July is in the books. We are officially in the second half of 2020 folks. Man, oh man, does time continue to fly! Each day, the stock market and economic news continue to surprise. The market seems to only head in one direction these days… up! Meanwhile, we continue to search and find undervalued dividend stocks to invest in, despite the surging market. After all, we need to continue seeing our dividend income grow as well, right? In July, our dividend income grew at a nice clip compared to 2019. Here is my July dividend income summary.
Why I Invest in Dividend stocks
Dividend income is the name of the game and quite frankly, it’s rather simple. Our goal is to invest in high quality dividend growth stocks that have demonstrated their ability to increase their dividend through good times and bad. We find these stocks using our stock screener. The stock screener uses 3 simple metrics to identify undervalued investment opportunities. Our stock screener has helped us build some of our favorite lists over the years, including our Top 5 Foundation Stocks and my 5 Stocks to Buy Now, Always and FOREVER.
Dividend investing in 2020 is more important than ever. Why? The cash in your savings account is earning nothing. Interest rates continue to fall, and it appears that we are going to be in a low interest rate environment for quite some time. With low interest rates in our short-term future, we are looking for new ways to earn additional passive income on our excess cash. Dividend stocks are one of our suggested avenues for doing so. My current dividend portfolio is yielding over 3%. That is significantly higher than the interest rate on my Ally Bank and Capital One 360 high yield savings accounts. Unsurprisingly, my interest rates were cut once again. Now, my savings accounts are yielding only .8%. Ugh!
Building a significant stream of dividend income takes hard work, consistency, saving, investing, and most importantly, time. If you save as much of your income as possible and invest the proceeds into income producing assets, you will realize the fruits of your labor with a strong growing income stream. I have been investing in dividend growth stocks since 2012. Slowly, but steadily, my income has increased. Now, in 2020, I am enjoying some of my strong income months yet. The best part is… I’m just getting started. We continue to save, invest, rinse, and repeat here in our household. The best is yet to come.
Each month, we share our dividend income summaries to highlight our growth and progress. This is a fun and helpful exercise that holds us accountable. Further, it helps you, our followers, understand where we are allocating our capital and the stocks we are purchasing. The comments I receive are great, helpful, and motivating. That’s what it is all about.
Bert’s July Dividend Income Summary
July was another strong growth month for our family. We purchased stock consistently throughout the first half of the year. In July, the impact of the stock purchases was evident with a strong growth rate. We received dividends from several new companies compared to last year. This made preparing the table below a lot of fun.
In July, my wife and I received $447.47 in dividend income. This was a 47% growth rate compared to last year. We received 19 individual payments from companies or mutual fund families, a significant leap from July 2019. The chart below provides a detailed breakdown of each individual dividend payment we received in July and compares the amount to the dividend received in the prior year.
In each monthly dividend income summary article, I provide a few observations and highlights from the previous month. My notes for the month are as follows:
Observation #1: At the beginning of the section, I mentioned we received a lot of new dividend checks compared to last year because of stock purchases. Let me tally the total up for you. We received 7 new dividend payments compared to last year from 5 new companies (we both own ViacomCBS (NASDAQ:VIAC) and Cincinnati Financial (NASDAQ:CINF), so I didn’t want to double count them). The list consists of one Dividend King (Genuine Parts Company (NYSE:GPC)) and a Dividend Aristocrat (Cincinnati Financial). One of the other companies is a major integrated oil company (Total (NYSE:TOT)) that has one of the stronger balance sheets in the sector. Lastly, Cisco (NASDAQ:CSCO) is a company that we purchased at the beginning of the pandemic and have continued adding to in August.
Observation #2: These have been emotional months for dividend investors. Often, for me, it feels as if we take two steps forward and one step back. Our dividend income increases by purchasing new stock, as you can see above, and dividend increases. Nothing gets the two of us more excited than a nice, strong dividend increase. However, for every yin, there is a yang.
In July, the yang flexed its muscle, unfortunately. Two companies I own cut their dividend in the second quarter. Not surprisingly, both companies were oil companies. Low oil prices and continued, prolonged volatility are exposing the oil companies with poorly managed balance sheets. Unfortunately, I own too many oil companies that fall into that category. It is crazy that overall, I have received 4 dividend cuts from oil companies.
