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Dividend Income Portfolio Jan. 2012 Update +RDS.B



royal dutch shell dividend income portfolio

Whoa, gas was cheap in 2005!

Disclaimer: I am not a finance professional and all materials below are for informational purposes only. I do not endorse any of these companies and you need to do your own research before investing in any stocks.

Dividend income is going to be a big part of my early retirement plan. The target is to generate about $500/month of dividend income from my after-tax portfolio. This income will help pay for cost of living after I quit my full time job.

Here are the stocks in my dividend portfolio. Intel yield % dropped quite a bit because the stock price has been on the rise over these last few months.

Stock sector dividend yield
Intel Tech. 3.12%
Eli Lilly & Co. Pharma. 4.91%
AT&T Telecom 5.83%

If you haven’t heard that gas prices are going to go through the roof this summer, sorry to be the bearer of bad news. I’m thinking one way to mitigate the painful price hike is to buy some energy stocks, and by that, I mean oil company stocks. I started looking at Exxon, Chevron, and Shell. The problem with Exxon is that they are the biggest publicly traded company by market capitalization and I already own them through various mutual funds and ETFs.

It came down to Shell and Chevron and I confess that I didn’t do a huge amount of research. They have similar price to earning ratios (PE) and earning growth. Shell is paying out more dividends right now, but Chevron’s dividend payout has been growing quicker. I’ll put Exxon in here just for comparison.

Dividend Stats Shell  Chevron  Exxon
Dividend Yield 4.67% 3.01% 2.16%
Payout Ratio 33.33% 22.09% 21.88%
Dividend Growth 1 Year 0% 12.50% 6.82%
Dividend Growth 5 Year Average 5.94% 9.27% 7.99%

We can see Shell has the highest dividend yield percentage at this time, but the dividend growth is lagging the other two. The payout ratio is also quite a bit bigger than CVX and XOM. From what I understand, we don’t want the payout ratio to be too large because there will be a larger chance of dividend payout reduction in the future. 33% seems ok to me though. That’s comparable to Intel’s payout ratio.

In the end I decided to go for the bigger payout NOW. If Chevron ever catches up to Shell, then maybe I can switch over. Shell is a Dutch company and they are a bit beaten down along with other Europe stocks at this time. Chevron had a pretty good 2011 and the stock price ran up quite a bit (about 15%.) I’ll keep an eye on CVX over the next few years and see how they do VS Shell.

RDS stands for Royal Dutch Shell. There are A shares and B shares. I don’t know all the details, but the important thing to know is that the A shares’ dividend is subject to Dutch’s 15% tax withholding. For the investors in North America, the B shares are the way to go. *Again, you need to do your own research. Don’t take my word for it because I could be wrong.*

I also plan to buy Vanguard Energy ETF (VDE) with any new contribution in my 401k for a few months. What do you think about this plan? Am I putting too much money into Energy?

photo credit – flickr ReneS

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, he hated the corporate BS. He left his engineering career behind to become a stay-at-home dad/blogger at 38. At Retire by 40, Joe focuses on financial independence, early retirement, investing, saving, and passive income.

For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.

Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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{ 40 comments… add one }
  • Financial Samurai January 27, 2012, 12:27 am

    How much money you dumping into this portfolio Joe?

    • retirebyforty January 27, 2012, 6:39 am

      Probably need around 150k to generate $5,000/year. I’ll start selling covered call to increase income this year so maybe I can bring the total down to about 120k?

  • Jai Catalano January 27, 2012, 1:26 am

    At what price did you get in on Shell?

    • retirebyforty January 27, 2012, 2:21 pm

      I just got in so market rate, more or less. 🙂

  • Roshawn @ Watson Inc January 27, 2012, 5:44 am

    That’s a fun play on the rising gas prices. There’s always more than one way to skin a cat!

