The FIRE Fund is my real-life and real-money dividend growth stock portfolio.
I call it that because the portfolio allowed me to reach financial independence and retire early (FIRE).
This six-figure collection of some of the best businesses in the world is generating the five-figure and growing passive dividend income I need to sustain myself in life and cover my personal basic expenses.
I’ll below go over any and all transactions from the preceding month, covering any buys and/or sells that occurred since the last update.
You’ll see exact transactions (including dates and prices).
And I’ll quickly discuss some of the rationale behind each respective transaction.
Keep in mind, however, that these monthly updates are just snapshots in time. These updates are furthermore simply a peek at what the maintaining of a dividend growth stock portfolio post-FIRE looks like, as I’m no longer aggressively buying stocks so that I can achieve FIRE.
Stock purchasing is now more or less a function of the pure enjoyment of investing as a hobby and passion (rather than a function of becoming financially independent as fast as possible), but the ongoing casual investing of fresh capital does add to my passive income, options, and philanthropic firepower.
Moreover, the actual market value of the FIRE Fund (which is constantly oscillating) means very little in the grand scheme of things; it’s the dividend income the Fund generates that actually unlocks financial freedom for me.
To that point, I’ll also go over any dividend increases that were announced since the last update, as well as how that affects the Fund’s expected annual dividend income over the next 12 months.
I purchased 5 shares of CVS Health Corp. (CVS) on 3/15/19 for $55.49 per share.
CVS Health Corp. is a pharmacy healthcare provider that operates one of the largest pharmacy retail chains in the US, with more than 9,800 locations across the US and the District of Columbia, Puerto Rico, and Brazil. It’s also one of the largest pharmacy benefit managers in the US, with more than 93 million PBM plan members. With the recent acquisition of Aetna Inc. now completed, they’re also one of the largest managed healthcare companies in the United States.
This is such an interesting stock here.
I analyzed the stock about a year ago. The fundamentals, at the time, were pretty outstanding across the board. Low payout ratio, appealing yield, double-digit long-term dividend growth, good balance sheet, strong top-line and bottom-line growth. It was almost a prototypical dividend growth stock.
Well, what a difference a year can make.
The company completed their $78 billion (including debt assumption) acquisition of Aetna, which came with some big benefits and drawbacks.
First, the combined company is now vertically integrated across the healthcare chain. It’s a massive player in a massive system where scale matters. And there’s no other company that provides this kind of top-to-bottom service. There’s purchasing power, scale, and efficiency here that is practically unrivaled.
However, there’s a lot of debt now, since most of the Aetna acquisition was funded with new debt. In addition, CVS Health Corp. took on Aetna’s debt.
The balance sheet is now stressed, the dividend growth is on pause, and there are serious questions regarding how Aetna will play out. They’ve also exposed themselves to a sizable new risk vis-à-vis the ongoing discussions about nationalizing US healthcare.
That said, there’s simultaneously been a major drop in valuation here that can’t be ignored.
The stock was over $100/share as recently as the spring of 2016 – without Aetna.
It’s now well under $60/share – with Aetna.
Every basic valuation metric I look at is substantially lower than its respective recent historical average.
In fact, the market cap of CVS Health Corp., at less than $70 billion, is below what the they valued the entirety of just Aetna at. Now, one might not totally agree with that Aetna valuation. And there’s a lot of debt here that wasn’t present before. But there’s also a lot of cash flow coming in that wasn’t there before.
I’ve made a lot of money by buying stocks when they were unpopular. This is one of the most unpopular stocks in the market right now. We’ll see how it goes.
This purchase added $10.00 in annual dividend income.
I purchased 5 shares of The GEO Group, Inc. (GEO) on 3/18/19 for $20.37 per share. I purchased another 5 shares of GEO on 3/12/19 for $19.74 per share. Then I purchased another 5 shares of GEO on 3/18/19 for $19.12 per share. I purchased another 5 shares on 3/20/19 for $18.91 per share. Finally, I purchased 5 more shares on 3/27/18 for $18.34 per share.
