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, 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 The Kraft Heinz Co. (KHC) on 10/8/18 for $56.77 per share. I purchased another 5 shares on 10/12/18 for $53.19 per share.
The Kraft Heinz Co. is one of the world’s largest consumer packaged food and beverage companies.
This is a new position for the Fund.
I’ve long shied away from this company, even knowing full well that Warren Buffett jumped in big with 3G Capital and guided the merger between Kraft Foods Group and H.J. Heinz Company in 2015.
It was partially a valuation call, partially a quantitative call, and partially a qualitative call.
But 3G Capital is notorious for squeezing a dime out of a nickel, Buffett is as shrewd as they come, US tax reform has come to pass, and (perhaps most importantly) the valuation has come way down on this business since I first started sniffing a while back.
I now think it’s at least moderately undervalued. And it’s offering a sky-high yield to sit and wait.
I’m pretty good at sitting on my hands, especially when I’m being paid to do so.
All that said, I don’t see this stock becoming a large position. It’s a nice ancillary holding, in my opinion. I could see it perhaps ending up at ~0.3% of the portfolio, which would still offer a nice amount of income (due to the high yield) for the Fund.
These purchases added $25.00 in annual dividend income.
I purchased 5 shares of Texas Instruments Inc. (TXN) on 10/12/18 for $101.26 per share.
Texas Instruments Inc. is a global technology company that is currently one of the largest semiconductor manufacturers. They’re the biggest analog chipmaker in the world.
This is a new position for the Fund.
I’ve actually wanted to invest in this business for a very long time. What held me back, however, was the low yield. Even though the numbers looked great, there just wasn’t enough yield to get me excited about it. And that low yield was due, in part, to a valuation that had some serious expectations baked in.
Well, after a valuation compression and a series of monstrous (20%+) dividend increases, the stock looks about as appealing as it ever has. That’s true for at least as long as I’ve been investing.
I’d like to go fairly heavy into this name for as long as it remains down around (or below) $100/share. I could see this becoming a full (1%) position – or more. I plan to accumulate shares over the coming 6-12 months. It’s a phenomenal business. I’m hoping the stock continues to drop in price while I accumulate.
This purchase adds $15.40 in annual dividend income.
I purchased 1 share of Broadcom Inc. (AVGO) on 10/12/18 for $234.10 per share.
Broadcom Inc. is a leading designer, developer, and supplier of analog and digital semiconductor devices.
As I noted during the last Fund update, I plan to continue acquiring shares in Broadcom. It’s one of my best ideas right now.
Depending on capital availability and competing ideas, I’d like to pick up one share per month over the foreseeable future.
This purchase added $7.00 in annual dividend income.
I purchased 5 shares of Bank OZK (OZK) on 10/12/18 for $35.07 per share. I purchased another 5 shares on 10/19/18 for $26.59 per share. I purchased another 5 shares on 10/24/18 for $24.96 per share. I purchased another 5 shares on 10/25/18 for $24.91 per share.
Bank OZK is a small US bank based out of Little Rock, Arkansas, with more 250 branches. Total assets exceed $22 billion.
This is a wonderful little bank that I talked quite a bit about during the last update, so I won’t rehash that.
Although I love the valuation and fundamentals (both are extraordinary when looked at through a long-term lens), small banks like this tend to run on the riskier side. So, as noted when I discussed the initiation of the position last month, I wasn’t planning to go too heavy on this name (probably capping it out at 30 shares), but I do see it as highly complementary to some of my other smaller bank holdings in Cullen/Frost Bankers, Inc. (CFR) and Southside Bancshares, Inc. (SBSI).
The main difference is that I view Bank OZK as even riskier (albeit with more upside) than those other two names, which means I plan to prudently keep it an even smaller position in the portfolio.
Some of that aforementioned risk revealed itself during the bank’s Q3 release, which included two pretty heavy charge-offs. The good news is that these loans appear to be extreme outliers on projects dating back ~10 years ago, with only one other loan in this particular portfolio in danger of becoming nonperforming. The bad news is that these charge-offs aren’t at all related to the new risk that the bank has entered into with new construction.
But with this stock trading near tangible book value after a 50% drop in just a few months, it’s in the garbage bin. Again, it’s not the kind of holding I bet the farm on, but it does remind me, in some ways, of CFR when it dropped by something like 50% in six months back in early 2016 on risk concerns of its own.
For perspective on the big sell-off that occurred directly after the announcement Q3 results, the 26%+ single-day drop on the stock wiped out $1 billion of market cap from the bank. Seems a bit much considering the charge-offs came in at under $50 million, but time will tell how things shake out. That said, many banks (especially regional banks) in general have dropped significantly lately, sweeping up this stock with them. The aforementioned SBSI dropped in price from over $37 per share to $30/share in a very short period of time, even while the bank continues to operate well.
