The FIRE Fund is my real-life and real-money dividend growth stock portfolio. I call it the FIRE Fund because the portfolio allows me FI/RE (financial independence/retired early).
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, freedom, and options.
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 Starbucks Corporation (SBUX) on 7/12/18 for $50.49 per share.
Starbucks Corporation is the world’s leading retailer of high-quality, specialty coffee products. These products are sold in more than 28,000 stores across 76 different markets, in addition to multi-channel retail.
This is a repeat purchase from last month, so I won’t needlessly delve back into the details again.
I still have some room in the portfolio for more of this stock, though, so I can see myself picking up a few more shares sooner rather than later. I view this as one of the best businesses and brands in the world.
This purchase added $7.20 in annual dividend income.
I purchased 5 shares of Papa John’s International Inc. (PZZA) on 7/24/18 for $46.74 per share.
Papa John’s International Inc. operates or franchises more than 5,000 pizza delivery and carryout stores in 45 countries and territories around the world.
This company has taken quite a few hits recently, most of them brought on or exacerbated by their enigmatic founder, John Schnatter. John has directly or indirectly caused the company to be mired in scandals related to race relations in the US.
But I know two things.
First, people have short attention spans.
Second, people love to eat pizza.
Five years from now, nobody will be talking about the recent issues. But more people will be eating more pizza at higher prices. That’s almost a guarantee.
Meanwhile, most basic valuation metrics are at about half of their recent historical averages. Indeed, the stock was priced at ~$90/share as recently as the end of 2016. Pizza at a 50% discount is nice, but a stock at a 50% discount is even nicer.
The stock’s yield, as a result, is now more than twice its five-year average.
However, that yield, at just 1.93% on my purchase price, is still not terribly high. As such, dividend growth will have to be pretty strong moving forward.
The company has increased its dividend for five consecutive years (since initiating the dividend in 2013). The three-year dividend growth rate is sitting at over 17% (in line with the company’s 10-year EPS CAGR). And the payout ratio is very low. So high-single-digit dividend growth (what I’d be looking for) over the next 5-10 years is a pretty low hurdle for them to clear.
That said, the most recent dividend announcement showed a flat dividend YOY, which, while disappointing, is understandable given the turmoil. But the valuation has been compressed to the point where the much higher starting yield today (relative to where it was just a few months ago) effectively acts like a dividend increase on a new investment.
The stock is sitting even lower than where I last bought it at. And the position size is still very small. Although I plan to keep this a small holding in the portfolio, I wouldn’t mind picking up just a few more shares.
This purchase added $4.50 in annual dividend income.
I purchased 5 shares of Discover Financial Services (DFS) on 7/27/18 for $73.31 per share.
Discover Financial Services is a direct banking and payment services company that offers a variety of direct loan products and credit cards.
As I recently discussed, this appears to be a high-quality bank that’s offering a payment network business practically for free.
Their Q2 report was fantastic. Total loans grew 9% YOY, customer deposits grew 12% YOY, and transaction dollar volume on their network grew 14% YOY. EPS was up over 36% YOY. And the company is buying back a massive amount of its stock.
Most importantly, the recent 14.3% dividend increase has me feeling great about this firm’s future, especially in regard to dividend growth.
That all said, my exposure to payment networks is probably about as high as I’d like it to be, with good-sized holdings in other major payment network companies. Although I view Discover Financial Services as more a bank than anything else, I also have quite a bit of exposure to banks, too. So I might end up capping this position here.
This purchase added $8.00 in annual dividend income.
There were no sales since the previous Fund update.
Duke Energy Corp. (DUK) announced a 4.2% increase in its dividend, upping the quarterly dividend from $0.89 to $0.9275. This added $4.50 in annual dividend income.
Fastenal Company (FAST) announced a 8.1% increase in its dividend, upping the quarterly dividend from $0.37 to $0.40. This added $6.00 in annual dividend income.
JM Smucker Co. (SJM) announced a 9% increase in its dividend, upping the quarterly dividend from $0.78 to $0.85. This added $4.20 in annual dividend income.
National Retail Properties, Inc. (NNN) announced a 5.3% increase in its dividend, upping the quarterly dividend from $0.475 to $0.50. This added $14.50 in annual dividend income.
ONEOK, Inc. (OKE) announced a 3.8% increase in its dividend, upping the quarterly dividend from $0.795 to $0.825. This added $12.00 in annual dividend income.
