FIRE Fund Update For October 2018

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, 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.

Purchases

I purchased 5 shares of W.P. Carey Inc. (WPC) on 9/4/18 for $66.20 per share.

W.P. Carey Inc. is a net lease real estate investment trust that invests in high-quality single-tenant industrial, warehouse, office and retail properties subject to long-term leases with built-in rent escalators. They have a property portfolio of 878 properties totaling 87 million square feet (as of June 30, 2018). Properties are located primarily in North America and Northern and Western Europe.

This is one of my older holdings. I haven’t added to it in years, but the REIT has become more appealing of late as the valuation has stayed compressed even while the dividend has routinely been increased. In fact, they just increased their dividend yet again this past month (noted below).

The REIT is guiding for AFFO/share to come in at somewhere between $5.40 and $5.50 this year, which means you’re looking at a P/AFFO ratio of just over 12 right now.

Their portfolio is really fantastic in terms of industry and geographic diversification. And they’ve been running a tight and steady ship for many years. I have no qualms with owning a slice of W.P. Carey. I sleep very well at night with this holding.

Helping me to count sheep (or is it dividends?) while I sleep is that massive yield – coming in at over 6% right now.

They’ve increased their dividend for 21 consecutive years. And they’re in a great position to continue that for the foreseeable future.

While the dividend growth might leave something to be desired (recent annual dividend growth has come in at ~2%), the high yield offers a lot to like.

This purchase added $20.50 in annual dividend income.

I purchased 5 shares of Omnicom Group Inc. (OMC) on 9/7/18 for $69.46 per share.

Omnicom Group Inc. (OMC) is an advertising, marketing, and corporate communications company.

This is a compelling long-term investment for numerous reasons. I went over many of those reasons just a few months ago. My thesis remains unchanged.

I was looking for an opportunity to average down a bit on my holding, and that’s just what I did.

However, I always saw this position as more ancillary than anything else, so I’ll probably cap it here.

This purchase added $12.00 in annual dividend income.

I purchased 1 share of Broadcom Inc. (AVGO) on 9/12/18 for $223.82 per share.

Broadcom Inc. is a leading designer, developer, and supplier of analog and digital semiconductor devices.

This company perhaps flies a bit under the radar, but I was convinced to invest in Broadcom after covering it for a recent UDGSOW piece.

This is a new position for the Fund. I plan to slowly scale into this business over the coming months with intermittent buys.

This purchase added $7.00 in annual dividend income.

I purchased 5 shares of Dominion Resources, Inc. (D) on 9/20/18 for $69.98 per share.

Dominion Resources, Inc. is a fully integrated gas and electric holding company with approximately 25,000 megawatts of electric generation capacity; 15,000 miles of natural gas transmission, storage, distribution and gathering pipelines; and more than 63,000 miles of electric transmission and distribution lines. They’re a 48% owner of the proposed Atlantic Coast Pipeline.

This is another older holding of mine that I took the opportunity to add to after recent uncertainty (especially related to the proposed acquisition of SCANA Corp. (SCG)) has brought the valuation down to a very reasonable level.

With or without SCANA, this is a great business that owns some fantastic energy infrastructure.

They’re operating well across the board. Q2 2018 results were strong, showing 11.3% YOY EPS growth. Revenue growth came in at almost 10% YOY.

They’ve increased their dividend for 15 consecutive years. And their strong 10-year DGR of 8.6% is coming on top of a fantastic yield of 4.77%. That yield, by the way, is more than 100 basis points higher than its five-year average.

Speaking of which, most basic valuation metrics look great relative to their respective recent historical averages.

I’ve got a nice-sized position in Dominion after this addition, but I wouldn’t mind picking up a few more shares if there were to be another valuation compression from here.

This purchase added $16.70 in annual dividend income.

I purchased 10 shares of Bank OZK (OZK) on 10/1/18 for $37.69 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 another new position for the Fund.

What a wonderful little bank. Well, a little bank that is quickly becoming a larger bank.

Revenue is up almost eightfold over the last decade, while EPS has sextupled. Fundamentals are outstanding across the board.

Meanwhile, they’ve been increasing the dividend for 22 consecutive years, which obviously includes the period straight through the financial crisis and ensuing Great Recession (something that can’t be said for many other US banks). They actually tend to increase the dividend every quarter. The most recent increase (which you can see below) was the 33rd straight quarter in which the bank announced a dividend increase.

The valuation is awfully appealing across the board. Most basic valuation metrics are way off of their respective recent historical averages. The P/E ratio, at a little over 10, is very low for a company that is compounding in the double digits. The P/CF ratio is less than half of its three-year average.

For further perspective, the stock’s current price is the same as levels it was sporting way back in 2014 – when revenue and EPS were both less than half of where they’re now at.

There are some concerns over its loan portfolio (when are there not concerns about a business?), especially seeing as how the bank has aggressively moved into construction lending in recent years. This tiny bank is behind some of the biggest projects in some of the biggest markets in the US.

