Progress Log: Investing for Passive Income

[Martzee]

Quality is the Name of the Game

(Update: July 17th, 2021)

This week, the focus was on quality.

On Monday, I purchased shares in Johnson & Johnson (JNJ), Kimberly Clark (KMB), and Clorox (CLX).

By all means, these are “boring” companies to invest in but I am excited nevertheless because they are some of the highest quality companies available on the market. And they are trading at reasonable valuations right now considering what you get as an investor.

These are the kinds of businesses that I want the Freedom Fund to be based around. Although they don’t provide the highest starting yields, they have excellent track records of paying increasing dividends year after year.

They’re the kind of businesses that allow you to never have a to lift another finger for the rest of your life and still be confident that your dividend income will continue to grow at a rate that significantly outpaces inflation.

These businesses rarely come on sale but occasionally you can grab them at-or-near fair value. Looking at JNJ specifically, they suffered some negative press this week related to their vaccine and sunscreens. These events always blow over with time but can present short term buying opportunities.

View attachment 38966
Above: This week JNJ recalled some Neutrogena and Aveeno sunscreen sprays over benzene related concerns. Image credit: Wall Street Journal

While the core of the Freedom Fund is based around stocks like JNJ, there is also room for ancillary positions that offer higher starting yields with a bit more risk. These stocks are valuable in their own right because they provide more immediate income.

My personal rule is that each ancillary position will be limited to 1% of the total fund, while a core position such as JNJ may reach up to 8% of the fund.

Next week you can expect me to share a couple of higher yielding (ancillary) dividend growth stocks that I’ll be using to help reach my passive income goal for July.

Until next time.

P.S.

Nothing in this thread should be taken as investment advice. I am simply sharing my personal journey and thought process.

---------------------------------------------------------------------------------------

@Martzee
That’s fantastic, congratulations on your success!

I’ve been watching videos and learning about the wheel strategy. It’s a very simple concept, and the way people talk about it sounds like a free lunch with no catch.

What would you say are the major downside(s) of your strategy, compared to the standard buy-and-hold that I’m doing? I’m not seeing where the increased risk lies, but there must be a tradeoff if we’re talking about earning a 45% annual return, over 4 times that of the S&P500. If it is really that easy then I can’t imagine why every big-name investor wouldn’t take advantage.

There are no downsides that I would call a downside. Some people consider them a downside, I don't.

For example. When you do a wheel and sell puts, what's the worst thing that can happen to you?

Well, here are the outcomes:

1) The stock drops below your strike.
2) You can roll the put down and away and you do it for credit (always for a credit!)
3) You cannot roll for a credit you let it be assigned and buy 100 shares.

People consider it a downside because they think if a stock drops too low you will buy too high than the current price. They are short-sighted. But if you did it against a stock you like and eventually want to own, and have money for the purchase (most people sell puts and do not have money to cover an assignment and then get burned), then there is no problem at all.

For example, I sold a put with 24 strike against SIG stock when it was trading around 30 a share. Then the stock tanked to like $8 to $10 a share. I got assigned at $24 a share. Others would freak out and cry "fault! this strategy doesn't work!! I am losing money!!!" Well, I stayed in the position and I was selling covered calls. Today SIG trades at $75 a share.

The same goes with the call side. People say that that you lost opportunity when selling calls and be forced to sell your shares while without calls you could run the stock and have a lot larger profits. Perhaps. But when selling the call, no one knows what the opportunity would be in the future. And I have heard a saying that "after each battle, everyone is suddenly an army general" in other words with hindsight everyone knows what you should have done. So if it happens and my shares are called away, I either sell in the money puts to buy the shares back, or buy the shares back right after the assignment (wash sale). So that is not a disaster for me either.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[WJK]

I read this whole thread and I sure feel blessed in my investments. It looks like you are getting a little better than a 3.5% ROI (return on investment). Are your returns tax free? That rather a low ROI, but, it is working for you IF you can build up enough investment principal. You're only 26. Keeping going. You are doin' good.

 

[ericaung]

Correct me if I’m wrong, but my takeaway from MJ’s books wasn’t that investing in the stock market is a bad thing, but rather that it’s not a reliable method to achieve wealth at a young age. To that point, if you check out my most recent update you’ll see that I’m still working on the entrepreneurial end of things too. So I don’t think I am going against everything in both books.

I started this thread to focus more on my investments than on business, so that might have given the impression that I think investing is more important or that I'm against being an entrepreneur.

