Jason Fieber’s FIRE Fund – May 2018 Update

The FIRE Fund is my real-life and real-money dividend growth stock portfolio. I call it the FIRE Fund because the portfolio allows me FI/RE (financial independence/retired early).

This six-figure collection of some of the best businesses in the world is generating the five-figure and growing passive dividend income I need to sustain myself in life and cover my personal basic expenses. It provides me an opportunity to live a blissful job-free existence that promotes time over money, passions over paychecks, and value over prices.

I’ll below go over any and all transactions from the preceding month, covering any buys and/or sells that occurred since the last update.

You’ll see exact transactions (including dates and prices).

And I’ll quickly discuss some of the rationale behind each respective transaction.

Keep in mind, however, that these monthly updates are just snapshots in time.

These updates are furthermore simply a peek at what the maintaining of a dividend growth stock portfolio post-FIRE looks like, as I’m no longer aggressively buying stocks so that I can achieve FIRE.

Stock purchasing is now more or less a function of the pure enjoyment of investing as a hobby and passion (rather than a function of becoming financially independent as fast as possible), but the ongoing casual investing of fresh capital does add to my passive income, freedom, and options.

Moreover, the actual market value of the FIRE Fund (which is constantly oscillating) means very little in the grand scheme of things; it’s the dividend income the Fund generates that actually unlocks financial freedom for me.

To that point, I’ll also go over any dividend increases that were announced since the last update, as well as how that affects the Fund’s expected annual dividend income over the next 12 months.

PURCHASES
I purchased 5 shares of General Mills, Inc. (GIS) on 4/3/18 for $44.07 per share.

General Mills, Inc. manufactures and markets a number of global branded food products.

With more than 100 brands in more than 100 countries, this is one of the largest consumer products companies in the world.

Cheerios, Häagen-Dazs, Yoplait, Betty Crocker, Annie’s, Fiber One, Nature Valley, Progresso, and Totino’s are just a few of their iconic brands.

People have to eat. And companies that provide products that properly combine taste, quality, and value tend to do well over the long run. And so do their shareholders (assuming it’s a public company).

The company arguably overpaid for a recent acquisition in Blue Buffalo Pet Products Inc., which has certainly been a catalyst behind the revaluation and downward pricing of the stock of late. The stock is down about $10/share since the deal was announced, which has knocked almost $6 billion off of the company’s market cap. For perspective, that’s approaching the value of the entire deal for Blue Buffalo.

That revaluation of GIS has knocked it down to about 14 times expected FY 2018 adjusted EPS. The P/CF ratio is at 9.3, compared to a three-year average of over 14. And the yield is significantly higher than its recent historical average. Plus, the stock was yielding 4.45% at the time of purchase.

Putting aside the valuation of the acquisition, the bad news for dividend growth investors is that the company plans to maintain its currently quarterly dividend rate until it deleverages from a net debt-to-EBITDA ratio of 4.2, down to 3.5.

General Mills has increased its dividend for 14 consecutive years. Factoring out an increase in 2018 still puts its overall dividend higher than what was paid in 2017, but a raise of some kind in late 2019 would keep things moving in the right direction.

This purchase added $9.80 in annual dividend income.

I purchased 5 shares of PPL Corp. (PPL) on 4/3/18 for $27.92 per share.

PPL Corp. is an energy and utility holding company that, through its subsidiaries, generates and markets electricity in the northeastern and western US and delivers electricity in Pennsylvania and the UK.

This is your basic utility, folks. The only thing not particularly basic about it is the fact that it has operations on both sides of the Atlantic.

This is a relatively small position in the Fund. I thought the valuation had dropped to a pretty silly level, warranting the increasing of the position by 25%. If it were to fall back in this range, or lower, I’d consider adding once more (barring some kind of adverse change in business conditions).

The yield at the time of purchase was sitting at 5.87%, which is almost unheard of in the utility space.

Moreover, PPL has increased its dividend for 17 consecutive years, putting it right up there with some of the more vaunted names in the sector.

There are some minor regulatory risks on the UK side of the business, but the valuation appears to more than price that in.