But these concerns seem to be more than priced in. It’s almost as if the last four years of growth are worth nothing. Of course, growth could, and likely will, slow in the new construction market. And sticking to strict lending standards means opportunities might dry up.

I never like owning large positions in small banks, but I could see myself picking up another 20 or so shares before it’s all said and done. That would make it roughly a 1/3 position, which I think is appropriate for a small, higher-risk bank.

This purchase added $8.00 in annual dividend income.

Sales

There were no sales since the previous Fund update.

Dividend Increases 

Verizon Communications Inc. (VZ) announced a 2.1% increase in its dividend, upping the quarterly dividend from $0.59 to $0.6025. This added $3.75 in annual dividend income.

STORE Capital Corp. (STOR) announced a 6.5% increase in its dividend, upping the quarterly dividend from $0.31 to $0.33. This added $3.60 in annual dividend income.

Microsoft Corporation (MSFT) announced a 9.5% increase in its dividend, upping the quarterly dividend from $0.42 to $0.46. This added $4.00 in annual dividend income.

Realty Income Corp. (O) announced a 0.2% increase in its dividend, upping the monthly dividend from $0.22 to $0.2205. This added $0.57 in annual dividend income.

W.P. Carey Inc. (WPC) announced a 0.5% increase in its dividend, upping the quarterly dividend from $1.02 to $1.025. This added $1.50 in annual dividend income.

McDonald’s Corporation (MCD) announced a 14.9% increase in its dividend, upping the quarterly dividend from $1.01 to $1.16. This added $33.00 in annual dividend income.

Bank OZK (OZK) announced a 5% increase in its dividend, upping the quarterly dividend from $0.20 to $0.21. This added $0.40 in annual dividend income.

FIRE Fund

The FIRE Fund is now valued at $382,101.05. That’s a 1.2% increase over the last reported market value of $377,616.12.

There are 112 companies in the Fund. That’s an increase since the last update due to the initiation of positions in Broadcom and Bank OZK.

The Fund is now expected to generate a total of $13,123.18 in annual dividend income over the next 12 months. That’s an increase of $112.52, or 0.9%, over the prior update’s annual expectation of $13,010.66.

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

Conclusion

I don’t even know what to say. I’m blessed and humbled by what the Fund has become.

The vast majority of the portfolio was built during a six-year stretch, starting in early 2010 and culminating in early 2016 (upon which time I reached financial freedom). I dedicated every ounce of my being toward saving and investing as much as possible during that time frame so that I could achieve FIRE as fast as possible.

To see what that concentrated period of superhuman effort has turned into is really amazing. I’m incredibly proud.

And I’m relieved these days to be able to let my foot off the pedal a little bit, because the relentless acquisition of stock/assets/money was never a permanent or interesting goal, much in the same way the relentless acquisition of stuff isn’t interesting or worthwhile to me.

Part of that relief is, of course, possible due to the very nature of the portfolio.

It’s comprised of some of the best businesses in the world, which means I don’t have to babysit them. I don’t need to worry about McDonald’s selling burgers or Realty Income collecting its rent. I can go about my life with a certain sense of satisfaction and peace of mind that’s truly priceless.

Moreover, the snowball nature of dividend growth investing means I’m looking at regular increases in my purchasing power – without any action or input on my part. I get “pay raises” without lifting a finger. Again, a total relief.

To wit, the $46.82 increase in my annual dividend income that came about purely through organic dividend increases announced by my holdings this past month is akin to investing ~$1,340 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, however, one of the heavier months I’ve had in some time in regard to stock purchases.

I generally aim to invest $500 to $1,000 per month in this current post-FIRE phase, which is basically my vision of a portfolio in “maintenance mode”, but September was an above-average month. I wasn’t planning on it being that way, but I guess that’s just how it worked out. I’m still under that upper level when averaging it out on an annual basis, mostly because I invested very little fresh capital during the first quarter of 2018.

And this update also includes a good chunk of the capital I was planning on investing in October, as the Bank OZK buy occurred on October 1.

In addition to the investing activity being a bit heavier than usual, I coincidentally also bought some higher-yielding stocks.

Those actions combined means this was the first month in a while in which the majority of the increase in my annual dividend income was driven by new stock purchases (rather than organic dividend raises).

Looking toward October, it’ll be same as it usually is for me. I’ll look to allocate a little capital toward some high-quality dividend growth stocks trading at appealing long-term valuations. The rest of October will be fairly light, however, considering that the Bank OZK buy already occurred this month.

Unless Broadcom were to significantly move higher, picking up another share or two in the near term is one of my top ideas. There are a number of tech companies beyond Broadcom that look good here, too.

W.P. Carey has moved down a bit since I last bought (along with REITS in general). I wouldn’t mind buying a few more shares of that business at a lower price.

Many names across energy, finance, and healthcare also continue to look fairly attractive right now, especially relative to the broader market (which, of course, contains a number of stocks trading at eye-watering valuations).

I was looking at Exxon Mobil Corporation (XOM) just a few weeks ago, but it shot right up on me. I might still come back around to that name in October. We’ll see what competing opportunities look like.

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.

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).

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!