    • retirebyforty January 27, 2012, 2:21 pm

      We’ll see how it works out. 🙂

  • lifeoverwork January 27, 2012, 7:01 am

    Energy seems like a pretty safe place to be, given that the amount of oil we have left can only go in one direction. However, you should keep an eye on policies over the next 20 years. If we actually get our act together, oil companies could eventually start making a lot less money. Any dividends would be outweighed at that point by capital losses.

    • retirebyforty January 27, 2012, 2:22 pm

      In the short term, oil is still going to be king. Hopefully alternative energy can come up to speed soon.

  • Jeff @ Sustainable Life Blog January 27, 2012, 9:59 am

    I think energy is a safe bet – people have to keep on the lights, heat and gas in the cars. As much as people hate that fact, it’s the truth.

    • retirebyforty January 27, 2012, 2:23 pm

      I don’t like oil companies much, but we all have to drive. Tough to avoid in North America.

  • DollarDisciple January 27, 2012, 11:43 am

    I like the “blast from the past” picture you’ve got going there. Ah.. the good ol’ days of near $2 gasoline.

    I agree with the other comments that energy is probably a pretty safe place to park your cash. These companies aren’t going anywhere anytime soon.

    • retirebyforty January 27, 2012, 2:23 pm

      That was only 7 years ago. Can you believe it?

  • krantcents January 27, 2012, 1:54 pm

    There is a rule of thumb regarding indidual stocks, I follow, no more than 5% of my portfolio. Mutual funds are different, but I would limit a concentration in any industry to 10-15%. I even try to limit my exposure to overseas too. It may be too conservative!

  • Darwin's Money January 27, 2012, 2:57 pm

    Oh, how I love income assets. I have a whole self-directed IRA dedicated to high yield stocks and etfs.

  • Don January 27, 2012, 8:46 pm

    I’m interested in dividends stocks to and increasing my exposure in energy. I’ve even been thinking about high yield master limited partnerships energy stocks, but I don’t know if I want to deal with the taxes involved with those type of investments…

    • retirebyforty January 27, 2012, 9:04 pm

      I have no idea what those are. I’ll stick with the basic for now. Good luck!

  • World of Finance January 28, 2012, 3:23 pm

    Building a dividend portfolio is a great way to diversify your assets and increase your passive income. Nice comparison of company metrics. Good luck with your portfolio RB40 🙂

    • retirebyforty January 28, 2012, 11:04 pm

      Thanks! Hope it all works out. Stock haven’t been a good place to park money over the last few years.

  • youngandthrifty January 28, 2012, 10:38 pm

    $500 a month of dividend income sounds great! Do you have to dump much more money in your portfolio to reach this?

    • retirebyforty January 28, 2012, 11:00 pm

      I’ll be most of the way there once I convert my growth stocks to dividend stocks. $500/month will be very helpful. 🙂

  • My University Money January 29, 2012, 7:04 am

    Any of those major energy companies would probably be fine. They are all incredible diversified, and the real driver of energy growth in the next two decades is going to be an exploding middle class of consumers in the BRIC and N-11 countries. I’m certain they’ll be able to keep sending you fat dividend cheques!

    • Financial Independence January 31, 2012, 4:10 am

      Brasil – got sufficient energy resources of its own. More over, most of its gas comes from sugar cane.
      Russia – the biggest oil and gas producer in the world, dominated by state control companies.
      India – potentially, yes.
      China – has one of the biggest (by market capitalization) energy company in the world – Sinopec (number of employes over 373,000). Communist party controlled.

  • Hunter - Financially Consumed January 29, 2012, 4:40 pm

    The world is increasing consuming enegy, so overall I think your big-picture thinking is sound. My only word of caution is that energy includes a diverse range of options. Coal, gas, oil, and an even more diverse bunch of alternatives. They’re generally used for different things too, so that another complicating factor. One energy investment may be profitable one year than the rest, and it’s difficult to predict which ones will shine.

  • 101 Centavos January 29, 2012, 9:07 pm

    Shell is a good pick, RB40. I went with Petrobras, but Shell and ConocoPhillips have both been on the radar screen.

