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 $5,500 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. 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 59½, 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 year than just $6,000 as I will also receive dividends.
Portfolio 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 rate moves. 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.
Financials: MasterCard (MA), Bank OZK (OZK), Prospect Capital (PSEC), Wells Fargo (WFC).
MasterCard is the one from 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. 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 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 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 is because tax treaties the US has with Canada and the UK make all dividends from companies based in these countries not subject to additional foreign tax-withholding if the stocks are held in IRAs.
Other: Apple (AAPL), Altria (MO)
Apple 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 world’s 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.
Portfolio Summary (as of January 1, 2020)
| Stock | Shares | Jan 2020 Price | Current DPS | Annual Dividend | Yield |
|---|---|---|---|---|---|
| AAPL | 15 | $293.65 | $3.08 | $46 | 1.05% |
| BP | 100 | $37.74 | $2.44 | $244 | 6.47% |
| HFC | 52 | $50.71 | $1.32 | $69 | 2.60% |
| MA | 12 | $298.59 | $1.32 | $16 | 0.44% |
| MO | 117 | $49.91 | $3.36 | $393 | 6.73% |
| OZK | 90 | $30.50 | $1.00 | $90 | 3.28% |
| PBA | 57 | $37.06 | $0.60 | $34 | 1.62% |
| PSEC | 500 | $6.44 | $0.72 | $360 | 11.18% |
| STAG | 160 | $31.57 | $0.48 | $77 | 1.52% |
| VER | 442 | $9.24 | $0.56 | $248 | 6.06% |
| VTR | 60 | $57.74 | $3.16 | $190 | 5.47% |
| WFC | 78 | $53.80 | $2.04 | $159 | 3.79% |
| Metric | Value |
|---|---|
| Annual Dividends | $1,925 |
| Current Portfolio Yield | 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. My major focus will be on increasing the dividend income I am bringing in, with less focus on the total value of the portfolio.