Another month is in the books in 2020. The calendar has turned and we are entering the holiday season. I cannot believe it is almost 2021! Still, the dividends continue to trickle in, regardless of the month. This article will summarize our dividend income for the month of October 2020.
Why I Invest in Dividend Stocks
Our goal is to achieve financial freedom by investing in dividend growth stocks. Lately, we have been focusing on purchasing the best dividend stocks and/or dividend stock ETFs. To us, dividend investing is simple. Dividend investing is the easiest form of passive income. Nothing beats receiving income without having to lift a finger, right? That’s what separates dividend income from other forms of income.
To find dividend stocks to purchase, we use our dividend stock screener. Over the years, our stock screener has helped us find some awesome undervalued dividend stocks. This simple, 3 step stock screener is designed to identify undervalued stocks with a strong payout ratio that have a history of increasing their dividend. I can’t think of the last time we purchased a stock without using our stock screener.
Dividend investing in 2020 is as important as ever. Our cash is earning essentially nothing in our savings accounts. Why? Interest rates on our savings accounts continue to remain low. My current “high yield” savings account has an interest rate of .65%. Unfortunately, it appears that we are in a low interest for the long haul. That is great for individuals looking to borrow money and awful for people looking to earn a nice return on their savings.
Therefore, we are looking for new ways to grow our passive income stream. The time is NOW to put our cash to work! Dividend stocks are one of our suggested avenues for doing so. There are many great dividend growth stocks yielding much more that our savings accounts.
Building a large dividend income stream takes time, consistency, hard work, saving, and most importantly, investing. I have been investing in dividend growth stocks since 2012. Slowly, but steadily, my income has increased over the years. Now, in 2020, I am enjoying some of my strongest dividend income months yet. It is really exciting to see the growth and larger dividend checks trickle into my brokerage account.
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, see the stocks we are purchasing. The comments I receive each month are great, helpful, and motivating. That’s what it is all about.
Bert’s October Dividend Income Summary
In October, we received $509.21 in dividend income. That is a 47.5% increase compared to last year. It was very exciting to see us cross the $500 mark in an “Off” month. In fact, it is something I am very excited about, as we look to increase the income we receive each month. Our detailed breakdown of individual dividend payments received is as follows.
In every monthly dividend income summary article, I provide a few observations and highlights. My notes for the month of October are as follows.
Observation #1: New Dividends Bolstered our October Income
Our 47.5% dividend growth rate was led by the new dividends we received in October 2020 compared to October 2019. First on this list was my wife’s dividend from Total (NYSE:TOT). We purchased shares of the French oil company back in February 2020, right before the pandemic settled in. Gosh, that feels like forever ago, doesn’t it? The purchases in February added over $30 in dividend income this month. Sure, we do have a lot of oil companies in our combined portfolio. In hindsight, adding Total to our oil portfolio of Exxon (NYSE:XOM), Chevron (NYSE:CVX), Royal Dutch Shell (NYSE:RDS.A), BP (NYSE:BP), Kinder Morgan (NYSE:KMI), and Occidental Petroleum (NYSE:OXY) was not necessary. However, Total has performed well during the pandemic and they have not cut their dividend.
Second, we have been building our position in Cisco Systems (NASDAQ:CSCO) over the last quarter. Wow, the dividends are really starting to take shape. My wife and I received a combined $38 from Cisco this month. That is approximately 1 share of the tech company via dividend reinvestment as well. That of course, would have been true before the company’s stock price jumped after their strong earnings. Yes, we had a hunch Cisco would perform well this quarter.
Another new dividend we received compared to last year was Cincinnati Financial (NASDAQ:CINF). This was a Dividend Aristocrat that I was very excited to add to our portfolios. When the pandemic shut down the economy, the price of the insurance company plummeted. This was due to uncertainty surrounding business insurance claims and losses associated with the pandemic. CINF has since recovered. Now, I am enjoying the dividends from those earlier stock purchases.
Observation #2: The impact of Dividend cuts is real
Dividend cuts sting. That is for sure. We felt the impact of two dividend cuts this month. The largest impact was from Occidental Petroleum. The oil giant has cut their dividend twice in 2020. Now, the company’s quarterly dividend is just $.01 per share. OXY’s dividend cuts reduced my dividend income by $26 during the month of October. I learned a lot from this dividend cut. Particularly, I ignored the warnings signs flashing from the company’s bloated balance sheet. OXY’s debt balances skyrocketed as a result of acquisitions. When the price of oil plummeted at the beginning of the year, the company was forced to cut its dividend to cover its outstanding debt obligations. Since then, I have focused on investing in companies with strong balances sheets.
The second dividend cut I experienced was from Schlumberger (NYSE:SLB). This company has been underperforming for years. Honestly, I was shocked that the company’s dividend wasn’t cut earlier. Finally, during the pandemic, the company’s dividend no longer became sustainable. SLB’s dividend cut reduced our income by just over $8 last month.
Observation #3: The Power of Dividend Investing
Observation #2 was a little bit of a downer. Therefore, I wanted to end this section on a positive note. The power of dividend reinvesting is real everyone. Look at the chart above. The dividend increases I realized from 3 of the largest companies compared to last year (LEG, ITW, and CAH) were all due to the companies increasing their dividend and my reinvestment of previous dividends. Hopefully this demonstrates WHY we are obsessed with this strategy!
The Impact of Dividend Increases: October 2020
If you haven’t figured it out by now, we love dividends. We closely monitor all dividend increases. October was a very busy month for our dividend stock portfolio. In this section, I will summarize the dividend increases we received during the month.
The month of October was full of surprises! In fact, they were all positive dividend surprises. The first surprise was from McDonald’s (NYSE:MCD). This was a surprise due to the timing. McDonald’s typically announces its dividend increase in September. By the end of the month, it was apparent that McDonald’s had fallen off of its typical dividend increase schedule. Lanny and I didn’t know what to expect. Early in October, the company delivered a 3.2% dividend increase. This added over $6 in forward annual dividend income to our portfolio.
The second surprise was at the end of the month. AbbVie (NYSE:ABBV) announced a huge 10% dividend increase at the end of October. For some reason, this dividend increase was completely off my radar. I gave a nice fist bump when I read the press release disclosing the dividend increase. This dividend increase added almost $21 in dividend income to our forward dividend income. Now that, my friends, is quite the surprise!
Lastly, the third dividend surprise I received during the month was from Royal Dutch Shell (RDS.A). Lanny summarized this perfectly in a recent article. We are starting to notice a positive trend. Dividends are starting to return. During the pandemic, many companies cut or suspended their dividend to preserve capital. Now, companies are starting to increase their dividend once again.
Shell was one of the first companies in my portfolio to cut its dividend this year. That dividend cut was painful. The company’s 4% dividend increase won’t offset the impact of the dividend cut. In fact, we are still significantly in the red for Shell. However, this was a very promising start.
The chart below shows the impact dividend increases had on our portfolio in 2020. In total, dividend increases added $33 to our dividend income!
Another month is in the books. This was a huge month for us, as we crossed the $500 mark in an “off” month. Further, we continue our momentum as we head towards the next calendar year. We continue to save every dollar possible and invest as much as we can into income producing assets. That is the name of the game after all. Let’s continue to focus and continue pushing ourselves to reach financial freedom as soon as possible.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.