The December 2018 Passive Income Update

Greetings my upwardly mobile friends!

In December 2018, the passive income experiment has continued to rely entirely on dividends. Despite doing no work whatsoever for this income, December produced $149.11 in income.

SPYD, which follows the S&P 500 High Dividend Index and has a low expense ratio for a dividend ETF, spun off $54.06. Despite holding, a similar amount of SCHD, which tracks the Dow Jones U.S. Dividend 100 Index and has a similarly low expense ratio for a dividend ETF, SCHD returned only $27.14 in December. Despite the significant differences in yield, I’m going to continue purchasing both because they are both necessary for diversification. I found SCHD to be less volatile in its price during the December swing, which could indicate that it may hold its value better in a downturn.

PFF is a preferred share dividend ETF, with a higher expense ratio but high monthly payouts. It’s interesting because it seems to pay dividends twice in December. Despite this being my smallest holding, it returned $32.30 in dividends in December. That’s twice as much as any prior month. It was something I expected as I noticed the double dividend payments from PFF in last years when researching this ETF. I may need to open a brokerage account elsewhere for this holding as my current account charges me a transaction fee to buy PFF, which is a huge turnoff for me.

PGX is another preferred share dividend ETF with a higher expense ratio. It returned $35.61, reflecting relatively consistent pay outs each month. It’s a nice pay out each month, but it’s not very diverse and is tied heavily to the financial and utilities sectors. During the December downturn, it’s price per share suffered heavily and reinforced my belief that I really need to increase diversification through SPYD and SCHD. It’s too dangerous to rely so heavily on one sector of the market.

Overall, this was a great month. I should be buying more shares monthly going forward now that my student loans are paid off. My current target is for SPYD and SCHD to at least 2/3rds of the current dividend portfolio. Right now they’re occupying about 50% of my allocation in the dividend portfolio because I got carried away buying PGX… Once the asset allocation is corrected, I plan on looking for one more dividend ETF to add to the mix. Dividend ETFs are not quite as diverse as broader index funds so I find that I need to hold more ETFs than I ordinarily would like to hold as a passive investor.

This has been yet another encouraging month on the experiment. I think I’ll do a 12 month review on the experiment in March. Stay tuned!