With this position now at 30 shares, it’s doubtful I’ll do anything else with it from here on out (other than collect my growing dividends). That’s the number I originally had in mind when I was looking at how heavy I wanted to go. The large and sudden drop in pricing and valuation only meant I moved faster than I usually would have in terms of scaling into it.
These purchases added $16.80 in annual dividend income.
I purchased 5 shares of British Am Tobacco PLC (ADR) (BTI) on 10/17/18 for $43.04 per share.
British American Tobacco PLC is a global consumer goods company that provides tobacco and nicotine products to adult consumers worldwide. They’re one of world’s largest such companies.
I’m admittedly a bit heavy (for my tastes) on tobacco, but I felt like I couldn’t pass up on this stock way down here.
This is an investment I actually never initially asked for (it came into the portfolio after a lot of M&A, dating back to my investment in Lorillard Tobacco Company), but I’m not going to shy away from keeping it or adding to it when opportunity knocks.
I last added shares back in June, which was discussed in July’s update. It’s fallen even more since then, almost to the point of where no growth at all is being priced in. The yield, at well over 6%, is now too high to ignore.
There’s no indication the business is in trouble in terms of operations. In my view, it’s just a question of how much growth they will manage from here, but the yield means one doesn’t need much growth in order to make it an acceptable investment moving forward.
This purchase added $12.80 in annual dividend income.
I purchased 10 shares of Iron Mountain Inc. (IRM) on 10/25/18 for $32.49 per share. I purchased another 5 shares on 10/26/18 for $31.10 per share.
Iron Mountain Inc. operates as the global leader for storage and information management services. Their real estate network stretches 85 million square feet across more than 1,400 facilities. They serve approximately 230,000 customers in 53 countries, including 95% of the Fortune 1000.
This is a new position for the Fund.
Iron Mountain is simultaneously extremely easy to understand and difficult to gauge.
That’s because its core business – the attractive and simple cash cow that is document/data storage – is almost certainly in a secular decline. The REIT’s business model is to use extremely secure real estate to safely store physical documents.
But the world is becoming more digital in nature.
Well, the company is aware of that and aggressively moving into data centers through acquisitions.
The plan is for the new digital data assets to carry the company’s future over the long run while it still milks the physical storage business. While I’m not sure how much growth the physical storage side will see from here, it does seem to be at least somewhat stable due to the inherent need to have certain physical data intact. And they’re really the only major game in town. It’s a monopoly, essentially, with longstanding relationships with many of the biggest companies on the planet.
I’ve been watching and waiting on this stock, a bit unsure about it. I liked the yield, monopolistic market position, niche historical importance, and simplicity. But I was concerned about the pivot execution risk, debt load, high payout ratio, and secular decline in the core business.
However, the Q3 results came out on 10/25 – and things looked pretty good across the board. It’s not a struggling enterprise. They even increased their dividend by 4%, which is notable when you consider the stock is yielding well over 7%. AFFO and revenue were up nicely YOY. That convinced me to take a very small position.
The stock is extremely cheap here at a P/AFFO ratio near 10.
I see this as a slightly speculative play for me, though.
It’s akin to my small investment in Tanger Factory Outlet Centers Inc. (SKT), in that I’m okay having a little bit of exposure to a high-yielding dividend growth stock that’s offering some serious value, with fundamentals still more or less intact. Maybe not a ton of growth. But they’re not priced for it. And the yield makes up for that.
Furthermore, it’s not like we’re looking at something struggling or structurally broken here. The numbers are actually pretty decent, but the debt load is a concern that management is aware of and working on.
These purchases added $36.66 in annual dividend income.
I sold 20 shares of Papa John’s International Inc. (PZZA) on 10/12/18 for $52.13 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.
I completely sold out of this position.
This is the first sale for the Fund in more than seven months. I rarely sell stocks. And moving forward, I plan to notably alter my sales process/schedule regarding stocks in the portfolio. I’ll be discussing that new process within days.
It’s a shame. I love the business model. I love eating pizza. Papa John’s makes a pretty good pizza. It’s very easy.
However, there’s just so much drama around this business, drama which has increased exponentially since I first invested in the business way back at the start of 2018. John Schnatter is, of course, under the gun for a number of comments he’s made. Activist investors are circling the wagons and going in heavy. There’s M&A rumors. Lawsuits, etc.
I can deal with all of that. Ignoring noise is my specialty.
However, a disastrous recent quarter, along with a dividend freeze that comes on top of a fairly paltry yield, is a bit much. I don’t mind noise. But I do mind performance problems that seem somewhat structural in nature.
It’s more of a turnaround/M&A play at this point, which simply isn’t in my wheelhouse. I like a good value, but that comes second to being a dividend growth investor. I’d rather pay full price for a great business operating at a high level than pay a cheap price for a business that’s downright struggling.
That said, I’d love to revisit this idea if/when they get things straightened out and there’s more visibility regarding growth (especially on the dividend). I don’t think it’d be terribly difficult to right the ship and get back to basics.
