December was an outstanding month for dividends and interest…..January was not. The first month of the quarter is always slower for dividends in our portfolio. January is even slower because a couple of the bond funds we own decided to make an extra distribution in late December then won’t distribute again in February. Let’s take a look at the results of our dividend and I’m expanding the report to include other passive income for the month of January:
Total Dividend/Interest Income: $1,668
Monthly REITs: $1,051. The majority of January’s income came from our two REITs that pay monthly dividends, Stag Industrial and Entertainment Properties Trust. This number should go up some in February as we added to our EPR in December when the stock fell below $70/share. They report earnings and the 2020 dividend rate at the end of February and will eventually trim this position back a little bit due to the concentration it’s become in the portfolio.
Quarterly Dividend Payers: $516. These dividends are from a basket of financial stocks we own (RF, FITB, JPM) and our long term holding in Disney, which only pays a dividend twice a year. These financial stocks have been steady dividend payers, but ran up quite a bit in value in the last few months. I’ll eventually sell some of the smaller financial holdings and only hold Bank of America and JP Morgan for the long term. This is a business about scale and I think JPM and BAC are the best two of the four big banks. I only hold the basket of regional bank stocks for a tax move I did last February and now I can sell them at long term capital gain rates.
Other Income/Side Hustles:
Job Spotter: $30.43. This was a good month overall for JobSpotting thanks to vacationing in Hawaii. Payouts were still in the $2/range for new signs whereas they’ve been dropped to around $0.50 here in the Southeast.
Bank Bonuses: $0. There were no bank bonuses for the month, but I did initiate a new TD Bank and Wells Fargo checking account bonuses that should payout in the next two to three months. Doctor of Credit is an excellent resource if you want to make a few extra dollars from being organized.
Blogging: $0. There’s this belief that I’ve seen occasionally that everyone who claims to be “early retired” isn’t actually retired because they make so much from their blog income. I can’t speak for others, but I can assure you that is not my experience! I got an alert when I was doing TurboTax recently asking something along the lines of “are you sure this is all you made for your expenses?”. Yes, I’m sure. Personally I’ll be happy if the blog can break even as long as I continue to get reader emails such as this:
Here’s the original pension post that generated this message.
I’m writing this post halfway through the first quarter of 2020, so I wanted to provide a quick mid-quarter portfolio update:
Capital Gain Harvesting vs. Roth Conversions: Our income will be in or below the 12% Federal Tax Bracket for 2020 and this means any qualified dividends and capital gains are free of federal income taxes for the year! We can also convert dollars sitting in our pre-tax accounts into our Roth IRAs and pay fairly minimal taxes on it. I’ve debated back and forth on which is more valuable, converting funds from the traditional 401k over to the Roth IRA or harvesting capital gains. So far I’ve done a small Roth conversion and am waiting to see what happens for the rest of the year. If we buy any real estate in 2020, I’ll probably have to sell some positions and pay capital gains.
Options: While I wait to harvest the capital gains, I’ve begun to sell options to generate some additional income. I prefer to be a seller of options because the contracts are like being or playing the casino. It’s my preference to play the part of the house in the casino and sell a number of small option contracts. This should result in a small profit margin in exchange for writing the contract.
The primary way I’ll do this is writing covered calls on stocks I wouldn’t mind selling at a higher price. In one current example, I have a stock trading at $165 and I am considering harvesting the gains. I can go and sell the option to someone else of buying 100 shares of the stock from me at $175 at a future date, preferably around a month or less. I collected a little money today and I only “lose” if the stock price goes above $175 + the premium paid. In this example, I was paid $1.05/share for that option. My only loss would be the opportunity to profit if the stock went above $176.05 in the next month, which happens to be a sum I’d happily accept. Not a bad deal for me.
I will also occasionally sell a put option, which is saying I’ll buy a stock (or ETF) if it falls to a certain dollar amount. I get paid today and either keep the premium or get to pick up the stock if it falls down to my price. I keep this part small because I’d either have to have the cash to buy the stock at closing or pay to close the contract if the stock price falls below the put price.
Wealthier individuals with larger portfolios have been selling call options for years. Thanks to the reduction in fees across the industry that occured in late 2019, someone like me can sell small dollar option contracts without commissions killing me. It’s a win for the small investor and I’ll start including option income for closed transactions in the monthly income reports.
If you want to read more about using derivatives as an income strategy as an early retiree, check out this series put together by Karsten over at Early Retirement Now: Passive income through option writing: Part 3.
Other Income Debate:
I’ve been debating adding some business and/or financial independence consulting/coaching into my monthly routine. When I reflect on my career, I always enjoyed leading and developing people and figuring out business problems. Looking at and working with hundreds of entrepreneur owned companies in my career helps me see problems and solutions earlier than many others can. I’m not a fan of the idea of selling my time for money, but also don’t want to do this for free if I see an opportunity to help but know it’ll require three, six, or twelve months of ongoing meetings. I need to design this in a way that it’ll be for personal enjoyment and money would only serve as the scorecard of value for my services. This doesn’t quite fall under “passive income”, but it would be something where I’m still in control of my schedule.
We’ll see how it all unfolds, but I expect future months in 2020 to be stronger for our overall income.