This purchase added $8.20 in annual dividend income.

I purchased 5 shares of Enbridge Inc. (ENB) on 4/12/18 for $31.97 per share.

Enbridge Inc. is an energy distribution and transportation company that owns and operates crude and natural gas pipelines across the United States and Canada.

I took some time last month to discuss my rationale for owning, as well as buying, Enbridge stock. Nothing has changed between then and now, other than the fact that I now own a slightly larger percentage of the business.

There might be room in the Fund for a few more ENB shares, but I likely will not continue to buy this stock for too much longer. It’s getting close to a full position at this point, which is where I’d feel comfortable stopping.

Enbridge has increased its dividend for 22 consecutive years, and there doesn’t appear to be anything on the horizon that will prevent them from continuing that streak. And that’s on top of a starting yield that’s over 6.5%.

This purchase added $10.40 in annual dividend income.

I purchased 5 shares of STORE Capital Corp. (STOR) on 4/12/18 for $24.54 per share.

STORE Capital Corp. is a real estate investment trust that acquires and manages single tenant operation real estate. They lease on a long-term, triple-net basis.

Almost 2,000 properties in the portfolio. Widely diversified. Occupancy rate near 100%. Exposed to everything from restaurants, to movie theaters, to furniture stores, to health clubs, to early childhood education centers.

I love investing in REITs like STORE Capital, as it means I own a slice of commerical real estate, giving me access to the ongoing and rising rent, without having to deal with the rigmarole that’s involved when becoming a landlord. I get to collect my “rent checks” without the usual associated headaches.

Those checks from STORE Capital are particularly appealing, as the stock was yielding over 5% at the time of purchase.

Their dividend growth track record is still somewhat new, as they went public only a few years ago. However, they have the makings of a stellar dividend growth stock. Not only due to the wherewithal, but it’s also due to the fact that they take their dividend and the growth of it pretty seriously. Reminds me a lot of Realty Income Corp. (O) in many ways.

The valuation trails a lot of like options out there, with a strong yield. FY 2017 showed AFFO/share growth of over 4%, which is right in line with what I’d like to see from a business like this.

I have room for more of this particular stock, so I may add to the position in the near term (depending on valuation and capital availability).

This purchase added $6.20 in annual dividend income.

I purchased 5 shares of British American Tobacco PLC (BTI) on 4/19/18 for $51.81 per share.

British American Tobacco PLC is a global consumer goods company that provides tobacco and nicotine products to adult consumers worldwide. They’re one of world’s largest such companies

I went over the rationale regarding buying and holding BTI last month, so I won’t belabor the point. Needless to say, there’s a lot to like about this stock, especially down here in the (low) $50s.

This purchase added $13.40 in annual dividend income.

I purchased 10 shares of Kinder Morgan Inc. (KMI) on 4/19/18 for $16.77 per share.

Kinder Morgan Inc. is a midstream energy company that provides crucial infrastructure, owning and operating more than 80,000 miles of pipeline and 155 terminals.

Kinder Morgan has a long way to go before becoming the stellar company it once was. While management certainly made some errors with expansion and the capital structure in the past, the business model is just as wonderful and important as it ever was.

The company has improved its capital structure. And they’re committed to getting their dividend back to what it once was, starting with a massive 60% increase just announced this past month.

If you compare the stock price and valuation today to what it was just a few years ago, it’s not even close. The business is still there, but the stock is a shadow of what it once was. If the company can continue moving in the right direction, there’s no rational reason why the stock won’t once again command a proper premium.

That said, this is a small position for the Fund because the company still has to prove that its ready for and capable of delivering on its long-term projections and promises. So far, so good. But there’s still a long road ahead.

The yield at the time of purchase (based on the new payout) was 4.77%. While I’d like to keep this position relatively small, I still have room for a bit more. And so it remains on the radar for near-term buys.

This purchase added $8.00 in annual dividend income.

SALES
There were no sales since the previous Fund update.

DIVIDEND INCREASES
There were a number of dividend increases that were announced since the last Fund update on April 2, 2018.

Procter & Gamble Co. (PG) announced a 4% increase in its dividend, upping the quarterly dividend from $0.6896 to $0.7172. This added $5.63 in annual dividend income.

