Sand In My Shoes: June Update

Well, after a brutal May where the S&P 500 fell 6.58%, the market rebounded sharply in June climbing 6.89%, the largest monthly increase in the index since January earlier this year. At the half-year mark, the S&P 500 is up more than 17%.

I entered one new position in June, and there was one very small dividend increase announced and declared in the month.

This month, I have done some shifting of my sector allocation goals. I will explain that in greater detail when we get to that section.

I have also done some re-evaluation of my overall goal of $10,000 in dividends for the 12-month period of 8/1/2026-7/31/2027. I am not as confident that I will reach that now that there is a good bit more history for this portfolio, and I am dealing with my overall asset allocation. But I will discuss that in more detail below as well.

But first and foremost, we will start with a look at the dividends collected for the month.

All graphs and charts created by author unless otherwise specified

The dividends took a small step back in June, but it was still my second highest monthly payout ever as you can see below. In June, I collected $325.23, which was almost $18 higher than what was collected in March, and the increase was driven solely by several dividend hikes.

I did not add a single stock that paid me in June I didn't already own for the March dividends, and I did not add any shares of any of those stocks either. I am not sure this has happened before in my portfolio, but it is gratifying and reinforces my belief in dividend growth stocks. I got paid 5.8% more in June than I got three months ago, and I didn't do a thing other than pick some good dividend growth stocks.

Since nearly 40% of my portfolio is in fixed income securities, I did not gain as much as the S&P 500 index did in June, but I also didn't lose as much in May. After being down 4.5% last month, my portfolio was up a very satisfying 5.6% this month, and the portfolio value at the end of June is a little over $2,000 higher than at the beginning of May. Year to date, I am up 13.7%, which is fine with me.

Every single one of my stocks except for Realty Income Corp. (O) was up, and seven of the thirty positions were up double digits percentage-wise. Realty Income, which was up last month, finished down 1.6%, which was a very slight ($89) offset to all the other gains.

The portfolio yield now stands at 3.5%, which I am quite pleased about. I will talk more about the importance of my portfolio's yield below.

Projected dividends for the year now stand at $3,325.80. I have added the total to the table just as I did for the forward-looking dividend table, so it is easier to see at a glance. The third quarter jumped up to $880, which is within shouting distance of $900. I guess a $900 quarter is the next sort of milestone, either that or a $400 month. Not sure we'll get either of those in Q3, but it is fun to think about.

We have a little bit of work to do here. But, first, here is the table regular readers have become accustomed to seeing:

As I mentioned in my last article, the comments in my April update had me thinking. Maybe an even percentage of each sector (so roughly 9% of 11 sectors) is not the way to go. I took a look at Fidelity and found the following in their "Markets and Sectors" section under research.

The reason the real estate slice is gray is because that is the only sector the three research firms Fidelity cites agree on, and they all suggest that your portfolio be at "market weight", which is 3.05%.

Much like the asset allocation decision I made almost two years ago, I am going to use these recommendations as guidelines rather than hard and fast numbers I need to maintain. With that in mind, and with what I'm going to discuss shortly regarding my goals, I am going to change my target weightings from 9% per sector to the following:

Many of the traditionally higher yielding sectors are barely represented in the recommended weightings. I am not chasing yield with my portfolio, because I have been burned doing that before, but I am seeking dividend income for my wife and I to retire on, so I'm not going to limit real estate to 3.1% of my portfolio.

Close to a year ago, the Global Industry Classification Standard (GICS) changed the name of the sector "Telecommunications" to "Communication Services", but I had just not updated my table. Well, I finally did so. Not only did they change the name of the sector but also a lot of companies are part of this sector that were not part of the old one. Now, I can expand beyond the traditional telecommunications names and buy stock in companies like Walt Disney Co. (DIS), or Comcast Corp. (CMCSA). Of course, these stocks will have to be researched and meet my criteria, but it does give me more choices, perhaps, than just Verizon (VZ) and AT&T (T).

To make these numbers easier to digest, I re-did the pie or donut chart from above and color-coded it.