Hershey Co. (HSY) announced a 10.1% increase in its dividend, upping the quarterly dividend from $0.656 to $0.722. This added $6.60 in annual dividend income.
Diageo PLC (DEO) announced a 5% increase in its dividend, upping the full-year dividend on its ordinary shares from 62.2 pence to 65.3 pence. This added $4.06 in annual dividend income.
Union Pacific Corporation (UNP) announced a 9.6% increase in its dividend, upping the quarterly dividend from $0.73 to $0.80. This added $16.80 in annual dividend income.
BP PLC (BP) announced a 2.5% increase in its quarterly dividend, upping the quarterly dividend per ADS from $0.60 to $0.615. This added $6.60 in annual dividend income.
Norfolk Southern Corp. (NSC) announced an 11% increase in its dividend, upping the quarterly dividend from $0.72 to $0.80. This added $17.60 in annual dividend income.
Main Street Capital Corporation (MAIN) announced a 2.6% increase in its dividend, upping the quarterly dividend from $0.19 to $0.195. This added $7.20 in annual dividend income.
There are 110 companies in the Fund. This is unchanged since the last update.
The Fund is now expected to generate a total of $12,876.24 in annual dividend income over the next 12 months. That’s an increase of $115.39, or 0.9%, over the prior update’s annual expectation of $12,760.85.
A fantastic tool for tracking your portfolio, progress, and performance is Personal Capital.
Just another solid month, in my opinion.
I put a little capital to work with some fantastic businesses that are incredibly easy to understand.
A coffee chain, a pizza chain, and a bank. I do love to keep it simple.
And each of these businesses is paying a fairly appealing dividend that’s routinely growing.
But what was really outstanding about July was the organic dividend growth the portfolio experienced.
The dividend raises that came through this month were phenomenal, with a number of them coming in larger and/or earlier than expected. I was pleasantly surprised numerous times this month. To know I’m getting more money is always a wonderful realization, but to know it’s more than expected, and coming in faster than expected, is amazing.
And as you can see by looking at the numbers, the organic dividend raises did the heavy lifting this month in terms of advancing the annual dividend income forward.
The snowball is really rolling now.
For perspective on these dividend raises, the $100.06 increase in my annual dividend income that came about purely through organic dividend increases from the companies I’m invested in, is akin to investing ~$2,800 in fresh capital at a 3.5% yield (the average portfolio yield) – except I invested $0 to achieve that result.
That’s the beauty of dividend growth investing right there.
Earnings season is upon us, and I’ve been looking through dozens of quarterly reports.
Mostly good stuff. Companies are operating at a high level, there’s plenty of growth to go around (as evidenced by the aforementioned dividend raises), and I’m sensing a lot of optimism. The earnings reports have been pretty great.
Now, not every company I own a slice of is doing fantastic. I’m a shareholder in more than 100 different businesses. Not every company operates the same, at all times (which is why we diversify). But the overall numbers have been incredibly encouraging.
Looking forward, I wouldn’t mind once more buying shares of Starbucks and Papa John’s in August. I’m nothing if not consistent.
But I remain interested in a number of healthcare names, especially in the pharmacy and distribution space.
And Omnicom Group Inc. (OMC) remains appealing here, which is a small position in the portfolio that would be pretty easy to average down on.
I’m also peeking at Dominion Resources, Inc. (D) and Realty Income Corp. (O). I’ve been meaning to round the latter position out at an even 100 shares, so I might just do that in August.
Picking up a few more shares of United Parcel Service, Inc. (UPS) wouldn’t bother me.
I was looking at adding to Hershey, but the big jump after earnings might have put it out of my range. That nice dividend increase goes a long way for me, but I’d be more interested if it were to fall back into the lower $90s.
Investing certainly isn’t the priority it once was for me, but I do still greatly enjoy the process of finding and buying shares of wonderful businesses at appealing valuations for the long term.
I’m very excited for another month. And I don’t mean that just in terms of buying stocks and collecting dividends; I’m very excited to live this amazing life, go through new experiences, and grow as a person. Every month has millions of seconds – millions of moments – to make the most of your life. Don’t squander those opportunities.
Full disclosure: I’m long all aforementioned stocks.
How was your month? Are your investments performing to your expectations?
Thanks for reading.
Image courtesy of: Sira Anamwong at FreeDigitalPhotos.net.
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!