In my view, it just makes more sense to start investing young and still be working to try and start/grow a business rather than exclusively doing one or the other, but I’ll admit I could be wrong and time will be the judge of whether this was a good call.

start investing earlier and business are the best things to do in 20s. I don't think investing in the stock market is a bad thing.

Btw, you should invest in stable coins like USDC/USDT and park it into Block-Fi or Crypto.com interest accounts. It is also the other way of passive income too. My two cents here is there is still risk of losing money there...but its very rare. so just invest not too much

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Colton]

End of September Update

We saw a bit of a pullback in the market this month, and subsequently the portfolio value is sitting at about $95k.

However, the dividend income has grown to $310 per month. One of the nice things about dividend investing is that the dividends tend to move independently of short term market price fluctuations.

Key purchases this month were into CLX, XYLD, VICI, and BMY. I didn't contribute as much money into the fund this month as I normally would have. I actually spent a lot of money on new clothes this month but I am happy about this.

Business-wise, I am planning out and working on a new idea which I believe will provide me with a nice source of location independent income. It involves learning and marketing a new skill that will be also beneficial to my personal life and existing ecommerce business.

I have tried experimenting with a new product for my existing ecommerce business as well, but we'll se how that one turns out. Business income overall was a bit lower this month, likely due to the seasonal nature of the gardening niche.

That's all for this month, thanks guys.

@ericaung
Thanks, I've skimmed the topic of stablecoins but don't own any yet. They are interesting, but one the things that stuck out to me is that the high yields currently offered on them are expected to decline in the future depending on who you ask. Definitely something to look into more. I do own a little crypto through and am receiving interest payments on that.

 

[FierceRacoon]

You do not have to be active with options, trade a wheel strategy - if you own 100 shares, place a covered call above your cost basis price (in case you get assigned you will be sold out for a profit) and then you can forget it. It will either expire worthless and you rinse and repeat it, or it will expire in the money and sell your 100 shares of the stock. In that case place at the money or slightly in the money put trade and again forget it - it will either expire worthless (then rinse and repeat) or you get assigned and buy back 100 shares of the stock. You will do this once a month only so it is not much active trading at all. And it significantly boosts your income (I roll calls and puts to avoid assignments so I collect dividends and premiums but if I get assigned it is not an end of the world to me - you can also use the options against a portion of your holdings).

Here is a picture of what options do to my portfolio income (on top of the dividends):
View attachment 38765

This is an amazingly clear explanation.
My interpretation is that it is betting on volatility: hoping that the stock will be fluctuating up and down. If it were to keep increasing then this strategy would lose money by selling, then buying back at a higher price.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Martzee]

This is an amazingly clear explanation.
My interpretation is that it is betting on volatility: hoping that the stock will be fluctuating up and down. If it were to keep increasing then this strategy would lose money by selling, then buying back at a higher price.

When doing this strategy you need to make sure you do not fall in love with your stock and be willing to buy or selling it as needed.

Also, you can skew your strikes depending on the market to offset the volatility issue. If the stock is mostly rallying, try to place your calls as high as possible, and your puts as close to the price as possible. In a down-trending market or stock, place your puts as far away as possible and your calls as close as possible (but still above your cost basis).

When selling the individual options, try to sell to collect at least 1% premium, meaning, that if a stock trades at $40 a share, you want at least 0.40 premium when selling puts or calls.

If the market is tanking and you need protection for your 100 shares, move the calls deep in the money. For example, the stock is trading at $40 a share but it was in a downward moving spiral and you are afraid that it will be going further down. You roll your calls from $45 down to $35 strikes. You will receive $5 of the intrinsic value plus the time value left in the contract, let's say 0.20 (total $5.20), The $5 intrinsic value now protects your stock. If the stock drops to $35 a share, you still will see no loss as it will be offset by the call.

There are tons of ways to play with the wheel setup but of course, the best setup is the easiest and simplest one. Avoid trying to predict the market.

As far as your statement on ever-rising stock and the wheel losing money - you need to shift your strikes in a way that you collect more premium than you would eventually lose. So if you let's say buy 100 shares of a stock at $40 and sell a call at $45 and you get called away at $45 and the stock is currently at $49, you then buy at the money or in the money puts (I prefer at the money).

However, the goal is not to get assigned, so I roll rather than let it go. I only let it go when there is no way to roll (or I forget to roll it, which happens more than finding no way out).

 

[Colton]

End of October Update

This month, I did not add very much dough to the fund and fell a bit short of my goal. Right now, the fund is sitting at a value of about $98k and producing just over $320 per month in dividend income.

