Passive Income Update (December 2020)
Happy New Year and welcome to my December 2020 monthly passive income update, the last one of the year!
As usual, 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, if any, including the reasons for which I sold and the 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.
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 December 2020!
Passive Income received in December 2020
The total passive income received during the month was €528 or $645 for those who prefer dealing in USD.
Based on my previous income reports I would say that December represents an average passive income month for me.
I’m still not 100% sure if I’ve reached my target of averaging €500 a month for 2020.
Everything will be revealed in my upcoming Portfolio Update covering the entire year! So stay tuned.
For now, let’s dive into the different components of my December passive income stream.
Equities and Funds (listed securities)
As always, 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 $409.42, €101.18 and £28.33.
Leading the pack this month is my Vanguard World ETF, currently the biggest position in my portfolio, which paid out $76.02.
As a reminder, I hold 2 dividend paying World ETFs and one accumulating World ETF.
I may need to shift capital from my dividend paying World ETFs to the accumulating one to reduce my tax burden going forward. This is the plight of European ETF investors.
The runner up this month was the preferred shares I hold in mortgage REIT Annaly Capital Management, which provided a respectable $53.79.
Rounding up the podium is my municipal bond Closed-End Fund, NZF, contributing $42.08 to my passive income stream.
As usual, my other monthly paying Closed-End Funds as well as my monthly dividend paying stocks, Realty Income and Main Street Capital, have continued to deliver that monthly cash-flow.
Again, none of my bonds payed out this month.
I did get the chance to go on a little bond research spree during the holidays to see if I could find any opportunities.
I indicated that I planned to do so last month.
Unfortunately, I did find some interesting candidates but they all required a six figure minimum investment.
It’s getting tougher and tougher to find bond opportunities in this bull market that is underpinned by 0% interest rates.
I guess I’ll need to wait for the next market crash.
I also received €64.75 of passive income from P2P lending comprised of €52.50 from Mintos and €12.25 from EstateGuru.
I mentioned last month that I would re-evaluate my position in EstateGuru during the holidays, and I did.
I’ll provide more details during my 2020 Portfolio Update.
Every December, I benefit for an additional contributor to my passive income stream. The annual interest I receive from my savings account.
I mistakenly thought that it would be 0 but was pleasantly surprised when I received a whopping annual interest of €9.33 euros, infinitely greater than 0.
Only kidding of course, this remains abysmal. What a crazy world we live in.
As usual, let’s end this section with the breakdown of the €528 of passive income I received for December 2020:
Investment purchases (and sales) in December 2020
Let’s go over the transactions for the month.
There were 4 investment purchases and no sales this month.
Here were my investment purchases:
My purchases are estimated to bring in $153.75 Canadian, $98.56 and £37.46 in forward gross annual income, amounting to a total of around €220.
That’s definitely above average and is explained by the fact that I invested much more than usual this month.
A great way to get my portfolio ready to deliver even more passive income in 2021!
Rationale of December 2020 purchases
As you know, I include as part of my monthly updates, the rationale for the individual purchases and sales I have 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.
Having not sold anything this month, let’s go over the purchases.
Brookfield Asset Management Preferred Shares Series 44
If you’ve been following my reports for a while, you already know that I am huge fan of Brookfield Asset Management (BAM), the Berkshire Hathaway of “real assets”.
During the month, I initially wanted to add to my position in BAM but it had run up considerably so I became reluctant.
I then noticed that BAM issues quite a few series of preferred shares across a broad spectrum of yields and payment terms.
After comparing several of the issues, I decided to invest in the Series 44 (BAM-PFH) even though these were trading at a slight premium to par.
Even though I recommend refraining from investing in preferred shares when they are trading at a premium, especially if you’re starting out, I decided to invest in Series 44 despite this fact.
This is because I invested very close to the ex-dividend date and would have immediately reduced my cost basis, after pocketing the dividend, back to very close to par.
This was very important because the shares were callable on December 31st and I didn’t want to risk having an immediate capital loss.
It seems that BAM decided not to redeem the shares so the risk paid off.
It was worth it because the payment terms of this series are very attractive. They pay the greater of a 5% yield or the sum of the Government of Canada Yield + 4.17%.
So it protects you in case interest rates rise while maintaining that 5% floor if interest rates continue to be low.
The dividend rate on this series is determined and reset every five years on the 31st of December.
Note, that I purchased the position on the Toronto Stock Exchange meaning that I also acquired direct exposure to the Canadian Dollar with this investment.
Given BAM’s investment credit rating of A and my objective to have a substantial exposure to the company, I’ll be sure to add on any weakness.
During the month, I also decided to add to my position in the renowned Fast Moving Consumer Goods company Unilever.
I was still underweight the position and didn’t have any better opportunities to take advantage of.
And you could definitely do worst than investing in a steady company paying a steady and tax free dividend of almost 3.5%.
The market is getting frothy and I’d rather be safe than sorry and wait for a correction before initiating positions in stocks with greater growth prospects going forward.
Very happy to have increased my position Unilever.
During the month I initiated a decent position in Amgen, a biopharma company with a market capitalization of over $130B.
I’ve been looking to increase my exposure to healthcare stocks because I’ve been very underweight this sector ever since I started investing.
My only healthcare position (bar my allocation through my index funds) was the healthcare REIT, Ventas.
Not exactly the epitome of healthcare exposure.
I have been refraining from investing in pharma or bio pharma stocks despite their relatively attractive valuations because I am very far from being an expert in this space.
I also don’t like the fact that the companies trade on the robustness of their drug pipelines, given the always looming patent expiration of the existing drugs.
There is always this future cash-flow uncertainty.
However, all the other alternatives that I’m attracted to in the sector such as medical device stocks (e.g. Thermo Fischer) or growthier names in the health technology space (e.g. Veeva systems or Teledoc) have been overvalued for a while.
So I decided to invest in Amgen in the meantime because it’s been a very consistent dividend growth stock that experienced some, hopefully temporary, weakness recently allowing you to buy this dividend stream at a yield of over 3%.
Below the growth of Amgen’s Dividend Per Share as per the Seeking Alpha Website:
I also conducted a brief analysis of its current drug portfolio and its future pipeline, which seemed robust and diversified enough.
It focuses on six therapeutic areas, namely, cardiovascular disease, oncology, bone health, neuroscience, nephrology and inflammation.
I was also attracted to their focus on biological medicines, the importance they place on internal R&D and their increasing focus on a huge growth area, genomics.
My analysis remained relatively superficial nevertheless. I’m trusting the management on this one, but time will tell.
In the future, I will plan to sell my Ventas position and re-invest the proceeds into another pharma stock to diversify my exposure into the drug portfolio and pipeline of another company.
I’ve currently got my eye on Pfizer but I still need to do more analysis over the coming weeks.