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I'm an income investor. Essentially all of my stock investments produce income. I invest in REITS, BDCs, CEF's, and a lot of preferred shares.
Since I've gotten myself to a position financially where I don't have to spend all my investment income, I reinvest the rest. In fact I basically reinvest all of it.
It spits out a little more then $2,000 a month. About half is Dripped right back in, and about half is taken in cash and then I purchase some more income producing stocks. I have a lot invested in preferred stocks and my broker won't DRIP those. And sometimes I just end up with too much of a certain stock, and rather than sell it, I'll just start taking distributions in cash and invest elsewhere.
I usually buy $1,000 a month, but that means periodically some cash builds up and I can 'double up' and buy more. Heading into November that's where I stood. My valuation peeked about 30 Sep.
October valuation slipped and they really slipped in Nov and first 3 weeks of December. Income stocks were getting pummeled. In all I lost about $35,000 in valuation during that time frame.
But, when income stocks go down in price, it doesn't affect the income they throw off, and you start getting some nice bargains.
In September my investment income went up about $117. Pretty typical month. In Oct, I bought $1,800 worth of a BDC and my income went up $210.
On November 1st I bought 50 shares of HT-D preferred stock at what seemed a really low (below par) price for around $1,100 and income for the month increased $138.
By start of December things were even a little lower so I bought 50 more shares of HT-D for $1033. As things continued to get hammered on 20 Dec I bought 50 shares of INN-E, another preferred stock well below par and my first double purchase in a month for a while.
I had been reading on Seeking Alpha about a really good deal on a beaten down preferred stock. (You have to be careful on Seeking Alpha. Anyone can write about a stock. You have to be able to tell the good authors from the bad). I decide to round up a few stocks that weren't my favorites, sell them and buy 400 shares of DNLG-B preferred stock at $17.87 ($7,100). It has a 12% yield at that point.
But it kept going down so I bought another $1,000 worth at $17.15. So in all I had a huge bump in income of $544 in December because I was bargain hunting. All of this is without investing new money. Just reinvesting. DLNG-B would sink to as low as $16.27 on Dec 27th. It closed today at $20.85.
It was my intention to buy 50 shares of VER-F as soon as market opened on 2 Jan. I put in really low bid of 23.60 and said 'good till cancelled' and it got executed on 28 Dec. But I didn't count it till Jan. It's my Jan purchase of $1,000.
Now I always say I don't sweat whether a stock is ahead or behind after i own it. But VER-F is a slightly different story. I owned it before about a year ago and the price was about $26.50, and could be called back in Jan 2019 for $25. So I sold. And I now have it back at $23.60. If they buy it now at $25 I'm totally cool with that. So sometimes the price can get so high it hardly make sense to keep it.
So with my VER-F purchase and a few other stocks that had dividends on the 1st, I'm already at $106 in increases for Jan.
Income investing is like having your own annuity except you maintain control of the underlying assets, and can grow them, as long as you are cash flow positive. You can decide how much risk you want to take, etc.
I highly recommend it.
PS -in last 2 weeks, I've recovered $18K of that $35K drop.
I'm an income investor. Essentially all of my stock investments produce income. I invest in REITS, BDCs, CEF's, and a lot of preferred shares.
Since I've gotten myself to a position financially where I don't have to spend all my investment income, I reinvest the rest. In fact I basically reinvest all of it.
It spits out a little more then $2,000 a month. About half is Dripped right back in, and about half is taken in cash and then I purchase some more income producing stocks. I have a lot invested in preferred stocks and my broker won't DRIP those. And sometimes I just end up with too much of a certain stock, and rather than sell it, I'll just start taking distributions in cash and invest elsewhere.
I usually buy $1,000 a month, but that means periodically some cash builds up and I can 'double up' and buy more. Heading into November that's where I stood. My valuation peeked about 30 Sep.
October valuation slipped and they really slipped in Nov and first 3 weeks of December. Income stocks were getting pummeled. In all I lost about $35,000 in valuation during that time frame.
But, when income stocks go down in price, it doesn't affect the income they throw off, and you start getting some nice bargains.
In September my investment income went up about $117. Pretty typical month. In Oct, I bought $1,800 worth of a BDC and my income went up $210.
On November 1st I bought 50 shares of HT-D preferred stock at what seemed a really low (below par) price for around $1,100 and income for the month increased $138.
By start of December things were even a little lower so I bought 50 more shares of HT-D for $1033. As things continued to get hammered on 20 Dec I bought 50 shares of INN-E, another preferred stock well below par and my first double purchase in a month for a while.
