This article will be the start of a series I will be publishing once a month that will track the performance of my real-life Roth IRA. I opened this account shortly after college in 2013, and contributed the max (around $5500 at the time) for a few years to get it going. Having a real job and still living like you are in college cost wise turns out to be a pretty good formula for saving money (my rent at the time was only $400 a month). Up until 2019 I had focused my investment dollars elsewhere, before re-focusing on my Roth. This series is part of that refocusing. In order to provide a true forward looking viewpoint, I will track performance as if this portfolio was started fresh on January 2020.
Roth IRAs are retirement savings accounts anyone can contribute to, unrelated to any employer retirement accounts. The Roth part means any money that is contributed is after-tax, meaning when you are able to withdraw the money at age 59 1/2, you won’t owe the government anything. Because of the advantageous tax treatment, you are only allowed to contribute a certain amount per year, adjusted for inflation. In 2020 $6,000 is the most an individual can contribute.
My goal in choosing stocks for my Roth was to target high income or dividend growth stocks. Any dividends I receive in the Roth are also tax free, which makes this strategy attractive. Because of this I can actually get more new money into my Roth each each than just $6,000 as I will also receive dividends.
Let’s take a dive into my holdings. You’ll notice the majority of these will be financial stocks or REITs (Real Estate Investment Trusts). The reason for that is those sectors tend to generate more income than the broader market, and on a macro level they tend to be negatively correlated with each other on interest rates moves. Meaning financial stocks tend to do better when interest rates go up – they can collect more interest – and REITs tend to do better when interest rates go down – as their higher yields become more attractive. I will give a brief overview of the stocks in my portfolio, then post their yields and prices. I will provide and update monthly on the portfolio so we can track how is does real time. My major focus will be on increasing the dividend income I am bringing in, with less focus on the total value of the portfolio.
Financials: MasterCard (MA), Bank OZK (OZK), Prospect Capital (PSEC), Wells Fargo (WFC).
MasterCard is the one form this group that doesn’t fit the high income mold, as their dividend is nominal, though growing quickly. However I do love their business model and have owned MA for as long as I’ve had the account and what it has lacked in dividends it has more than made up for in capital appreciation. Bank OZK and Wells Fargo are more traditional banks, albeit with WFC being much larger. Prospect Capital is the highest risk stock of this group – and likely my whole portfolio. They are a BDC (Business Development Corporation), meaning they loan money to other companies, generally smaller companies, at fairly high interest rates to compensate for the risk. They are currently yielding over 10%, which can be a serious red flag – however their current NAV (Net Asset Value) is $8.87 and their stock price is only $6.44, making a dividend cut priced in.
REITs: Stag Industrial (STAG), Vereit (VER), and Ventas (VTR)
These REITs, along with PSEC do the heavy lifting dividend-wise in my Roth. STAG is a fast growing industrial REIT. Vereit is a triple net lease (tenants are responsible for upkeep, taxes, and insurance) REIT similar to Realty Income (O) but priced at a more reasonable valuation. Ventas is a healthcare focused REIT.
Oil and Gas: British Petroleum (BP), HollyFrontier Corporation (HFC), Pembina Pipeline (PBA)
BP is a well known global integrated oil and gas company, HollyFrontier is a US refiner, and Pembina is a Canadian-based midstream oil and gas company. The reason I like to have BP and PBA in my Roth as opposed to a taxable account is because tax treaties the US has with Canada and the UK which make all dividends from companies based in these countries not subject to additional foreign tax-withholding if the stocks are held in IRAs (or 401ks).
Other: Apple (AAPL), Altria (MO),
Apple, like MA, is a stock I’ve held for a long time and whose business model I love. The stickiness of their ecosystem allows them to charge a premium on their hardware costs and generate truly impressive cashflow – which funds the worlds largest buyback program. Altria is a recent purchase for me. I can enjoy the high dividend it offers now while waiting for the eventual legalization – and regulation – of marijuana in the US. If history is any judge, the majority of the small weed stocks you see today won’t exist in 5 – 10 years. MO will be there and will thrive as they have the production, regulation, and distribution games figured out thanks to decades of experience.
OK, lets get to the actual portfolio holdings and their annual dividends:
| Stock | Shares | Jan 1 2020 Price | Current Price | Current DPS | Annual Dividend | Yield on Jan 2020 price |
| AAPL | 15 | 293.65 | 293.65 | 3.08 | $46 | 1.05% |
| BP | 100 | 37.74 | 37.74 | 2.44 | $244 | 6.47% |
| HFC | 52 | 50.71 | 50.71 | 1.32 | $69 | 2.60% |
| MA | 12 | 298.59 | 298.59 | 1.32 | $16 | 0.44% |
| MO | 117 | 49.91 | 49.91 | 3.36 | $393 | 6.73% |
| OZK | 90 | 30.5 | 30.5 | 1 | $90 | 3.28% |
| PBA | 57 | 37.06 | 37.06 | 0.6 | $34 | 1.62% |
| PSEC | 500 | 6.44 | 6.44 | 0.72 | $360 | 11.18% |
| STAG | 160 | 31.57 | 31.57 | 0.48 | $77 | 1.52% |
| VER | 442 | 9.24 | 9.24 | 0.56 | $248 | 6.06% |
| VTR | 60 | 57.74 | 57.74 | 3.16 | $190 | 5.47% |
| WFC | 78 | 53.8 | 53.8 | 2.04 | $159 | 3.79% |
| Annual Dividends | $1,925 |
| Current Portfolio Yield | 4.27% |
| Yield on Jan 2020 Cost | 4.27% |
| Cash | $103 |
| Total Portfolio Value | $45,215 |
At the start of 2020, my projected dividend income for the year is $1,925. We will track that value throughout the year and in the February update I will go into more detail on my portfolio strategy, including new investment targets and my goals.