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.