Dividend Update: February 25

 

Eliot famously said that (with a nod to Chaucer) that

 

April is the cruellest month, breeding
lilacs out of the dead land, mixing
memory and desire, stirring
dull roots with spring rain.

 

Well, I will have to disagree with him on that one. For me, February tends to be the cruellest month of the year and this one proved to be no exception. A lot happened this month, so let's pause for a second and take it step by step:

 

1. As always, February is the month with the lowest income for me. That is partly because August and November are also weak, meaning that I don't have a lot of stocks that pay in those months (May is the exception with those juicy European dividends). It is also partly because some of the "bigger" positions (e.g. Arbor Realty Trust (more on them later) and Hercules Capital) pay in March & not in February.

 

2. If you watch world politics, it's bizarre to see what is going on. Victims are called dictators; real dictators are given private meetings; military aid for Ukraine is stopped because egos were hurt; government jobs are cut without legal authorization; extreme right-wing parties receive almost 20% of the votes in Germany; tariffs are implemented and taken back almost instantaneously; etc. All of this has led the stock market to officially enter into a correction & increased the volatility in recent days & weeks. It is frightening to see what chaos has been unleashed onto the world.

 

3. Warren Buffett released his yearly shareholder letter, and it is (as it always is) a treasure to read. In this frenzied world of sound and fury, of over-inflated patriotism and egos, it is a form of patriotism, humility and a more quiet belief in America's exceptionalism that I find to be a fresh breath of air. There are numerous quotes that are noteworthy, but I want to just pick the one I liked best: 

 

"So thank you, Uncle Sam. Someday your nieces and nephews at Berkshire hope to send you even larger payments than we did in 2024. Spend it wisely. Take care of the many who, for no fault of their own, get the short straws in life. They deserve better. And never forget that we need you to maintain a stable currency and that result requires both wisdom and vigilance on your part." 

 

It is hard not see an (at least) indirect criticism of what's going on at the moment.

 

4. The investment trust Aquila European Renewable is "undergoing a managed wind-down following a shareholder vote on September 30, 2024, where over 99.8% approved discontinuation of the company's current structure." Though it is only a small position in my portfolio, it is still somewhat bothersome that the trust will eventually dissolve, forcing me to realize significant losses. Greencoat UK Wind faces that same issue, but thankfully only 11% voted in favour of it. But voting will take place again next year.

 

5. February also proved to be the month of dividend cuts or of changes in dividend policies, which masquerade as dividend cuts. Let's talk a detailed look at it.

 

a) Oaktree Specialty Lending had been on my mind for the last few quarters as they always only barely managed to cover their dividend. I'd hoped things would improve, but now. This quarter they again would have had a payout ratio of 100% (in spite of lowering management fees). Because of this, they changed their distribution policy with the aim of paying a stable dividend of 0.40$ every quarter and at least half of the excess net investment income.

 

b) The same happened to Arbor Realty Trust. I had equally been somewhat concerned about their dividend coverage and true enough, they are also going to lower the dividend after once more giving a full dividend of 0.43$ in March (this dividend is not covered, by the way) to somewhere between 0.30 and 0.35. This is thus a significant cut.

 

c) And last but not least, Goldman Sachs BDC (just like Oaktree Specialty Lending) changed its dividend policy after years of paying the same, stable dividend. They also introduced a base dividend and aim to payout at least half of the excess net investment income. Not particularly happy about it.

The question, of course, is: what is one to make of this? How does it affect one's portfolio and future decisions? Having given this a bit of thought, I have come up with the following ideas:

 

• It sucks. There is no way around. As an income investor, I'm primarily interested in income and receiving less of it now is bad news - no way to sugarcoat it.
• These stocks (and sectors) are perhaps more likely to suffer dividend cuts than, say, a portfolio of blue chip stocks like PepsiCo, Walmart, P&G, etc. Then why do I invest in those sectors? Well, I invest in them because I'm interested in income and I want to speed up the process by also having a higher income part in my portfolio. Though I do own some of those blue chip stocks (either directly or indirectly via ETFs), I am eager to speed up the process by dipping into more high yield stocks and am willing to take on that additional risk. This time, it bit me in the ass.
• This might also entail that I might need to aim for not simply 100% coverage of my expenses, but for a bigger cushion (say 120%) to withstand potential dividend cuts in the future. Is it then perhaps better/quicker to buy just blue chip stocks and not have to build that back-up cushion? Perhaps, but you also have dividend cuts in those stocks along the way (e.g. 3M, AT&T, Walgreens, etc.).
• Fundamentally, of course, it is healthy for a company to not pay out more than you earn. In the long run, this might prove to be healthy and sound. Still, as of now, it somewhat stings.
• This is also a reminder that broad diversification is an absolute must - even if you have broad diversification among high-yielding stocks. Because while I had to endure the cuts above, I also will receive special dividends in March from Main Street, Blue Owl Capital, Sixth Street Speciality Lending and have dividend increases in other companies. So my portfolio as a whole might off-set those cuts by increases and/or special dividends by other stocks. Diversification is the way to go.

So as you can see, February was a wild month and I expect no less of March. In February, I received 394,5 in total, a 44% increase to the 272,77 I received last year. The complete list you find below:

1. British American Tobacco: 75,24
2. Agree Realty: 39,08
3. Realty Income: 38,23
4. Omega Healthcare: 38,06 
5. SPDR S&P Global Dividend Aristocrats ETF: 24,89 
6. Equinor: 20,35
7. Main Street: 19,92
8. Starbucks: 19,30
9. AbbVie: 13,42 
10. Foresight Solar Fund: 12,11
11. Verizon: 10,53 
12. Texas Instruments: 10,08 
13. Sabra Healthcare: 9,74
14. Greencoat UK Wind: 9,62
15. Kinder Morgan: 7,01 
16. City of London Investment Trust: 6,13
17. NNN Reit: 4,74
18. BlackRock Science and Technology Term Trust: 4,68
19. BlackRock Enhanced Large Cap Core Fund: 4,66
20. Vanguard USD Emerging Markets Bond ETF: 3,61
21. EPR Properties: 3,24
22. BlackRock Utilities, Infrastructure & Power Opportunities Trust: 3,16 
23. Calamos Strategic Total Return Fund: 2,86
24. LTC Properties: 2,62
25. SL Green Realty: 2,30 
26. Global X S&P 500 Covered Call ETF: 1,97
27.  Cohen & Steers Quality Income Realty Fund: 1,97
28.  Cohen & Steers REIT and Preferred Income Fund: 1,92
29. JPMorgan Nasdaq Equity Premium Income ETF: 0,71
30. Air Products & Chemicals: 0,66
31. Stag Industrial: 0,51
32. Siemens: 0,42