I'm taking some time each day to learn photoshop, with the intention of utilizing it to bolster my income. Business income has been slow for the last couple of months and I think it is likely that this will continue at least through November.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Raven S]

They are short-sighted. But if you did it against a stock you like and eventually want to own, and have money for the purchase (most people sell puts and do not have money to cover an assignment and then get burned), then there is no problem at all.

Im so happy to have found at least 2 other dividend investors on these forums =) Greetings from Norway =) To be honest, I would just have loved my stock to go sideways into the sunset, so I could just keep swingtrading it. And when you swingtrade, in something you would kind of like to own anyways, if I "miss", I always have the option of just sitting it out - and pay the 5% on the margin, instead of taking the loss. Im not diversifying my investments into different stocks. I diversify the different ways in wich I make money on my one vessel. So 2/3 of my shares, are what I just call my Core - and I "never" trade with it. Instead, I take up margin on it, and then I use this for swing trading instead. Each and every trade, will have to pay for its own expenses, and I just subtract all the fees before calculating the profit, or loss. Charlie Munger, Warren, Philip a Fisher, and Nickolas Darwas are where I draw most of my inspiration from. And its perhaps somewhat unusual, to not diversify at all. Meaning - Im all in, into one single stock - but when you pay close attention, you see this is what both Charlie and Philip would most likely have done. I feel safer, knowing I did a decent job in making sure this one place isn't falling apart anytime soon - and that if that ever would seem to be the case, I would pay close enough attention to leave it.

Low stress, fun swingtrading, is just perfect for my personality. You would think it would be really "easy" right? But - interestingly, there is always so much new to learn.
Keeps me busy having something meaningful to do.

I really enjoyed the game of singeling out the one place to put all your money too. Like a merciless Squid game, in your portofolio - where only one stock were allowed to remain.

From my point of view I really did not set out with this as a plan though! I was happy playing a game where I alternated swingtrading in 4 different stocks that I had very good faith in. So I would shuffel the money back and forth, and find the flow - where I would take out money near the upper part of a channel of one, and then have another vessel ready where it would be a good time to enter again. A way to keep the downtime to a minimum I guess. All these were "floating high" though - and I would not feel secure getting stuck in one at all. So I much preffer the style I have today, with only one single vessel. I run many individual trades, in the same stock simultaneously. And I know this one place pays good dividends, is currently undervalued, and is well position to benefit from several megatrends currently blooming.

And my "Core" then, was in my Index Funds.

 

[Colton]

@WJK thanks man.

End of November Update

Again, this month was pretty slow in terms of business income.

The fund did jump up to over 100k for awhile, before falling back to just under 99k due to the current volatility in the stock market. We're sitting at a monthly dividend of $330 right now. Recent purchases include JEPI, CLX, and BMY.

Still taking steps and throwing some new darts at the wall to try and boost my online income.

 

[Colton]

End of March Update

I forgot to post last month...

As of now we're sitting at a portfolio value of just over $114k and a current (average) monthly dividend distribution of...

Really happy with the dividend growth since last time. $400/mo was a landmark goal I set for myself and I plan to focus less on purchasing immediate income going forward, for now. Eyeing SBUX and a couple others with low starting yields but excellent long term outlooks and attractive valuations. This means that the portfolio distribution won't increase as fast in the near term, but there may be more potential for capital appreciation.

Over on the business side, I added a digital product to my store this week and will spend the coming week trying to push it on social media. Current business revenue is coming from physical products and would like to diversify this.

 

[Colton]

End of April Update:

Kind of a turbulent time in the stock market right now, but the portfolio is performing quite well. We're sitting at a valuation of about 116k right now and the dividend income is a little over 400/mo. The ETF's I've bought recently have overall been hammered pretty hard but my individual stock positions (the bulk of the portfolio) are doing better.

That being said I'm also switching gears now and saving up for a large upcoming expense, which means I won't be adding any more fresh capital into the portfolio for quite a while. Any growth that occurs from here on will come from reinvested dividends, dividend raises, and capital appreciation. It'll be interesting to see how this affects things and I may opt to to the portfolio updates less frequently going forward.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Omsubedi]

any recommendations on where to learn to

 

[Martzee]

any recommendations on where to learn to sell-call-option?

Search for Allan Elman...

 

[Guest-5ty5s4]

Grow your business, build or purchase a SAAS business that can be managed anywhere and with little attention given to it, and make a lot more than 2500 a year lol. You won’t have to be chained to any one location, you can spend an hour or two a week on it, and then you’re in a 10x better spot.

Johnny, do you know anyone who has done this? How they found the business to buy, what it cost, what kind of skills they already had or didn’t have, and how they manage it?