I had been reading on Seeking Alpha about a really good deal on a beaten down preferred stock. (You have to be careful on Seeking Alpha. Anyone can write about a stock. You have to be able to tell the good authors from the bad). I decide to round up a few stocks that weren't my favorites, sell them and buy 400 shares of DNLG-B preferred stock at $17.87 ($7,100). It has a 12% yield at that point.
But it kept going down so I bought another $1,000 worth at $17.15. So in all I had a huge bump in income of $544 in December because I was bargain hunting. All of this is without investing new money. Just reinvesting. DLNG-B would sink to as low as $16.27 on Dec 27th. It closed today at $20.85.
It was my intention to buy 50 shares of VER-F as soon as market opened on 2 Jan. I put in really low bid of 23.60 and said 'good till cancelled' and it got executed on 28 Dec. But I didn't count it till Jan. It's my Jan purchase of $1,000.
Now I always say I don't sweat whether a stock is ahead or behind after i own it. But VER-F is a slightly different story. I owned it before about a year ago and the price was about $26.50, and could be called back in Jan 2019 for $25. So I sold. And I now have it back at $23.60. If they buy it now at $25 I'm totally cool with that. So sometimes the price can get so high it hardly make sense to keep it.
So with my VER-F purchase and a few other stocks that had dividends on the 1st, I'm already at $106 in increases for Jan.
Income investing is like having your own annuity except you maintain control of the underlying assets, and can grow them, as long as you are cash flow positive. You can decide how much risk you want to take, etc.
I highly recommend it.
PS -in last 2 weeks, I've recovered $18K of that $35K drop.
Helpful post. I often wondered if this is a tax efficient strategy. Receiving income when you don't need it and paying taxes on it. Is the income all long-term capital gains and taxed at those rates?
not only that but dividends are taxed on the whole thing ,,taking the same amount out of total return if appreciation only gets taxed on the gain portion not the whole amount . yet the math on your balance and draw will be the same assuming the same or greater total return .
"In Oct, I bought $1,800 worth of a BDC and my income went up $210."
I mean...would you really care? That's a pretty terrific return. I'd take that over tax free muni return any day. Plus, I don't trust munis long term. Like, I don't know when, or what will trigger it, but one day people are going to wake up, see their local munis being run as effectively as the post office and wonder...why in the hell would anyone lend them money??? They can't print new money.
Let me pay taxes....from money I've already received.
Obviously the income investor is concerned with return on invested capital. I want to hear more. This was a nice post. The idea of owning a series of preferred shares that basically amount to an annuity for me is pretty appealing.
As far as taxes, I have moved all of my IRA's into Roths. Did a mega-conversion in 2018 of about $165,000 worth. So there are no tax consequences for me in any of these moves.
Nothing wrong with your method as long as you have an emergency fund so you are not forced to sell equities.
As you know a drop in the market does not mean a drop in you income for the month so the ups and downs just let you buy on sale.
I usually have $10,000 or so in grandkids account that I can "borrow" if I need to short term. But since the Roth's spit out an extra $1,000 or so a month that's not dripped, I can tap that if something comes up. I had $5k of dental work done last spring. Put it on a credit card, and withdrew $1,000 a month for a few months to pay it down. That's the only thing I withdrew for last year.
"In Oct, I bought $1,800 worth of a BDC and my income went up $210."
I mean...would you really care? That's a pretty terrific return. I'd take that over tax free muni return any day. Plus, I don't trust munis long term. Like, I don't know when, or what will trigger it, but one day people are going to wake up, see their local munis being run as effectively as the post office and wonder...why in the hell would anyone lend them money??? They can't print new money.
Let me pay taxes....from money I've already received.
Obviously the income investor is concerned with return on invested capital. I want to hear more. This was a nice post. The idea of owning a series of preferred shares that basically amount to an annuity for me is pretty appealing.
I think you misunderstand. I said it was a helpful post and, if someone needs the income, this is definitely a way to grow income. I was inquiring about his statement that he didn't need the income and how tax effective it was after payment of income taxes. He later responded that he does this within a Roth which makes sense.
Nowhere did I advocate for muni's. There are other investment vehicles for capital appreciation without regular income subject to federal and local taxes. I always consider the net of an investment not the gross. It's not just about the taxes but the compounding of a tax deferred investment.
Last edited by Maddie104; 01-05-2019 at 10:19 AM..
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