I am also including the same chart for my weightings as of the end of June and my new target. The graphical data, specifically the top of the donut, makes it easier to see that I need to add substantially to my tech holdings, though it is very difficult right now to find a bargain in tech.

I also need to ease up on my materials holdings, since they comprise 13.2% of my portfolio, and the new target is only 5%. I am, in fact, considering taking some of my winnings in Air Products and Chemicals Inc. (APD), which is now only yielding 2.0% versus the 2.8% it was yielding when I bought it last March, and that is after a 5.5% dividend hike.

But just like I am not going to be vigilant in maintaining these weightings, I am also not going to immediately make a bunch of trades to get myself to these weightings but rather they will help make my decision on where to add new money. Notice I said they will help, because if I see a screaming deal on a stock that I've been following for years, I will probably add shares regardless of what it will do to my sector weighting.

Of course, with the exceptional month that equities had in June, the domestic fixed income portion of my portfolio has dropped to 26.6%. I continue to add to one of my fixed income funds and, in fact, added more this month ($464) than I collected in fixed income distributions ($450).

I figure I'm adding about $2 per month to my fixed income distributions. That is not as exciting as buying dividend growth stocks where you can put a name to what you're buying and watch the dividend grow, but the distributions might come in handy someday.

If the unthinkable happens and we have a correction or heaven forbid we enter a bear market, it will be nice to have that $475, $500, $525 - whatever - cash each month to add to the cash from my dividends and buy beaten-up shares of dividend aristocrats on the cheap. Because, if (when) that time comes, the domestic fixed income percentage will be on the other side of 30%, and I'll be buying equities with everything I can find.

Not to mention, when the fetching Mrs. Soule and I do decide it is time to go to the beach rather than a cubicle, or maybe we decide the mountains are calling and we would rather listen to that than another conference call, those fixed income distributions can always be spent.

There were no sales in June. My two purchases were made with dividends and distributions.

I did purchase $464 of a fixed income ETF as I mentioned earlier. I also purchased 15 shares of AbbVie Inc. (ABBV) on June 27th after the stock crashed following their announcement they were going to acquire Allergan (AGN) for $63 billion. I paid $68.75 for the shares, and while I could have had the stock at a lower price, the yield was already up over 6%, which I will happily collect while watching the acquisition play out. In fact, my first dividend from ABBV is due to arrive August 15th.

Speaking of future dividends, below, you can see that my future dividends for the next 12 months are up to $3,468.05, an increase of $64.68. Nearly all of that is due to the addition of the ABBV shares, but Realty Income also raised their monthly dividend to $0.2265 from $0.226. This added 48 cents to my future annual income.

After the results of the Comprehensive Capital Analysis and Review (CCAR), many banks announced that they would be not only raising their dividends but also buying back tons of shares. Bank of America Corp. (BAC) and Citigroup Inc. (C) are two of the banks that announced they will be doing just that, though they have not declared the dividend formally, so I did not include the hikes in the table below. BAC is expected to raise their dividend 20% from 15 cents per quarter to 18. Citi is expected to hike their dividend 13% from 45 to 51 cents per quarter. These dividends should be declared sometime in July after earnings I expect.

You can see in the chart below that the curve has flattened out somewhat the last few months, pretty much ever since I started adding funds to my fixed income investments instead of plowing everything back into dividend growth stocks.

The last four months have averaged about $75 annually added to my future dividend stream, and doing some quick math, I do not have enough time at that rate to reach my stated goal of $10,000 in dividends in a year.

I have 125 shares of my S&P 500 ETF. I typically sell off five shares at a time, which is bringing me a little less than $1,500. That is 25 months, so call it two years, where I can invest $1,500 each month into a new position plus whatever I collect in dividends and equity fund distributions.

So, what do I collect each month that I can use to buy more stock? Obviously, my monthly dividends vary from month to month, but I can take an average. I can do the same for my equity fund distributions. I am planning near term to put all my fixed income distributions back into fixed income investments. What does that give me?

