Monday, January 16, 2017

2017 M* MoneyMadam Portfolio to Retire with Income that Grows

Hello 2017.  It is time to start your income investing.

2017 M* MoneyMadam Portfolio for Retirement income that grows.
  • ·       Income comes first
  • ·       Income growth is next
  • ·       Capital Preservation – Total Return does matter

This year I will invest $100,000 in dividend stocks. 

My 2017 strategy will not vary much from the previous portfolios.  I cannot complain about the returns of the 2011 – 2016 portfolios, although some investors have done better, most would be happy with the results.  I will create a series of posts to explore this further.

Over the past 6 years, this blog has chronicled my experience with income investing and I think my investing experience closely mimics the typical income investor.

Investors tend to amass funds and then deploy them.  No one buys the S&P 500 on January 1 and pats themselves on the back the next December for their good investing; no one except the theoreticians who report on how well an index performed.  Most of us are faced with the responsibility of investing our savings to retire with income that grow once we are sure we have the funds to invest.   We tend to invest over time.

Investible money shows up all the time when you start to invest early in life.  Sometimes it is the accumulation of savings, sometimes it is an inheritance, or a long shot deal that worked out, or a bigger than expected bonus, a premium from selling your house in a hot market or excess cash flow from an over performing portfolio.   It is not uncommon to have varying amounts to invest. 

My 6 year income investing history is representative of a typical retired investor. 

In 2011 I invested $207,000
In 2012 $211,000
In 2013 $100,00
In 2014 $ 82,000
In 2015 $108,000
In 2016 $65,000

In 2017 I, will invest about $100,000

My sister – in – law recently reminded me that the “golden years are not for sissy’s” neither is Investing your own money for those golden years.

Those of us who do manage our own money know that you need to create a portfolio built for income that grows.  I am not alone when I subscribe to the notion that as long as your income grows why grouse about the value.

On the other hand, when most of your income is generated by your qualified retirement accounts, it is nice to see the value increase as well as the income. All traditions retirement accounts (Roth IRA accounts are exempt) face required minimum distributions and you need to create enough income within the portfolio to meet that demand plus you want to create the funds from capital gains to invest for even more income that grows.

With that in mind, my 2017 strategy is to use the experience of my 6 years of documented, measured,  investing in dividend stocks, covered calls on dividend stocks, and discount bonds to create a 2017 portfolio that concentrates on both income growth and total return.


No question about it, you have to create enough income to meet your mandatory expenses.  I would hope you don’t have a mortgage and if you do, add in the money needed to pay that off as fast as possible and then use the excess cash to create income.


Your expenses do not go down after you retire.  They can be controlled once your children are no longer dependent on the national bank of mommy or daddy, but those years are history once you retire.   You will have fewer dry cleaning bills and might consider “eating out” less often but if you are investing your own money, you already have a list of things you want to do.  Old people call that their “bucket list” and younger people think of them as stuff they deserve.   You cannot get all your stuff done in the first year so expect the cost of everything to double between age 60 and 80.


Total return does matter.   Looking back at my 6 years of documenting my “retire with income that grows portfolios” I realize that readers need to know more than just increasing investment income, you want to also need to know total return or better said as “how did I do this year?”

During periods of extreme tumult such as the 2007-2009 debacle, you cannot expect your principle to go up.  You are lucky if it was not cut in half at least on paper.  During those terrible times, you must suck it up and trust your investing criteria to deliver a steady stream of income. 

There periods are shorter lived than you think.  By the time I started writing this blog in 2011, most portfolios already increased in value and now in 2017 they recouped all losses and added a lot of gains.  

You expect to do at least as well as the market in general and may be better.  To know how you did is to know how much income you created, to know if that income is greater than it was last year and to know how your principle is holding up.

  1. Earnings still must exceed expenses but I see the hazard in that rule.  When a company takes a hit on earnings to right some past wrongs or to invest capital for growth and this results in earnings less than dividends, I am willing to forgive that for a quarter or two if their 5 year EPS trend is greater than the dividend paid out.
  2. Dividend yield must beat the 10 year U.S. treasury bond.  We are fortunate that it is still not hard to beat 2.5%.  Yet, every investor must be wary of the growing trend toward interest rate increases and know that in 5 years the 10 year U.S. treasury bond could pay 5% or more and your stock may no longer pay a competitive dividend.  I am looking for a dividend yield of 2.75% or above.
  3. Dividend growth is paramount when facing competition from the U.S. Treasury.  I used to look at 5 year dividend growth but I have shortened that time frame to 3 years at 3% growth.
  4. Balance sheet stability remains an important criterion.  Not one stock in my 6 years has gone belly up and that is because despite very difficult times in various industries, they could reduce the dividend or take other measures but they did not go out of business. You want to buy a stock with a solid balance sheet.  I use D/E (debt to equity ratio as my first balance sheet screen.) D/E should be equal to or less than 1 or no higher than industry standard
  5. Revenue drives earnings and dividends.  I am relaxing my revenue criteria a touch and looking for companies with 3 years of revenue neutral or revenue growth.  I still have trouble buying stocks with declining revenues.  But, waiting until revenue is robust means you end up buying at a higher price because everybody else interested in the stock will have piled in already. 
  6. Covered call opportunities continue to be the icing on the income cake.  When you can buy a stock that meets all the above noted criteria and that stock has robust calls, someone thinks the stock value is going to go up.  Covered calls, especially when used on part of your position can make a significant difference to your total return.  I want a 1% premium and no less than an 8% capital gain if the call is exercised.  I rarely pick an expiration date of more than 90 days away and I prefer to sell calls that expire after the next ex-dividend date.


This is my strategy for 2017.  I am preparing several analyses of the previous portfolios to show how using similar criteria to my 2017 list has worked to create income that grows.   When I find a stock I like, I will write it up, add it to the 2017 portfolio and follow the results.  Like all other portfolios, 2017 is a long only portfolio.  I will compare this portfolio with SDY the ETF that tracks dividend stocks in the S&P 500 and VIG another ETF that concentrates on dividend growth stocks.   Without a measuring stick, how do you report on the results of investing.   Does your adviser provide you with a comparative analysis?   If not, perhaps you should do some measuring yourself.

Good Income Investing:

M* MoneyMadam