FIRE Fund Update For March 2019

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.

The Fund provides me an opportunity to live a blissful job-free existence that promotes time over money, passions over paychecks, and value over prices.

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.

Purchases

I purchased 5 shares of The Kraft Heinz Co. (KHC) on 2/11/19 for $47.45 per share.

The Kraft Heinz Co. is one of the world’s largest consumer packaged food and beverage companies.

I noted back in November, when I initiated my position in this company, that I was probably going to limit this investment to a rather small percentage of the portfolio. Indeed, I don’t foresee buying any additional shares of this business. That was true before their terrible Q4 report that sent the stock cratering. It’s still true now.

In the end, it’s ketchup and cheese (and a lot of other food products). I’m not concerned about the viability of the business as a going concern. But it’s clearly not worth what it once was.

This purchase added $12.50 in annual dividend income.

I purchased 10 shares in The GEO Group, Inc. (GEO) on 2/25/18 for $23.34 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.

This is an interesting company that reorganized as a REIT back in 2012. It’s been on a tear ever since.

They provide an unfortunate, but necessary, service. I certainly wish we lived in a world in which correctional facilities didn’t exist. But I look at and invest in the way the world is, not as I wish it were.

Looking at the numbers between FY 2013 (first full year as a REIT) and FY 2018, revenue has compounded at an annual rate of 8.89%. AFFO/share has increased by ~31% over that same stretch. The latter is helped by the fact that The GEO Group hasn’t been overly aggressive with dilution.

Even with that very solid growth, though, the stock is trading hands for a rock-bottom P/AFFO ratio of 9.45.

Meanwhile, it’s a big hitter when it comes to the dividend.

The stock yields a very appealing 8.28% right now, which means I wouldn’t need much, or any, dividend growth for this to be a respectable investment.

Fortunately, though, the dividend growth is there. They’ve increased their dividend for seven consecutive years. In fact, they announced a 2.1% dividend increase in February. The new payout only represents 77.8% of AFFO.

After seeing their earnings report and that increase, I decided to go ahead an initiate a small position.

But it’ll remain a rather small position.

I see it as complementary, in some ways, to my position in Iron Mountain Inc. (IRM). They’re both high-yielding, niche REITs that have some unique opportunities and challenges. I would argue they’re both also slightly speculative, which limits my ability to invest too heavily. But a big yield like this goes a long way, even with only a little bit of exposure.

The biggest risk here, in my opinion, is any type of large-scale prison reform. It’s impossible to quantify the impact of such an action. I believe this risk, in part, keeps the valuation low and the yield high.

This purchase added $19.20 in annual dividend income.

Sales

There were no sales since the last update.

Dividend Increases

Archer Daniels Midland Company (ADM) announced a 4.5% increase in its dividend, upping the quarterly dividend from $0.335 to $0.35. This added $2.70 in annual dividend income.

3M Co. (MMM) announced a 5.9% increase in its dividend, upping the quarterly dividend from $1.36 to $1.44. This added $3.20 in annual dividend income.

Union Pacific Corporation (UNP) announced a 10% increase in its dividend, upping the quarterly dividend from $0.80 to $0.88. This added $19.20 in annual dividend income.

Omnicom Group Inc. (OMC) announced an 8.3% increase in its dividend, upping the quarterly dividend from $0.60 to $0.65. This added $3.00 in annual dividend income.

NorthWestern Corp. (NWE) announced a 4.5% increase in its dividend, upping the quarterly dividend from $0.55 to $0.575. This added $2.50 in annual dividend income.

Nestle SA (NSRGY) announced a 4.3% increase in its dividend, upping the annual dividend from CHF 2.35 to CHF 2.45. This added $2.00 in annual dividend income.

Tanger Factory Outlet Centers Inc. (SKT) announced a 1.4% increase in its dividend, upping the quarterly dividend from $0.35 to $0.355. This added $0.80 in annual dividend income.

PPL Corp. (PPL) announced a 0.6% increase in its dividend, upping the quarterly dividend from $0.41 to $0.4125. This added $0.40 in annual dividend income.

PepsiCo, Inc. (PEP) announced a 3.0% increase in its dividend, upping the quarterly dividend from $0.9275 to $0.955. This added $8.47 in annual dividend income.

United Parcel Service, Inc. (UPS) announced a 5.5% increase in its dividend, upping the quarterly dividend from $0.91 to $0.96. This added $5.00 in annual dividend income.

Genuine Parts Company (GPC) announced 5.9% increase in its dividend, upping the quarterly dividend from $0.72 to $0.7625. This added $0.85 in annual dividend income.

The Coca-Cola Co. (KO) announced a 2.6% increase in its dividend, upping the quarterly dividend from $0.39 to $0.40. This added $5.60 in annual dividend income.

Service Corporation International (SCI) announced a 5.9% increase in its dividend, upping the quarterly dividend from $0.17 to $0.18. This added $0.80 in annual dividend income.

Digital Realty Trust, Inc. (DLR) announced a 6.9% increase in its dividend, upping the quarterly dividend from $1.01 to $1.08. This added $12.60 in annual dividend income.

Bank of Nova Scotia (BNS) announced a 2.4% increase in its dividend, upping the quarterly dividend from CAD 0.85 to CAD 0.87. This added $4.84 in annual dividend income.

