Holy Tentacles! 2015 Dividend Income

2015 was our first $100k+ year.  Our dividend income ended-up being through the roof due to the purchase of our largest holding by another company.  This resulted in exceptional dividend income for the year.

Let’s look at the numbers:

As you can see, we broke $107k in dividend income.  That was a first for us, and resulted in a 7.4% dividend yield from our portfolio.  This was mostly due to a special dividend (discussed below).  Without this special distribution, our regular dividend distribution would have been a more humble $43,502 and a 3% yield.

Holy Tentacles Batman! $100k is HUGE!

The Purchase

On March 31st of 2015, Endurance Specialty Holdings announced they would purchase Montpelier Re Holdings company.  Each Montpelier share would be worth 0.472 Endurance shares and $9.89 in a cash special dividend. 

Montpelier, an undervalued reinsurance company, was our largest holding, so this large weighting resulted in the LARGE dividend income above.  Going into this holding several years back we had no idea that the company would be purchased, only that the company was undervalued relative to it’s performance and book value.  Reinsurance prices have been declining in the last few years, resulting in smaller returns on equity.  Ultimately, consolidation is probably a good thing for everyone involved.  I’m marking this one up in the ‘WIN‘ column.

The positives of this situation:

• Significant return during a flat to down year.  This ended up causing a significant chunk of our market out-performance for 2015.
• Reduction in the size of our reinsurance company holdings (now Endurance Specialty Holdings).  We actually wanted to reduce the size of this position anyway, so the purchase was a happy accident.  Yay!

The negatives of this situation:

• Taxes.  We’ll be paying significant taxes on this distribution, but that’s kindof a good thing.  It means we made money…quite a lot if it, in fact.
• This leaves us with significant cash that will need to be reinvested.  However, it seems like the market might be headed for a negative year in 2016, so this situation might not be so bad afterall.

All the Rest

All the rest of our dividends were pretty standard distributions from either common stocks, REITs or preferred shares.  Most of these are going to be qualified dividends and will be taxed at the lower rate rather than as ordinary income.

2016 and Beyond

In 2016, we don’t expect to see this kind of huge distribution again.  This was a very unique situation that cannot be repeated.  The cash from the purchase will most certainly be reinvested to fund our ever-growing dividend income stream – Which I’m proud to say was over $43k this year.  With any luck we will be in the $40-$50k range for 2016.

How much dividend income did you produce this year?

[Featured Image credit: Joe Parks:flickr.com]