 

[Empires]

If I had extra capital I didn't know where to put, before any options trading I would purchase classic cars and lease them out and expect a 15% yearly return.

Are you still working on this? I think I remember you starting a progress thread on this

 

[Martzee]

@Martzee
That’s very interesting, thanks for the explanation. You’ve given me more to look into. Since you started your LLC back in 2014, have you looked back and figured out your average annual return?

Yes, my average ROI on options is 45% annually (this year 39% so far so I might get better since we have 6 months left) + dividends + capital appreciation. Last year my entire account achieve 419% growth (but it was easy as I suffered some losses in 2019 and growing the account back was easy), this year I am up 259%. When reinvesting dividends and premiums the snowball rolls up very fast.

 

[Colton]

UPDATE – July 24, 2021

Hello and welcome to my weekly post in which I document the process of building an investment portfolio in real-time.

The goal of the portfolio (called the Dividend Growth Portfolio) is to provide an ever-growing stream of passive dividend income while delivering total returns competitive with the S&P 500. As the dividend income grows, it will eventually surpass living expenses and financial freedom will be achieved. In the meantime, the dividends offer extra financial security.

Each week, I share my stock purchases, disclose dividend payments, discuss which companies are increasing their dividends, and provide an update on the state of the portfolio.

Recent Purchases:

On Monday, I added 8 shares of Johnson & Johnson (JNJ) to the Dividend Growth Portfolio.

JNJ has a 5-year dividend growth rate of 6%, with the most recent raise for 2021 coming in at 5%. This marks the 58th consecutive year of dividend raises from JNJ.

JNJ is a core position within the Dividend Growth Portfolio.

I also made smaller purchases into Clorox, Pinnacle West, Gilead, and Prudential.

Recent Dividend Payments & Raises

We didn’t receive any dividend payments this week. This is typical, as most companies pay out their dividends quarterly and these payments tend to congregate during certain times. Last week was a busier week for dividends, with payments coming in from Phillip Morris, Utz Brands, Ventas, Essex Property, W.P. Carey, Federal Realty, Leggett & Platt, National Fuel & Gas, Realty Income, Store Capital, and Medtronic.

These dividends were automatically reinvested into the portfolio to purchase more shares in businesses that will pay more growing dividends.

So far in the month of July, the following businesses within the portfolio have announced new dividend raises –

Walgreens Boots Alliance (WBA) has increased their quarterly dividend from $0.4675 per share to $0.4770 per share. This represents a 2.03% increase. The stock currently yields 4.13%.

Duke Energy (DUK) has increased their quarterly dividend from $0.9650 per share to $0.9850 per share. This represents a 2.07% increase. The stock currently yields 3.77%


Passive Income Update

As of today, the Dividend Growth Portfolio is valued at $91,457 and generates about $274 per month in passive dividend income.


Last week, I promised to talk about higher yielding dividend growth stocks that I’ll be using to boost my immediate income. As it turns out, I should be able to reach my July goal ($280/mo) without targeting high-yield stocks. Still, these are some of the companies I have recently invested in that pay unusually high starting yields. I personally believe that each of these companies are solid investments –

Enterprise Products (EPD) is an American midstream natural gas and crude oil pipeline company which currently yields 7.65%.

W.P. Carey (WPC) Real estate investment trust company. Currently yields 5.29%.

Enbridge (EPD) Midstream natural gas and crude oil pipeline company headquartered in Canada. Currently yields 7.08%.

That’s it for this week. Be sure to leave requests if you feel that I’m leaving anything out. I know these posts are still a little chaotic and that’s because I’m still trying to figure out the best format for these and tinkering with different ideas, such as naming the portfolio and what to cover each week to keep things interesting. I want these posts to be engaging and to inspire others to start investing, which is tricky because investing can be a dull subject.

Until next time.

P.S.
Nothing in this thread should be taken as investment advice. I am simply sharing my personal journey and thought process. You should always do your due diligence before investing.

 

[Colton]

End of August Update

It's been an interesting month, I have been throwing a few darts at the wall to try and grow my ecommerce business and researching ways to boost my investment income on the side. I also turned 26 last week.

On the investment side of things, the portfolio is currently sitting at a value just under $96k and produces an average of $290 per month in dividend income.

I have been researching covered calls as a potential income-boosting strategy for the portfolio and I have opened a paper trading account through TD Ameritrade to practice using the strategy. I'm also looking at several covered call etf's, specifically XYLD and JEPI. They appear to offer very high and reliable distributions, although they are not considered to be dividend growth stocks because the distributions fluctuate from month-to month.
-----------

Regarding the ecommerce side of things, I am trying out new propagation methods which will hopefully allow me to sell a higher volume of an existing product and bring several new ones to market soon. I'm in the business of rare exotic houseplants and gardening products.

