Summer is officially over. It went by far too fast here in the Pacific Northwest.
With epic clear blue skies and mild temperatures, the summer here is glorious. But it changes fast.
One day August was like J.R.R. Tolkien’s Shire — Sunny and 75F. The next day, instead of the Shire, we get Mordor! Suddenly we live in the Land Of Shadow again. I can almost see Mt. Doom from my house.
Torrential rain, grey skies and cold temperatures are once again a regular part of daily life. Don’t move to the PNW unless you enjoy that kind of weather. I can already see the leaves changing into the golden colors of fall.
So, enough lamenting the change of seasons — how did the month of August turn out financially?
Well, August was a month of inflation. How bad was it? Let’s find out…
Expenses For August
Inflation is one of my least favorite things in life — it’s an expense I can’t control.
In August we had inflation hit several of our regular expenses — the biggest of which was our mortgage. The mortgage is actually fixed interest rate, but it rises over time as property taxes increase. (Property taxes are included in the monthly mortgage bill)
In August, our mortgage payment rose to $2270.25, an increase of $132.25 from last month. A 6% increase!
Normally I don’t like to gripe about paying taxes, because they’re needed to keep life civilized. But when was the last time you received a 6% salary increase at your job? Never? Most people have to be content with only a 3% annual increase.
These kinds of big annual increases always rub me the wrong way. For myself, (and most people) our mortgage is by-far our largest monthly expenditure…and there’s very little we can do about it.
When property taxes go up faster than income does, the little guy gets squeezed. It’s absolutely no fun. I can only hope the value of my home increased at a similarly ridiculous rate. When I finally sell this money-pit of a house, I hope to get some of it back. (Money Pit is a great movie BTW!)
So how about the rest of our August expenses?
August totaled up to $4311.87. While that’s lower than July, it was still an expensive month.
If July was over-budget in the food department, August was the exact opposite.
Groceries amounted to $368. That’s pretty good. Like every other month, there was no alcohol included in the month’s expenses.
Normally we average $500 per month for groceries, so it’s good to see a lower than average month.
August also had some surprise home repair expenses that pushed the expenses higher — Our bathroom toilet started leaking water onto the floor.
After 30 years of rusting, the bolts that secured the toilet tank finally rusted through. While it wasn’t a serious leak, the problem needed resolving quickly before the situation got worse. We decided to replace the toilet. The toilet and water line amounted to $168.90.
Despite expenses coming in at $4311, I think we did a great job at keeping expenses under control in August.
Why? Without the property tax increases and the replacement toilet, our expenses would have been $4010. Right on-target with our budget.
Dividends For August
Unfortunately, August was a ‘dry’ month for dividends. Ho-hum! The taxable portfolio only managed dividends of $1,040.20, which is actually higher than previous ‘dry’ months.
As you can see, I’m no longer including a column for foreign tax adjustments — we sold off our Telus stock (more on this later) and won’t be needing to make these kinds of adjustments for foreign taxes anymore.
So, why the dry month? Most companies we own don’t pay out in February, May, or August. This creates ‘dry’ months throughout the year:
To counteract this problem we keep excess cash on-hand to deal with the low dividend months. So far we’ve only kept 6 months worth of expenses in our checking account, and this has worked out fine.
In the future, I may end up bumping our cash-on-hand to 12 months worth, but I haven’t decided if this is truly necessary.
August Investment And Portfolio Changes
Our dividend target for 2016 is $48k in dividends. As I mentioned last month, I’m worried we might not hit the target. Finding good investments is hard right now. The market might be overvalued. Almost everything looks expensive against historical norms.
This month, as I hinted at in “How To Be A Dividend King“, I decided to sell off our Telus shares. Given the financial state of the company and it’s low growth rates, I viewed the company as very fairly valued. We sold. I chose to use those funds to buy more of my favorite investment — The Well Known Energy Company (WKEC).
In August we invested an additional $125,630 into the WKEC. Roughly $33k of that was from our Telus sale, and another $56,250 was from a preferred share redemption in the second quarter. In reality, we only reduced our cash position by (roughly) $36k this month.
Last month I projected we needed to invest about $45k per month to make our annual targets. Clearly we didn’t make that in August despite some massive buys. Our 2016 dividend income is probably going to come up short of our projected $48k in dividends.
Investing With Conviction
Our investment in the WKEC now comprises 25% of our taxable portfolio (and growing). Some people might call me nuts for putting so much of our net-worth into just one company…well, I sleep very well at night. We’re buying into this investment with conviction.
Diworsification might make some people feel more comfortable, but it doesn’t interest me. It’s a recipe for poor returns. A quote from Warren Buffett sums up my feelings on the subject:
“I will only swing at pitches that I really like. If you do it 10 times in your life, you’ll be rich. You should approach investing like you have a punch card with 20 punch-outs, one for each trade in your life. I think people would be better off if they only had 10 opportunities to buy stocks throughout their lifetime. You know what would happen? They would make sure that each buy was a good one. They would do lots and lots of research before they made the buy. You don’t have to have many 4X growth opportunities to get rich. You don’t need to do too much, but the environment makes you feel like you need to do something all the time.”
Yes, like Buffett mentioned, I’ve done my homework with the WKEC. We’re taking a big swing at this one because I’m certain it’s going to work out well. The risk of permanent capital loss looks extremely low. It’s not really a matter of “if” it works out, it’s really a matter of “when”.
Our strategy is to invest a big chunk of capital, and then sit on it for a decade (or longer). For those who are curious — Yes, I’ve been down this road before.
In my lifetime I’ve used several of my ‘punches’ already. Montpelier RE was one such example, where I put massive amounts of our personal cash into one investment and then sat on it for a decade. The results were market beating. Dividends from the sale were excellent too.
Will the WKEC work out that well? The odds look very good to me.
[Image Credit: Flickr]