: http://www.tax-brackets.org/federaltaxtable

Tax Bracket (Single)	Tax Bracket (Married)	Tax Bracket (Head of Household)	Marginal Tax Rate
$0+	$0+	$0+	10%
$9,225+	$18,450+	$13,150+	15%
$37,450+	$74,900+	$50,200+	25%
$90,750+	$151,200+	$129,600+	28%
$189,300+	$230,450+	$209,850+	33%
$411,500+	$411,500+	$411,500+	35%
$413,200+	$464,850+	$439,000+	39.6%

If you're building up a passive income portfolio for several decades, it's not that difficult to end up earning between 9k and 37k a year in dividends. So you have your dividend income, probably taxed at the dividend rate, currently 15%.  Then you have your 401k income, and any other pension, which I believe is taxed at the normal income tax rate per the table above.

The other thing is deductions. When you're working and you have a mortgage, you have some nice deductions to offset your income. When you're retired and possibly paid off your house, you no longer have many deductions.

So look into hedging on the tax rates, as they are extremely low in the US compared to other nations, and with the deficit as it is, there's a chance taxes will rise over the next decade or so. Regardless of which party runs the government. To hedge on tax rates, think about some ways to earn income tax free. Roth accounts like Roth IRA or Roth 401k are good vehicles. In those accounts, seek out the dividend paying funds or individual stocks if you have the option. If your passive income portfolio brings in 20k, 2.5k could be lost to taxes right away, or more if taxes increase. With tax free income, you pay taxes now, but all proceeds come out tax free, including dividends.  Check it out!

Two Div Picks to Spend Your Tax Refund On

Many people get a refund thanks to overpaying taxes all year. I try to minimize my over payment, as I'd rather invest throughout the year, but I usually end up with a refund. Instead of spending the refund, consider putting it toward dividend stocks. Even $500 can go a long way over 30 years. Of course, if there's high interest debt to be paid off, do that first. But don't see the refund as a bonus. After all, it's your own money!  The government just held on to it, interest-free, for up to a year. So now it's time to put that money to work.

Top stocks in the Active Passive screener are: CFR and LLTC. Both have a score of 19 out of 20, good yields, good payout ratios, a history of paying and growing payouts. Plus they're both at least 10% below their 52-week high. Take a look, do your research, and see if they're a fit for you. I have no position in either of these, and don't plan to buy in the next two weeks.

Last time, in October, I had CFR on the list, along with NEE. I bought NEE in December.

CFR details.

And LLTC.

 

Dividend Report January 2016

It's a luxury to be able to ignore the market turmoil. For me January brought exactly the return I expected, $282.53.

If you can time the market this would have been a great month to make money. I don't try to time the market. I do screen for good quality dividend growth stocks. If I had capital to invest I would have added to my existing positions. However, I did not make any purchases. My large investments were done in December, and those will be it for a while. With my February div income, I will probably have saved up enough for a trade mid-March.

So this month I saw income, and I saw pay raises in the form of dividend increases.

Riding with the Kings

At Active Passive we invest in a variety of companies. Several holdings include dividend kings.  A dividend king has increased dividends for at least 50 years in a row. See the list of 2016 kings over at DGI.

No cuts, no misses. In such a time frame, there are several recessions, and other market and world events that affect businesses.