Lastly, there is another business idea that I am playing around with. This week I will be digging into the idea further to try and flesh out a plan and decide how viable it is. I'm excited about this because the business idea involves doing something that I have been really wanting to prioritize from a personal standpoint but has taken a backseat to pursuing financial freedom.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Colton]

I read this whole thread and I sure feel blessed in my investments. It looks like you are getting a little better than a 3.5% ROI (return on investment). Are your returns tax free? That rather a low ROI, but, it is working for you IF you can build up enough investment principal. You're only 26. Keeping going. You are doin' good.

@WJK Thanks man, but the dividends only make up a small portion of the portfolio's total return. The portfolio has also gained about $12,000 this year due to capital appreciation alone. The reason I don't pay much attention to this number is that I don't intend to sell my shares, so the capital appreciation is kind of irrelevant to me. It's the actual dividend income that I will be using to help fund my lifestyle in the future.

 

[Colton]

The thing that scares me about stocks and bonds is my lack of control. It's too much like gambling for me.

Hey, you might be right.

 

[Colton]

The thing that bothers me about stocks and bonds at my age (and I do own a good amount of stocks) is that it takes decades and decades for it to be worth anything.

I've really used my stock investments as a kind of secondary bank account that grows and that I can tap if I need to for better opportunities.

That being said, cash is king when it comes to doing business or seizing new opportunities, whether a new investment, a real estate deal, or a business move.

I certainly hope that it won't take decades and decades for the portfolio to be worth anything, but I guess we shall see. Personally, if I could get this thing to the point where the dividend income is covering my rent, I would consider that to be extremely valuable.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[ericaung]

End of September Update

We saw a bit of a pullback in the market this month, and subsequently the portfolio value is sitting at about $95k.

However, the dividend income has grown to $310 per month. One of the nice things about dividend investing is that the dividends tend to move independently of short term market price fluctuations.

Key purchases this month were into CLX, XYLD, VICI, and BMY. I didn't contribute as much money into the fund this month as I normally would have. I actually spent a lot of money on new clothes this month but I am happy about this.

Business-wise, I am planning out and working on a new idea which I believe will provide me with a nice source of location independent income. It involves learning and marketing a new skill that will be also beneficial to my personal life and existing ecommerce business.

I have tried experimenting with a new product for my existing ecommerce business as well, but we'll se how that one turns out. Business income overall was a bit lower this month, likely due to the seasonal nature of the gardening niche.

That's all for this month, thanks guys.

@ericaung
Thanks, I've skimmed the topic of stablecoins but don't own any yet. They are interesting, but one the things that stuck out to me is that the high yields currently offered on them are expected to decline in the future depending on who you ask. Definitely something to look into more. I do own a little crypto through and am receiving interest payments on that.

Yes, they are expected to decline in the future. However, there are many crypto platforms nowadays. U can easily switch to high yields of any platform. Also, nothing to lose at atll. USDC coin is always will be 1:1 to US currency.

 

[Martzee]

End of October Update

This month, I did not add very much dough to the fund and fell a bit short of my goal. Right now, the fund is sitting at a value of about $98k and producing just over $320 per month in dividend income.

I'm taking some time each day to learn photoshop, with the intention of utilizing it to bolster my income. Business income has been slow for the last couple of months and I think it is likely that this will continue at least through November.

I just rolled my options trades and made a killing. It was the best month ever so far. You do way better on the dividend income. My account is about the same size yet my dividend income is a bit smaller than yours. But wait when your account matures a bit more, it will snowball very fast.

 

[Colton]

@Martzee
Yeah man, I've checked out your website and you are absolutely killing it.
A lot of people have said that the snowball effect really starts to pick up once you pass 100k.

@Raven S
Welcome, glad to have another investor on board!

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[WJK]

Good for you.

 

[Martzee]

@Martzee
Yeah man, I've checked out your website and you are absolutely killing it.
A lot of people have said that the snowball effect really starts to pick up once you pass 100k.

I got clobbered in November. Good on the income side (dividends and options income) but the volatility slammed my net-liq rapidly. I will be counting KIA casualties later tomorrow...

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Tony100]

Good for you. Max out your assets!

Thanks!

 

[Colton]

What trading tools is the investment portfolio?

That's just my brokerage dashboard. No special trading tools. Any of the big-name brokers should have this basic functionality, but if not you can also use Personal Capital.