The monthly average of my dividends is $288.01. The average monthly equity ETF distribution is $166.67, and in my model, I drop that number as I sell off the S&P 500 ETF. That gives me almost $2,000 per month to invest for the next two years.

I assume I will be investing in stocks with an average dividend yield of 3.5%, the current average of my portfolio. At the end of the two years, my average monthly dividend will be about $425, and the equity distribution will be averaging about $90 per month. Which… is not really enough to invest, so I will be probably only be adding shares every other month.

At the end of July 2026, my forward-looking dividends for the next 12 months would be about $6,400, not $10,000. I have a plan and not quite enough time. Which means I need to adjust my plan slightly.

There is something to be said about getting paid now. Buying stocks that grow their dividends is all well and good, and I totally plan on continuing with that strategy, but buying stocks with higher dividend yields like ABBV will get me paid more money sooner, which will allow me to invest more each quarter into dividend growth stocks.

If you invest $10,000 into two stocks, stock AAA that yields 4% now and is growing their dividend at 5% per year and stock ZZZ that yields 2.5% and is growing their dividend at 15% per year, which one would you buy? This is a very tough call for me. I would be inclined to say the latter, and I still might be depending on the two companies behind the stocks. However, consider the cash flow for the next five years (yours, not the company's). You will obviously receive more money from AAA in year one in the form of dividends ($400 vs. $250). That is $150 more you could invest in another stock.

But you would also still be receiving more money from AAA in year six ($511 vs. $503) after five dividend hikes. In year seven, the stock ZZZ would finally catch AAA, and you'd receive more dividends from ZZZ. Over the first five years you own AAA, you would have received $525 more in dividends than you would from ZZZ, and that doesn't count whatever dividends you received from re-investing that $525 over the years.

Of course, the one thing that is not included in my analysis, and what I hope will be my saving grace, is the dividend hikes on stocks I own. The two bank stocks I mentioned earlier will pay me $82.20 per year going forward vs. the dividends I received this past year of $69. That's $13.20 added to my future income stream, and I didn't have to do anything for that to happen. Those increases add up, and they not only help by directly increasing my future income, but these next twelve months I'll get to invest that $13.20 into more shares of dividend growth stocks. It sounds small, and really, it is not a lot of money, but over time, the snowball effect will occur, and I'll be a beneficiary of the force of compound interest.

So, two new things are going to be driving my decisions for the next several months or years when it comes to the purchase of stocks. First, I will be looking for stocks that yield at least 3.5%. I may invest in stocks that are yielding close to that, but with the next dividend increase, the yield on my investment would be pushed over that. It will take a pretty incredible opportunity for me to purchase shares in a company that is yielding less than 3%, though I won't rule it out.

Secondly, I will be looking to purchase stocks from sectors where I am currently underweight relative to my new targets. Right now, those would be information technology, consumer discretionary, communication services, and healthcare mostly. Financials and energy, I am also slightly underweight, but I'm very close to my targets there.

I will continue to add to my fixed income investments at least as much as I receive in distributions. I have a couple of thoughts there. First, why set targets for my asset allocation if I don't at least acknowledge their existence and work towards getting my portfolio more aligned with those targets?

Secondly, I fully believe that, in the not too distant future, I will be using the distributions from my fixed income funds to grab beaten up stocks with both hands. One frustration I had during that little downturn in December was there were at least 4 or 5 stocks that I wanted to purchase but did not have the cash for. If I'm bringing in $500 per month or more in fixed income distributions that will help with my cash crunch. That and the income from my other asset classes will allow me to purchase probably $1,000 worth of stock per month, which will be nice when bargains are everywhere.

Sorry it took so long for this update to come out, but as you see, there was a lot to chew on this month, and I am making some not insubstantial changes in my strategy going forward. I hope you enjoyed it, and I hope you are all making progress towards your goals. I look forward to reading the comments this month, please let me know your thoughts on my new direction!

Disclosure: I am/we are long ABBV, APD, BAC, C, O, T, VZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Seekingalpha.com

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