The impact of two of the dividend cuts from Occidental Petroleum (NYSE:OXY) and Schlumberger (NYSE:SLB) were felt this month. Those two dividend cuts caused my dividend income to decrease by $34.43 compared to last year. I would say I’m getting sick and tired of these dividend cuts and I wished they were behind me; however, as you will see in the next section, July contained some more terrible dividend news.
Observation #3: Sometimes the best stock purchases are for the companies that you already own. Over the last 12 months, I added to my stake in Canadian Imperial (NYSE:CM) on many occasions. Canadian Imperial is one of the “Big 6” banks in Canada. These banks are known for their strong balance sheets and large dividends. Canadian Imperial has the highest dividend yield of the 6. My position in CM has nearly doubled compared to last year. Look at the table above to see the impact that it has on my forward dividend income. They went from being my 4th largest dividend in July 2019 to my largest dividend payer in July 2020.
Dividend Portfolio News & Updates – July 2020
In this section of my dividend income summary, I typically discuss the dividend impact of stock purchases, 401(k) contributions, and dividend increases. However, last week, I released an article summarizing my July dividend stock purchases. So, I won’t repeat the details here. My wife and I purchased $1,655 in stock and added $74 in dividend income as a result. Not a bad sum of dividend income by any stretch; however, it is frustrating that there are so few undervalued dividend stocks to purchase in this ever rising market. I wish we had purchased double that amount in the month.
Even with lower than desired stock purchases, we are still maximizing our 401(k) contributions. Annually, we maximize our contributions to take advantage of the tax benefits while growing our forward dividend income. We both invest into low cost index funds that mirror the S&P 500 during each paycheck. This is a nice, automated way to ensure that we are always putting capital into the market.
Now, the interesting part. In this section, I’ll discuss the dividend increases and dividend cuts that I received in July. Let’s start with the positive. Scotts Miracle-Gro (NYSE:SMG) delivered some pretty exciting news for dividend investors. Not only did the company announce a great dividend increase (see below). However, the company also announced a $5 per share special dividend for shareholders. The dividend increase added $11.76 in new annual dividend income to my forward dividend income and the special dividend will provide me with a one-time $122 dividend in September.
We also received two dividend increases from Walgreens (NASDAQ:WBA) and J.M. Smucker (NYSE:SJM). The increases were small and not nearly as exciting as Scotts. However, in this environment, I’ll never complain about a dividend increase.
Now, the bad news. I foreshadowed a dividend cut earlier in the article. This dividend cut was devastating for a few reasons. First, the dividend increase had a huge impact on our dividend income. Second, the dividend increase was a surprise. It truly came out of left field. Due to both factors, the Dominion Energy (NYSE:D) dividend cut was just devastating.
Dominion announced a massive asset sale with Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B). Mr. Buffett made a major move into the utility sector. For Berkshire, it was a fantastic transaction. For Dominion shareholders, it was awful and confusing. The company sold off strong assets to Berkshire and slashed their dividend by 33% along the way. I’m still a little confused about why the dividend was cut so drastically, especially if the transaction was such a “great move” for the company. However, I have learned to accept it and move on.
The Dominion dividend cut slashed our forward dividend income by $257. Yikes! We had all that positive momentum carried forward from June and July. Just like that, our dividend income received one fast smack at the hands of the Oracle of Omaha. It was a great reminder that a dividend is never guaranteed and why it is so important to always conduct your own, independent stock research.
The chart below shows the net impact dividend increases and dividend cuts had on our portfolio during the month. In total, our dividend income decreased $239.78. Yet another frustrating month of dividend cuts. Unfortunately, August hasn’t been much better. We received another massive dividend cut from an oil company. When will the dividend cuts end!
Overall, how on earth could you complain about a 47% dividend growth rate? I am excited to continue our trend of seeing our dividend income increase each month. This is still occurring despite some of the negative headwinds we face as a result of the pandemic. Hopefully, the dividend cuts are now behind us (even after my mystery August dividend cut) and we can continue moving forward. After all, there have to be a few more dividend announcements like Scotts Miracle-Gro out there, right?
In all seriousness, the journey to financial freedom is challenging, but rewarding. Each purchase and dividend increase puts us one step closer to the end game. We must continue to work harder and harder. Just when you think you’ve done enough, reach back, and throw that 100 MPH fastball in the 9th. Let’s do this everyone!
How did you perform in July? Did you have a strong month? Did you receive any dividend cuts?
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.