The GEO Group, Inc. is a leading provider of diversified correctional, detention, and residential treatment services to various government agencies around the world.
I talked quite a bit about this holding in last month’s update, so I won’t bother repeating myself.
This was simply an exciting opportunity to average down on a small position. Although I plan to keep this a very small position, I’m very happy to be able to rapidly build it up and complete it at a lower price than it was just last month. I have no plans to add to this position in the future.
These purchases added $48.00 in annual dividend income.
I purchased 1 share of The Home Depot Inc. (HD) on 3/13/19 for $182.59 per share.
The Home Depot Inc. is the world’s largest home improvement retailer, operating almost 2,300 stores across the US, Canada, and Mexico.
This is a really high-quality business. The fundamentals pretty much across the board are fantastic.
Earnings per share compounded at an annual rate of 22.47% over the last decade, which is just blistering. They’ve reduced the outstanding share count by almost 30% over that time frame. Margins are way up. Everything is clicking here.
Meanwhile, the long-term dividend growth track record is pretty excellent. While they’ve only increased the dividend for ten consecutive years, that’s only as short as it is because the company chose to keep the dividend static during the Great Recession. It’s understandable considering the scope of the financial crisis. But the company has paid a dividend since 1987 and they had a dividend growth streak of more than 20 consecutive years before the 2008 freeze. They’ve certainly made up for time, though – the 10-year dividend growth rate is 25%.
Speaking of which, they just increased the dividend by 32%! Along with that increase, they announced a new $15 billion stock repurchase plan.
The stock yields approximately 3% after that big dividend raise, which was enough to push me over the edge and initiate a position. I would like to build up a decent-sized position in this retailer, so I’m hoping it stays at this level (or lower).
Now, this isn’t a cheap stock. But I think it’s a high-quality dividend growth stock trading at a slight discount. At worst, it’s a wonderful business trading at a fair price.
The P/E ratio, at 18.77, is substantially lower than the stock’s own five-year average P/E ratio of 23.0. The P/CF ratio of 15.9 is also quite a bit lower than its own three-year average of 17.9. The current yield, near 3.0%, is 100 basis points higher than its five-year average, although this is partly skewed by that recent raise.
While I think a lower multiple makes sense based on slowing growth concerns and where we’re at in the cycle, I feel great about entering a position here after the stock has dropped about 14% since where it was at last September.
The only thing I don’t feel great about is the fact that it took me so long to invest in this company. This is the 117th company in the Fund, which just goes to show how many amazing businesses there are out there. I’ve slowed way down with the investing, but it’s knowing that there are still quality opportunities out there like this that keep the passion alive.
This purchase added $5.44 in annual dividend income.
There were no sales since the last update.
General Dynamics Corporation (GD) announced a 9.7% increase in its dividend, upping the quarterly dividend from $0.93 to $1.02. This added $7.20 in annual dividend income.
Armanino Foods of Dinstinction Inc. (AMNF) announced a 11.1% increase in its dividend, upping the quarterly dividend from $0.0225 to $0.0250. This added $13.50 in annual dividend income.
Realty Income Corp. (O) announced a 0.2% increase in its dividend, upping the monthly dividend from $0.2255 to $0.226. This added $0.57 in annual dividend income.
W.P. Carey Inc. (WPC) announced a 0.2% increase in its dividend, upping the quarterly dividend from $1.03 to $1.032. This added $0.64 in annual dividend income.
Colgate-Palmolive Company (CL) announced a 2.4% increase in its dividend, upping the quarterly dividend from $0.42 to $0.43. This added $2.00 in annual dividend income.
Williams-Sonoma, Inc. (WSM) announced an 11.6% increase in its dividend, upping the quarterly dividend from $0.43 to $0.48. This added $5.00 in annual dividend income.
Raytheon Company (RTN) announced an 8.6% increase in its dividend, upping the quarterly dividend from $0.8675 to $0.9425. This added $7.50 in annual dividend income.