Southern Co. (SO) announced a 3.4% increase in its dividend, upping the quarterly dividend from $0.58 to $0.60. This added $6.80 in annual dividend income.

Tanger Factory Outlet Centers Inc. (SKT) announced a 2.2% increase in its dividend, upping the quarterly dividend from $0.3425 to $0.35. This added $1.05 in annual dividend income.

Kinder Morgan Inc. (KMI) announced a 60% increase in its dividend, upping the quarterly dividend from $0.125 to $0.20. This added $16.50 in annual dividend income.

Unilever PLC (UL) announced an 8% increase in its dividend, upping the quarterly dividend from 0.3585 euros to 0.3872 euros. This added $13.48 in annual dividend income.

ONEOK, Inc. (OKE) announced a 3.2% increase in its dividend, upping the quarterly dividend from $0.77 to $0.795. This added $10.00 in annual dividend income.

International Business Machines Corp. (IBM) announced a 4.7% increase in its dividend, upping the quarterly dividend from $1.50 to $1.57. This added $5.60 in annual dividend income.

Travelers Companies Inc. (TRV) announced a 6.9% increase in its dividend, upping the quarterly dividend from $0.72 to $0.77. This added $2.00 in annual dividend income.

Exxon Mobil Corporation (XOM) announced a 6.5% increase in its dividend, upping the quarterly dividend from $0.77 to $0.82. This added $4.00 in annual dividend income.

Cullen/Frost Bankers, Inc. (CFR) announced a 17.5% increase in its dividend, upping the quarterly dividend from $0.57 to $0.67. This added $8.00 in annual dividend income.

Johnson & Johnson (JNJ) announced a 7.1% increase in its dividend, upping the quarterly dividend from $0.84 to $0.90. This added $24.00 in annual dividend income.

FIRE FUND
The FIRE Fund is now valued at $348,455.05. That’s a decrease of 0.5% over the last reported market value of $350,105.02.

There are 110 companies in the Fund. This is unchanged since the last update.

The Fund is now expected to generate a total of $12,572.57 in annual dividend income over the next 12 months. That’s an increase of $153.06, or 1.2%, over the prior update’s annual expectation.

A fantastic tool for tracking your portfolio, progress, and performance is Personal Capital.

CONCLUSION
Not too much to say. It’s just another month forward for the Fund. The market value of the Fund goes up and down, along with the broader market, but living off of dividend income means I don’t pay no attention to that.

These are some very, very fine businesses working on my behalf, sending me a nice chunk of the profit they generate. And as that profit grows, so does my slice of it. That’s evidenced by the numerous dividend increases I was dealt this past month.

It’s hard work, but someone has to do it!

To add some perspective on this month’s dividend increases, the $97.06 in my expected annual dividend income that came about totally organically, via those dividend raises, was the equivalent of investing $2,773 in fresh capital at a 3.5% yield (approximately my portfolio’s average yield).

That’s over $33,000 on an annual run rate. However, I didn’t lift a finger to accomplish that feat. That’s snowballing in action, folks.

I really couldn’t be happier with this collection of wonderful companies. There are still a number of high-quality dividend growth stocks I’d like to get my hands on at some point, but that will all come in due time.

Looking out over the course of May, I expect for it to look a lot like April (and many months before that). I’ll probably add a few hundred dollars or so in fresh capital, aiming to pick up excellent long-term dividend growth investments at appealing valuations.

I see some particular value in energy and certain consumer names. Even some utilities and REITs look good here. As always, I’ll publish stock purchases in real-time over at Twitter and Facebook. So make sure to follow me there (where I also share numerous other updates about my life as a dividend expat).

I’m anxious for what’s ahead. And I hope you are, too.

Every day is another opportunity to add to our wealth, passive income, opportunities, options, and freedom in life!

Thanks for reading.

— Jason Fieber

P.S. If you’re also aiming to become FIRE, make sure to check out some amazing resources that helped me become financially free at 33.

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Source: Mr. Free at 33

Full disclosure: I’m long all aforementioned stocks.