Passive Income Update (August 2020)
Welcome to my second ever monthly passive income update!
Where you’ll find out how much passive income I made, the new investments I purchased (and why) and how much these will contribute to my passive income going forward.
You’ll also find out about my sales, the reasons for which I sold and their impact on my forward passive income.
In doing these updates, I hope to inspire you to start investing to generate passive income or, for those of you already on your journey, to help you stay on course.
I am also indirectly benefiting myself as it forces me to review the performance of my holdings and check that I’m staying true to my investment strategy.
Tallying up the total passive income I receive on a monthly basis and seeing it grow over time is a constant reminder of the reason why I invest for income (and not only for growth).
After all, this is a marathon and not a sprint. Patience and discipline are key.
And, with that said, let’s go right into my Passive Income Update for August 2020!
Passive Income received in August 2020
The total passive income received during the month was €257.
Significantly lower than the record €716 I earned last month! The monthly fluctuation is not ideal, but it is what it is.
I don’t think I’ll specifically be looking for stocks that pay dividends in August anytime soon. But never say never.
As a reminder, my average income over the first half of 2020 was €495.95 so August is definitely a low paying month. I’m excited to see how I end up doing for the rest of the year.
Let’s now dig a bit deeper into the different investments that together provided these, nevertheless welcome, €257 during the month of August 2020.
Equities and Funds (listed securities)
As for last month, let’s start with my listed securities (i.e. those that trade on a stock exchange). These are made up of stocks, preferred shares and funds.
In total this adds up to $241.02.
The biggest dividend payer this month is AT&T, my favorite high yielding dividend aristocrat. That 7% yield is continuing to come in, like clockwork. Long may it continue!
I also received a good chunk from one of my world ETFs, the HSBC MSCI World UCITS ETF.
This one is less popular with European investors but I hold it to diversify across ETF providers and because it has a lower expense ratio than the other, more popular, options.
My monthly paying Closed-End Funds as well as my monthly dividend paying stocks, O and MAIN, have continued to deliver that monthly cash-flow.
I received no interest from my individual bonds this month.
I also received €53.23 of passive income from P2P lending comprised of €44.73 from Mintos and €8.50 from EstateGuru.
As I anticipated last month, I’ve received reduced income from Mintos. This is due to the fact that I’ve recently substantially reduced my investment on the platform.
I’ve also experienced quite a bit of cash drag on EstateGuru. Cash has been building up faster than I can find decent opportunities.
I’m happy that P2P is becoming an increasingly smaller portion of my passive income though I’m now satisfied with my exposure and will stop my withdrawals for the time being.
Let’s end this section with the breakdown of the €257 of passive income I received for August 2020:
If you want more details on the different types of income investments that I invest in and why I invest in them, then I encourage you to check out my Ultimate Guide to Building an Income Portfolio.
Investment purchases (and sales) in August 2020
I have decided to use my Passive Income Updates to also report on my new investment purchases.
After all, it is with new purchases that I build my portfolio and increase my passive income potential.
I’ll also report and provide some insight on my sales. Selling is harder than buying, even more so when it reduces your forward annual income.
I don’t sell often but did so this month, mainly to consolidate my portfolio and reduce the total number of holdings. I have a hard maximum of 50 positions across all asset classes and I was getting pretty close to that maximum.
So I decided to cut the fat, and open up space, for new exciting opportunities. All while trying to increase my overall yield.
And without further ado, let’s go over the transactions I made in August 2020.
Here are my investment purchases for the month:
My purchases, all made on the 28th of August will bring in $336.68 in forward gross annual income.
Let’s now go over my sales for the month.
Counteracting the gross forward annual income brought in by my new purchases, my sales will result in foregone gross annual income of $222.34.
This essentially means that, in August, the net result of my purchases and sales is an estimated increase in my forward gross annual income of $114.34.
Not bad, but this is lower than usual simply because of timing.
I invested a lot more than usual last month in July. The net cash add just happened to be lower this month. And most of the purchases were paid for with sales of existing positions.
Let’s now briefly go over the rationale of my purchases and sales.
Rationale of August 2020 purchases and sales
I’ve decided to include as part of my monthly update, the rationale for the individual purchases and sales made during the month.
The aim is to provide even more value to you. Either as an extra source of investment ideas or through providing some glimpses into my thought process when buying, or selling.
And with that said, let’s start with the sales.
I sold a third of my stake in AAPL during the month. This is mainly because of the huge run-up in Apple’s valuation in August in the context of significant appreciation of the technology sector.
Normally, I don’t trim my core positions when they get overvalued but I really felt that Apple had gotten ahead of itself.
More importantly, the fact that I had over 200% in capital gains, and the fact that I hold exposure to Apple indirectly through my world ETFs and Berkshire Hathaway, led me to decide to sell just enough to recoup my initial investment.