  • BusyExecutiveMoneyBlog.com January 29, 2012, 11:43 pm

    I love dividends. It the most passive income there is. It just takes a while to build up. I like dividend ETF’s for diversification myself.

  • cashflowmantra January 30, 2012, 5:09 am

    I don’t think you will regret going with energy. If prices drop to 2005 levels, then great! Your monthly costs will be a lot lower. Otherwise, you might as well profit just like the 1% will be doing.

  • Moneycone January 30, 2012, 5:14 am

    With Shell and Chevron, do keep an eye on pending lawsuits. Especially Shell with their shenanigans in Nigeria. You can never tell how these things can end up.

    I do agree energy prices are bound to go up. Plus, the dividends are very attractive.

  • EconomicallyHumble.com January 30, 2012, 7:17 am

    Interesting…. gas prices are going up and Im starting to do my research. I appreciate the heads up and tips.

  • Kris @ Everyday Tips January 30, 2012, 1:06 pm

    Well, you also own tech and health care, so it isn’t like you are totally invested in energy. Is there another sector you are also considering? Retail perhaps?

    I currently own four dividend stocks, and I enjoy following them. I look forward to building my portfolio a little every month.

    Thanks for sharing!

  • Financial Independence January 31, 2012, 4:04 am

    Thank you for sharing your thoughts and ideas with us.
    I have recently went through all Big Oil companies, to see how do they do. There is some opportunities, if you are willing to gamble.

    RDSA and RDSB are essentially identical shares except for a difference in the way that dividends are paid.

    * RDS.A shares (the equivalent of the old Dutch shares) will continue to suffer dividend withholding tax at 25%.
    * RDS.B though (the equivalent of the old UK shares) will not suffer any withholding tax PROVIDED that the company Royal Dutch Shell plc can demonstrate to the Dutch tax inspector that the dividends being paid on the RDS.B shares are sourced directly from overseas income.

    But than again – it depends what do you want to do with the dividends – reinvestment, no subject to the tax withholding. For some reason, Shell favor to buy back RDS.A, rather RDS.B, that is why RDS.A slightly higher.

    The RDS.A shares also have control of the 57 per cent of the company. The shareholders do not have voting power in the company, but they receive the assets before the other shareholders of RDS.B in case of a bankruptcy.

    • retirebyforty February 14, 2012, 10:11 pm

      Thanks for sharing your research. I didn’t know the they prefer to buy back RDS.A

  • Penny Stock Blog February 3, 2012, 5:38 pm

    I do not believe that many folks realize this about Berkshire Hathaway. When buying shares in warren buffetts holding company they believe they are getting the same deal that someone buying shares in berkshire hathaway was getting in the past. I have heard warren buffett comment in interviews do not buy Berkshire Hathaway stock simply put because of the extreme popularity of warren buffett and his holding company and its great historical record of performance the shares generally trade at a premium not a good value investment. Another thing about Berkshire Hathaway that Warren Buffett has commented about in interviews is because of the enormous size of Berkshire hathaway the holding company is forced to buy large cap and mega cap stocks which generally do not deliver real large returns. But in spite of all of this talk from Warren Buffett many investors fail to heed his advice

  • Oren February 7, 2012, 7:18 am

    I love the idea of having a nice cushion of monthly avg dividend payments. Hopefully these stocks continue to give out such high percentages.

  • Matt @ Dividend Monk February 10, 2012, 3:29 pm

    I own XOM and CVX, and I think RDS is a good choice too.

    If you’re looking for high yields, some MLP energy pipelines would be worth considering.

    Good luck with your monthly dividend goal.

    • retirebyforty February 10, 2012, 10:15 pm

      Thanks! I’m thinking about some Uranium stocks too. 101 Centavos are turning me on to them.

  • fiveoh May 5, 2012, 7:44 pm

    Am I reading this right, you only have 4 stocks in your portfolio? Or you just didnt list them all? Are you planning to diversify more in the future?

  • Eric October 27, 2013, 5:36 am

    I’m more focused on ETF’s that invest in stocks with good dividend growth, like VIG. Diversification and good long term performance.

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