It’s just that there’s way too much going on here right now that has nothing to do with selling pizza. And there are a lot of great businesses out there that are operating better, available at compelling valuations, offering much higher yields, and still growing their dividends.
I do, however, acknowledge that there’s a ton of potential upside here if you’re okay with what you’re getting into. I think the stock is very undervalued. Like I noted, I’d be more than happy to revisit this idea later if they get back to selling pizzas. Selling a stock doesn’t mean I’m barred from ever going back and investing in the business in the future.
This sale reduced annual dividend income by $18.00.
United Technologies Corporation (UTX) announced a 5% increase in its dividend, upping the quarterly dividend from $0.70 to $0.735. This added $5.60 in annual dividend income.
Crown Castle International Corp. (CCI) announced a 7.1% increase in its dividend, upping the quarterly dividend from $1.05 to $1.125. This added $4.50 in annual dividend income.
Visa Inc. (V) announced a 19% increase in its dividend, upping the quarterly dividend from $0.21 to $0.25. This added $3.20 in annual dividend income.
VF Corp. (VFC) announced a 10.9% increase in its dividend, upping the quarterly dividend from $0.46 to $0.51. This added $11.00 in annual dividend income.
ONEOK, Inc. (OKE) announced a 3.6% increase in its dividend, upping the quarterly dividend from $0.825 to $0.855. This added $12.00 in annual dividend income.
There are 114 companies in the Fund. That’s an increase since the last update due to the initiation of positions in Kraft Heinz, Iron Mountain, and Texas Instruments, offset by the selling out of Papa John’s.
The Fund is now expected to generate a total of $13,255.54 in annual dividend income over the next 12 months. That’s an increase of $132.36, or 1.0%, over the prior update’s annual expectation of $13,123.18.
A fantastic tool for tracking your portfolio, progress, and performance is Personal Capital.
Another very solid, if very busy, month for the Fund.
Although increased volatility in the market meant a decrease in the market value of the portfolio, the annual dividend income expectation increased markedly. And that’s all that really matters to my everyday life. I don’t sell stocks to pay for my living expenses, nor do I go down to some net worth store to buy things with my net worth.
Furthermore, I’ve always seen short-term volatility as a long-term opportunity.
And I’ve always aimed to use that to my advantage, picking up shares in wonderful businesses when valuations become more appealing (and yields subsequently rise).
Indeed, I was a lot more active than usual this month in terms of capital deployment.
Of course, I’m no longer regularly aggressively buying stocks in this new, post-FIRE, stage of my life. The Fund is basically in “maintenance mode” now. I try to invest $500 to $1,000 per month, which keeps me involved with my passion for investing. The added dividend income from fresh capital deployment also adds some ongoing flexibility and freedom in my life, all while increasing my philanthropic firepower down the road.
This was the busiest month I’ve had this year. And it’s going to be the last one like it for 2018.
November will back to average capital deployment. And December will be particularly light. I have a holiday trip to Bangkok planned for the end of the year, and I also have to prepare money in December to handle my visa for the next year. 2018 will close out with a whimper on the investment side of things, but it’ll very much close out with a bang in terms of the rest of my life. Exciting stuff.
Other than the very recent charge-offs at Bank OZK (which weren’t that terrible in the grand scheme of things), all of the stock purchases from the prior month were in businesses that are posting up some really good numbers, yet the valuations would almost seem to indicate they’re somehow struggling. I’m pretty happy to move in when that happens. I separate businesses from their stocks. And it’s a behavior that has been treating me well for almost nine years now.
Meanwhile, the dividend growth snowball continues to roll downhill, and I anticipate it’ll continue to pick up size and speed as time passes.
For perspective on that, the $36.30 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 $1,037 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.
This was a bit of a light month in terms of dividend increases, however. Most of the “big hitters” for me have already come to bat this year, so the rest of 2018 (what remains of it, anyway) will be somewhat light in terms of dividend increases for the Fund. We’re in the bottom part of the lineup now.
While we’re on the topic of dividend income, I hit an awesome milestone this month.
With the annual dividend income expectation for the Fund sitting at just over $13,200, that means I’m now on pace to collect an average of over $1,100 per month in dividend income. That’s a round number that is really fantastic. It’s a lot of monthly passive income, especially over here in Chiang Mai, Thailand. Super proud of this milestone!
Looking out into November (and beyond), I’m going to stick to the plan. That shouldn’t be a surprise to anyone who’s been reading my content over the last seven or so years. I’m about as consistent as it gets.
That means I’ll invest a little capital and look to pick up some high-quality dividend growth stocks at relatively attractive long-term valuations.
Since I’ve basically assembled a collection of “starter positions” with some of these aforementioned names, I’ll probably spend the rest of the year building on them as I fill out these positions to their eventual end point.
As noted earlier, I’m likely going to be buying a share per month in Broadcom. Unless, of course, something drastic changes there.
And I’d very much like to pick up more shares in Texas Instruments over the near term, depending on available capital and competing opportunities.
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 except PZZA.
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!