2020-02 Dividend Income Report

Here is the dividend income report for February, 2020.

The monthly dividend income came out to $208.18. The yearly income total for 2020 through the end of the month was $196.17.

The income for February, 2019 was $229.17, and the yearly income for 2019 through the end of February was $138.45.

I am skipping January since there was not much income. Just the money market funds. The bond funds do not pay out in January.

I am writing this from notes I took before the markets went haywire due to the Coronavirus. I will go into more detail in my post about my March income. So I might write something here that is contradicted by what I write later.

One of the blogs that I follow is Dividend Growth Investor. I consider this to be one of the better dividend growth investing blogs out there, but recently the author had a post that said some things that I disagree with (or more accurately, they recently sent an older post to their mailing list subscribers that I disagree with).

The author is generally against dividend ETFs. I am not sure I agree with that. Keeping track of individual stocks is a lot of work. The author says that dividend ETFs are “Good for beginning investors who are still learning and have less than $10,000.” I think you need a lot more than $10K to go into individual stocks. At least $100K. Maybe even a million. If you have less, you wind up buying very small amounts, and you have a lot to keep track of. For 3M (MMM), I had 10 shares, and each quarter I was getting 0.08 shares. It took seven years to buy two shares. One argument they give against dividend ETFs is “Investors have no say about which stocks the ETF holds.” Yes and no. You can look at the criteria of the index and then pick an index you like.

Granted, I have no idea how well the Dividend Aristocrats will hold up. We will see who is right. I think that companies that have been increasing dividends for 25 or more years will do pretty well. But these days, “pretty well” is relative.

One claim the author made that I do not agree with is that an S&P 500 Index fund could be a dividend growth fund. They recommend IVV by iShares. I might move some money into a broader index fund as a temporary refuge, but I think for dividend investing the broader indexes are a bad idea. Yes, general index funds (not targeted towards dividend investing) have increased their dividends over time based on the dividends from their constituent companies. But that is not their main focus, so I do not think they should be considered dividend funds. Cash flow is better than capital gains. The author says Amazon, Facebook and Google might pay a dividend someday. And maybe they won’t. A dollar in a stock that does not pay a dividend is a dollar wasted. Why put money in dead weight?

One fund the author recommends (with disclaimers) is Schwab US Dividend Equity ETF (SCHD) (ETFdb page here, Schwab page here)  It tracks the Dow Jones U.S. Dividend 100 Index. To be eligible, stocks must be in the Dow Jones U.S. Broad Market Index, and have paid a dividend for at least 10 years. Unlike the S&P Composite 1500, Dow Jones U.S. Broad Market Index does not filter out companies that are not profitable. (Here is the “Financial Viability” criteria from the methodology document for the S&P Composite 1500: “The sum of the most recent four consecutive quarters’ Generally Accepted Accounting Principles (GAAP) earnings (net income excluding discontinued operations) should be positive as should the most recent quarter.“) However, the Dow Jones U.S. Dividend 100 Index methodology document states the index ranks the stocks on four factors:

  • Cash flow to total debt
  • Return on equity
  • Indicated dividend yield
  • Five-year dividend growth rate

It ranks all eligible stocks, and then picks the top 100. If it looks at dividend growth rate, I guess maybe this is a dividend growth index. I will have to look into this one.

It does seem like even though Dow Jones bought S&P that there are some differences between the DJ indices and the S&P indices. The S&P indices (at least the domestic ones) seem to filter out companies that have not made a profit in the past year. This is probably why Tesla is not in the S&P 500. When it does make a profit, it seems to lose at least the same amount the next quarter. The S&P indices seem to combine automation and profit. We will see what happens to this index going forward.

Note: Not all S&P Indices look at financial metrics. Under “Financial Viability” for S&P Total Market Index, the methodology document states “There is no financial viability requirement for index eligibility.” According to ETFdb.com, the iShares Core S&P Total U.S. Stock Market ETF (ITOT) tracks the S&P Composite 1500,  but the prospectus available from the ITOT iShares page says ITOT tracks “the S&P Total Market Index™(TMI) (the “Underlying Index”), which is comprised of the common equities included in the S&P 500® and the S&P Completion Index.” Perhaps the fact that the index is called “TMI” is a warning. According to its page, the S&P Completion Index “comprises all members of the S&P TMI Index except for the current constituents of the S&P 500®.” So it looks like ITOT’s prospectus chose a wordy way to describe itself. The TMI page lists some iShare funds as the official funds, including ITOT. The S&P Composite 1500 Index (which does have financial viability criteria) is tracked by State Street’s SPDR® Portfolio S&P 1500® Composite Stock Market ETF (SPTM).  That fund’s page on ETFdb.com states it tracks the Russell 3000 Index. The S&P Composite 1500 page states the ETF is SPTM (although they simply list the fund by name and do not provide a link). I do not know why the pages at ETFdb.com are incorrect as to which funds track which indices. Perhaps S&P and Russell changed funds and ETFdb.com did not know about it.

It pays to know your index. Check the home pages for your funds and your indices on a regular basis. You should only invest in about half a dozen at a time. Granted, most dividend indices are based on other indices, so you might have to look at another index to understand the one you are investing in.

It was either Ron DeLegge on the Index Investing Show or one of his guests who pointed out that one trick a lot of active managers pull is to compare their funds to Russell indices, particularly the 1000, 2000 and 3000. Very few managers compare their performance to the S&P 500, 600, 400 or Composite 1500. Unlike those S&P indices, Russell indices just look at market capitalization, and do not consider any financial metrics.

Granted, in my work 401(k) I really have few choices about where my money goes. But they put the money into an S&P 500 index fund. We should automate, but not run on auto-pilot.

Here is a table with the year-to-date amounts, the monthly amounts, and the three- and twelve-month moving averages for each February from 2012 through 2020:

Month YTD Amount 3MMA 12MMA
2020-02 $208.18 $196.17 $1259.50 $871.11
2019-02 $229.17 $138.45 $847.72 $589.58
2018-02 $126.02 $66.43 $654.60 $581.51
2017-02 $684.93 $466.05 $570.90 $511.78
2016-02 $620.16 $383.08 $524.89 $460.41
2015-02 $567.34 $353.85 $492.40 $375.72
2014-02 $496.28 $336.61 $363.62 $295.33
2013-02 $358.51 $248.39 $348.20 $287.16
2012-02 $497.58 $308.90 $337.51 $264.48

Here are the securities and the income amounts for February, 2020:

  • Vanguard Total Bond Market ETF: $176.31
  • Vanguard Total International Bond ETF: $9.71
  • Brokerage Money Market: $3.39
  • Brokerage Treasury Account: $6.76

Big Jim does not think automating something in your life means you should give up control.

Angel of the Last Judgement, 11th century, abbey of Sant’Angelo in Formis, assumed allowed under Fair Use.

 

Post created on 2020-04-05_18:23:46, last modified on 2020-08-07_8:21:54

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