Linde PLC (LIN) announced a 6.1% increase in its divided, upping the quarterly dividend from $0.825 to $0.875. This added $2.00 in annual dividend income.

Albemarle Corporation (ALB) announced a 9.7% increase in its dividend, upping the quarterly dividend from $0.335 to $0.3675. This added $4.55 in annual dividend income.

Main Street Capital Corporation (MAIN) announced a 2.6% increase in its dividend, upping the monthly dividend from $0.195 to $0.20. This added $7.20 in annual dividend income.

TJX Companies Inc. (TJX) announced a 17.9% increase in its dividend, upping the quarterly dividend from $0.195 to $0.23. This added $1.40 in annual dividend income.

Toronto-Dominion Bank (TD) announced a 10.4% increase in its dividend, upping the quarterly dividend from CAD 0.67 to CAD 0.74. This added $12.76 in annual dividend income.

British Am Tobacco PLC (BTI) announced a 4.0% increase in its dividend, upping the quarterly dividend from 48.80 pence to 50.75 pence. This added $5.14 in annual dividend income.

Dividend Decreases

The Kraft Heinz Co. (KHC) announced a 36% decrease in its dividend, lowering the quarterly dividend from $0.625 to $0.40. This subtracted $18.00 in annual dividend income.

FIRE Fund

The FIRE Fund is now valued at $386,263.49. That’s a 2.2% increase from the last reported market value of $377,822.01.

There are 116 companies in the Fund. That’s an increase since the last update, due to the initiation of a position in GEO.

The Fund is now expected to generate a total of $13,652.20 in annual dividend income over the next 12 months. That’s an increase of 0.8%, or $110.97, over the prior update’s annual expectation of $13,541.23.

A fantastic tool for tracking your portfolio, progress, and performance is Personal Capital.

Conclusion

Boy, the overall picture is just incredible stuff.

The dividends for nothing, and the shares for free. I still can’t believe it sometimes.

It was another great month for the Fund.

Twenty-one dividend increases came in.

I believe that’s a new record for the Fund.

That’s twenty-one “pay raises”.

I used to have to work awfully hard to get just one pay raise from my job. Show up early. Stay late. Say the right things. Fulfill quotas.

Now I not only do not have to work hard to receive a pay raise, I don’t have to work at all. Plus, there are numerous raises!

That said, February wasn’t all wonderful.

I did experience a dividend cut this month, which is reflected above. That’s my first dividend cut in a very long time. It’s unfortunate, but this is exactly why it’s so important to broadly diversify.

Diversification is the only “free lunch” available for investors. It allows you to take advantage of the almost infinite upside of equities, without overly and unnecessarily exposing you to the downside that is possible by riding it out with only a few companies.

There’s no one “perfect” company out there. There certainly aren’t 20 or 30 “perfect” companies out there. Investors can’t predict the future. Broad diversification is a big reason why index investing works so well.

I noted when I first started investing Kraft Heinz that I wanted to keep this a very small position because of the debt load and growth concerns. That’s repeated above.

The big dividend cut isn’t a total shock, since there were some cracks showing (including a rather high payout ratio). But I thought they would try to keep the dividend intact (without raises for the near term) while navigating around some of their challenges.

I underestimated those challenges, however. It was a mistake on my part. And I definitely did not anticipate a $15 billion writedown and an SEC investigation, nor did anyone else.

The good news is that the sheer scope of my portfolio means a dividend cut barely shows up on my radar. It was a non-event for me. Dividends are, after all, almost always “in the green”. I had twenty-one raises and one cut this month. That’s just plain good math.

Let’s put that dividend growth in perspective.

The $87.01 increase in my annual dividend income that came about by way of the organic dividend increases (after factoring in the cut) announced by my holdings this past month is analogous to investing $2,486 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.

Said another way, even with a dividend cut, the organic dividend growth the Fund produced in February was on par with investing $2,486 in fresh capital. That’s pretty amazing, folks.

It goes to show the power of a dividend growth snowball. That snowball becomes practically unstoppable over time.

The Fund’s income is growing as if I’m still out there investing thousands of dollars, even though the reality of the situation is that I’m not doing anything close to that. I’m simply going about my lovely life and casually putting away a few bucks here and there.

Looking toward March, 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.

United Parcel Service, Inc. (UPS) looks fairly appealing here.

And I’d like to get back to acquiring shares in Broadcom Inc. (AVGO). Its recent run up is disappointing in the sense that I’m not yet done building my position there. Meanwhile, I may add to Texas Instruments Inc. (TXN) in this space. My position in the latter is smaller and it’s moved up quite a bit less since I started accumulating.

I think CVS Health Corp. (CVS) is deep in the bargain bin, and I have a little bit of room for that stock, although the static dividend is a concern for me. In addition, there are a lot of questions regarding how the Aetna acquisition will eventually play out.

Retail also has some opportunities. I have room for Target Corporation (TGT) and TJX Companies Inc. (TJX). Both are relatively small positions in the Fund. And both businesses are doing very well.

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!

As always, I’ll publish stock purchases in real-time over at Twitter and Facebook. So make sure to follow me there (where I also share numerous other updates about my life as a dividend expat).

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: imgflip and Warner Bros. Pictures.

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!