Bank OZK (OZK) announced a 4.5% increase in its dividend, upping the quarterly dividend from $0.22 to $0.23. This added $1.20 in annual dividend income.
There are 117 companies in the Fund. That’s an increase since last month due to the initiation of a position in The Home Depot Inc.
The Fund is now expected to generate a total of $13,753.25 in annual dividend income over the next 12 months. That’s an increase of 0.7%, or $101.05, over the prior update’s annual expectation of $13,652.20.
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Another phenomenal month, in my view.
The Fund continues to fire on all cylinders, more or less.
Now, with over 100 different companies in there, not every single company is operating at 100% efficiency, 100% of the time. Some companies are doing better than others. That’s one reason I’m diversified. Overall, though, I’m very happy with how these businesses, on average, are doing.
It was a relatively light month for dividend increases. This was expected. It’s a typical March. A small number of companies in the Fund usually announce increases in March.
But the dividend increases that did come through were pretty big. Other than Colgate’s increase, I couldn’t be more pleased. It’s pretty tough to be disappointed with getting multiple pay raises for doing absolutely nothing. I wouldn’t ever call myself lazy, but I’ve never been unhappy with the idea of collecting more money for no extra effort on my part.
I was at the top end of my average monthly capital outlay. Plus, I put a large percentage of that capital to work in a slightly speculative stock (GEO) that sports an unusually high yield in comparison to most of the stocks I typically buy.
As such, this is one of the rare months in which the reported increase in the Fund’s expected annual dividend income came more from new purchases than organic dividend growth (via dividend increases from holdings).
I suspect this pendulum will swing back into the favor of organic growth next month, however, as capital outlay, dividend raises, and the yield I’m getting from new stock purchases all return to their respective long-term averages.
Still, the dividend growth snowball rolled plenty fast and far this month.
Let’s put that dividend growth in perspective.
The $37.61 increase in my annual dividend income that came about by way of the organic dividend increases announced by my holdings this past month is analogous to investing $1,075 in fresh capital at a 3.5% yield (the average portfolio yield) – except I invested exactly $0 to achieve that increase in passive dividend income.
Amazing stuff here.
Even with a light month on the dividend growth front, I saw my annual dividend income increase as if I invested over $1,000 of my hard-earned money. I remember struggling to invest $1,000 per month back when I first started out. That’s a lot of money to put away.
Looking toward April, it’s business as usual.
I’ll aim to invest $500 to $1,000 in fresh capital, which is my current target for post-FIRE investing activities. The Fund is pretty much in “maintenance mode” from here on out.
It’s not as easy to find values as it was just a few months ago. But it’s not impossible. And I’ve never been against paying a fair price for a great business.
I’d like to add to my position in Texas Instruments Inc. (TXN) sooner rather than later.
I still think United Parcel Service, Inc. (UPS) is attractively valued, although I do already have a good-sized position there.
CVS, as noted earlier, is deep into value territory. But I don’t see myself buying too much more due to the size of that position.
Retail continues to be interesting, too. Target Corporation (TGT) shot up very quickly on me right about the time I was going to add to my position, so I shifted over to looking at HD. I see myself buying more HD very soon.
Many financial institutions across the board look appealing. I may decide to be opportunistic there.
I’m excited to live out another month in the life of my dreams. FIRE is absolutely, without a doubt, worth every ounce of effort and so-called “sacrifice”.
I honestly couldn’t imagine living any other way. Having the freedom to live life totally on my terms is a huge gift. Owning my time is the greatest luxury of all.
Let’s all continue to make our dreams come true!
Full disclosure: I’m long all aforementioned stocks.
How was your month? Are your investments performing to your expectations?
Thanks for reading.
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P.S. If you’re also aiming to build a dividend growth stock portfolio and the necessary dividend income to become FIRE, make sure to check out some amazing resources that helped me reach financial freedom at 33!