It also liberated a bit of cash that I can now reinvest once valuations drop or as new opportunities arise.
Apple has corrected quite a bit since then and is currently trading lower than my sale price, which is always a good feeling but I don’t dwell too much on timing aspects, whether positive or negative.
I still maintain a decent position that I will let ride for the long term and, whatever happens, I’ve already made my investment back!
American Homes 4 Rent Preferred Shares Series D
I liquidated my American Homes 4 Rent Preferred Shares Series D for two reasons.
The main one, is that the price of the shares had increased substantially to the point that they were trading over the par value of $25.
Since the shares were callable in less than year’s time, I didn’t want to take the risk of them being called and me receiving $25 per share, less than the amount they were trading at when I sold. The dividends received in the meantime would have barely compensated for this.
I also saw it as an opportunity to reduce the number of positions in my portfolio and I decided to reinvest the money into another existing position (more on that later).
Federal Realty Investment Trust Preferred Shares Series C
I liquidated my Federal Realty Investment Trust preferred shares for very much the same the reasons as AMH-D.
The price was trading over par, the call date was not too far off and I wanted to reduce the number of positions in my portfolio.
I also reinvested the money into another existing position.
That’s it with the sales this month. Let’s move on to the rationale for my purchases.
Global Net Lease Preferred Shares Series B
I reinvested my proceeds from Federal Realty into the preferred shares of Global Net Lease, a Real Estate Investment Trust, in which I already held a position.
Global Net Lease invests in 288 properties, primarily office buildings and industrial/distribution warehouses, spread across 9 countries.
While I wouldn’t invest in their common stock, I found their preferred share dividends to be incredibly safe and I couldn’t resist increasing my position given that the preferred shares were still trading under par.
The rotation from Federal Realty into Global Net Lease will also result in a net increase in forward annual income, which is always nice (and that I was aiming for).
Annaly Capital Management Preferred Shares Series I
I reinvested my proceeds from American Homes 4 Rent preferred shares into the preferred shares of Annaly Capital Management, increasing my existing position.
This operation will also result in a net increase in forward annual income.
Annaly Capital Management is the largest mortgage REIT and invests in mortgage backed securities, real estate backed loans and other types of credit.
Mortgage REITs are difficult to understand, and incredibly risky.
To be honest, I wouldn’t touch the common shares of any mortgage REIT, including Annaly, the most respectable in the space.
However, when it comes to the preferred shares, I didn’t hesitate when the opportunity arose to buy them under par because according to my analysis the preferred shares have quite a low risk of not being paid.
Below is the dividend history on the common shares:
Though volatile, they have always paid a common stock dividend! even during the Global Financial Crisis.
And remember, no common dividend can be paid before paying all the preferred shareholders.
This is a most welcome extra reassurance and mitigates the challenges in understanding the industry, to me at least.
iShares Core MSCI World UCITS ETF
As with last month, I funnelled in some cash into the accumulating version of the iShares Core MSCI World ETF, an EU-listed ETF that provides investment access to the MSCI World Index.
It is not the only broad market index ETF that I use because I like to diversify across different ETF providers, just in case.
Blackrock Core Bond Trust
During the month, I added to the Blackrock Core Bond Trust, a Closed-End Fund that I use as part of my bond allocation.
The fund primarily invests in a mix of investment grade U.S. corporate bonds and government bonds and is able to pay a higher yield than a corresponding ETF due to the slight leverage it employs and the ability to buy it at a discount to NAV if you’re patient.
If you’d like to know more about this investment vehicle, I encourage you to check out my Ultimate Guide on How to Invest in Closed-End Funds.
Nuveen Municipal Credit Income Fund
As with last month, I added to my Nuveen Municipal Credit Income Fund.
It is also a Closed-End Fund that I use as part of my bond allocation.
Except this one allows me to gain exposure to the municipal bond space, and get paid a nice 5% yield for the trouble.
Pimco Dynamic Credit and Mortgage Income Fund
Finally, during the month, I added to one of my Pimco Closed-End Funds, PCI.
PCI invests in a portfolio of mortgage-related securities and other debt instruments of varying maturities.
I added to it because it was trading at a discount to NAV and to bring my allocation in line with my other Pimco Fund, PTY.
I couldn’t resist the high yield of above 11%, especially since the fund has a good distribution and total return history.
Given the fact that I’ve also added to Annaly Capital Management during the month, I will stop adding to any of my mortgage related fixed income investments for the foreseeable future.
In the scenario of a huge stock market crash however, all bets will be off and I could reconsider.
And this concludes my passive income update for August 2020. I hope you’ve enjoyed it and stay tuned for the next update!