Passive Income Update (October 2020)

Welcome to my October 2020 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 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.

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 October 2020!

Passive Income received in October 2020

The total passive income received during the month was €855 or $1009 in USD. 

Wow! Looks like a new record!

Comfortably beating my previous record of €716 that I earned back in July 2020.

It’s also the very first time I’ve breached the $1000 USD milestone in a single month, but, being based in Europe, it’s the €1000 euro milestone that I’ve really got my eye on.

Let’s see if I manage to breach it come this time next year. It should be doable as long as I continue systematically investing every month.

October definitely brings me closer to my target of averaging €500 a month over the entire year 2020.

Only 2 passive income reports left and we’ll find out.

As a reminder, my average income over the first half of 2020 was €495.95.

But there’s been a few corona related dividend cuts in my portfolio earlier this year and I’ve since reduced my very high yielding European P2P lending portfolio.

Maybe my investments in the second half of this year will more than compensate. I guess we’ll have to wait and see.

For now, let’s dig a bit deeper into the different investments that together provided the whopping €855 I received during the month of October 2020.

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 $720.27 and €49.90.

Leading the pack this month are my preferred shares of the hotel REIT RLJ Lodging Trust, delivering $145.44.

RLJ significantly reduced its common stock dividend at the onset of the crisis brought about by the pandemic and has been suffering ever since given the devastation on the travel and lodging industries.

But its preferred shares were not impacted at all and have continued to deliver like clockwork.

This is testament to their relative safety and the minimum impact preferred dividend distributions have on RLJ’s balance sheet.

The runner up this month was one of my world ETFs, the Vanguard FTSE All-World UCITS ETF.

Another one of my preferred shares, those of open air shopping REIT RPT Realty, rounds up the podium in third.

These are paying me over 10% Yield on Cost and have exhibited significant capital gains since I invested a couple of months ago.

You can really do very well with preferred shares if you know what you’re doing. I may need to write a post on that soon.

As usual, 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.

They’re really useful in providing a minimum baseline of monthly income.

Bonds

One of my two bonds paid a coupon this quarter. I received a hefty $153.75.

More than any of my listed investments this month I might add.

I need to spend more time trying to identify attractive individual bonds to invest in. This takes a lot of effort, especially in this low interest rate world.

P2P lending

I also received €64.89 of passive income from P2P lending comprised of €58.60 from Mintos and €6.29 from EstateGuru.

Business as usual on that front.

Summary

Let’s end this section with the breakdown of the €855 of passive income I received for October 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 am always looking to trim the fat to liberate some cash to be re-used on better opportunities.

And without further ado, let’s go over the transactions I made in October 2020.

Here are my investment purchases for the month:

My purchases, made at the beginning end end of the month, will bring in a very respectable $357.91 in forward gross annual income.

I invested a lot more than usual in October, mostly because I added cash from savings over and above my usual monthly savings from my salary.

I also had some uninvested cash in my investment accounts that I also put to work.

Let’s now go over my sales for the month:

My only sale will not reduce my forward gross annual income because it relates to a stock that does not currently pay a dividend.

I don’t know about you, but I find it a lot easier to push the sell trigger on a non-core holding when it doesn’t pay a dividend.

Let’s now briefly go over the rationale of my purchases and sales, where I will provide more details.

Rationale of October 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.

Sales

Amadeus IT Group SA

Amadeus IT Group is a major player in the travel industry, with a focus on the provision of technology and IT solutions to the sector.

If you’ve ever booked a flight, chances are your booking was handled on the back-end by Amadeus.

In fact, as of 2019, Amadeus had 44% market share of the global air travel distribution systems market.

I bought Amadeus at the onset of the coronavirus crisis, in mid-March.

I’ve had my eye on it for years (literally years) because it had a huge moat, excellent fundamentals and stable and growing dividend.

When I bought, I snapped it at huge discount of around €38, very close to its low of around €35, with the plan to hold it indefinitely.

However, I had wrongly wagered that it wouldn’t cut its dividend (which it did a few days after I bought) and that the coronavirus pandemic would just be a temporary blip that would last a month or two at the most.

Fast forward by 6 months or so, the Amadeus share price has greatly increased though it has continued to post abysmal revenue and profit numbers, while the world travel industry remains at virtual standstill.

I decided to sell when the share price reached €50 or so, because I believed that it didn’t justify this valuation.

Especially since I didn’t expect the travel industry to recover to 80% of 2019 levels in 2021 and given the increased debt load on Amadeus and the fact that we’re still going through a second wave of the pandemic.

Given this context, the lack of dividend and the fact that I would stand to make a significant capital gain, I decided to sell to raise some cash to be redeployed just in case there would be some sort of market crash leading up to Christmas and post US election.

Purchases

iShares Core MSCI World UCITS ETF

During the month, as I regularly do, 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.

My MSCI World ETFs are a large and key pillar of my portfolio. They provide me that instantaneous diversified and global exposure.

I consider them a key component in hedging against myself, in case my active picks severely underperform for whatever reason.

When it comes to diversification, I believe that both active and passive strategies should be employed. This takes care of the passive part.

UBS ETF (CH) Gold (USD)

Last month, I reported that I initiated a position in my preferred choice of gold ETF for a European-based investor with a view of having gold make up around 5% of my portfolio.

This month, “I put the pedal to the metal” and invested nearly $9,500 in gold.

I do recognize that gold prices are relatively high compared to historical levels but I didn’t want to remain unallocated to gold, just in case it goes parabolic in tandem with a economic and market collapse.

The aim in this scenario would be to sell some to bring my allocation back down to 5%, and invest the proceeds into what would hopefully be severely undervalued securities.

On the other hand, if gold starts dropping, I wouldn’t be too fussed, because it would mean that the rest of my portfolio would be doing relatively fine.

It would also provide opportunities for me to buy more at a reduced price to maintain that 5% allocation.

In the end, I didn’t want to get beholden to “analysis paralysis” and since it’s still relatively early days in my investing career, I prioritized taking long overdue action to finally acquire my gold position.

John Hancock Preferred Income Fund

During the month, I also added to my HPI position.

The John Hancock Preferred Income Fund is a Closed-End Fund that primarily invests in preferred shares.

I have it my portfolio to complement my other preferred share Closed-End Fund Flaherty & Crumrine Preferred Securities (Ticker: FFC) because FFC invests primarily in financial preferred shares while HPI has a much greater allocation to Utilities preferred shares.

This combined with my focus on REIT preferred shares for my individual picks, makes sure that I am broadly diversified in the preferred shares space.

During the month, I also had the opportunity to invest at a discount to Net Asset Value, while HPI usually trades at a premium.

This allowed me to lock-in shares at a very juicy yield of around 8%.

It will provide a nice little boost to my monthly income going forward.

Blackrock Core Bond Trust

During the month, I added to the Blackrock Core Bond Trust, BHK, a Closed-End Fund that I use as part of my bond allocation.

I’ve been adding to my bond CEFs quite regularly over the past few months, mainly to beef up my bond allocation and also because of lack of alternative opportunities, given the overall high market valuation levels.

As a reminder, the fund primarily invests in a mix of investment grade U.S. corporate bonds and government bonds.

I find it incredibly attractive that I can get an above 5% yield from investment grade securities by investing in BHK.

Nuveen Municipal Credit Income Fund

Similarly to BHK, I’ve also found myself adding money regularly into the Nuveen Municipal Credit Income Fund , NMZ.

As a reminder, 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, while obtaining a similar yield of just above 5%.

I think I will need to refrain from continuing to plough money into BHK and NMZ so regularly despite the fact that I have recently been acquiring them at a very slight discount to Net Asset Value.

I wouldn’t want to my bond allocation to grow too large so I’ll make sure to check my overall allocation come my end of year portfolio review.

Brookfield Asset Management

During the month, I significantly added to one of my favorite companies in the world, Brookfield Asset Management (BAM), the Berkshire Hathaway of the “real assets” world.

If you’re interested, I’ve written more about it in my July report, when I first initiated a position.

In October, I invested around $2,500 in BAM at a relatively paltry yield of around 1.5%.

However, I’m very confident of the total return BAM will deliver over the long term and felt that it was quite undervalued at the price I bought.

At the time of writing, the share price of BAM has gone up quite a bit and I’ll need to wait until the next opportunity to further increase my position.

I eventually want it to become as large as my Berkshire Hathaway position.

And it’s a wrap, thank you for your support and keep a look out for my November report.