November Recap

November was the first full month of trading since my wife and I retired from the rat race and decided to slowly travel the world. Our journey actually started at the beginning of October but for the first two weeks we were on a cruise and had limited access to WIFI. Trading was not an option during this time. (Read about our adventures at The Wandering Asian Couple.)  

During this period I relied on the recurring dividends paid out in my dividend growth portfolio. Dividends are the primary components of our financial independence plan; options and swing trading are additional levers I use to help improve overall performance.

Volatility

November proved to be a volatile month with FANG (Facebook, Apple, Netflix & Google) stocks, Bitcoin, Marijuana and Oil getting hit hard. Volatility definitely tests the nerves of many investors but for investors with a long-term view these pullbacks are opportunities. As a dividend investor with tactical dividend reinvestment plan (DRIP), options writing and swing trading on dividend stocks, volatility isn’t too bad. (Here’s a post on how I found my investment style.) Because we have recently retired and although our expenses are covered by dividend distributions, it’s not fun to see your portfolio drop. Despite the volatility, November was a good trading month.

Tactical Dividend Reinvestment Plan

DRIPs are a crucial part of a financial independence plan for a dividend growth investor, especially if you’re starting out. DRIPs are dividends that are reinvested into additional shares of your stock. For example, if you own 2000 shares of Bank of Nova Scotia (BNS) the DRIP would work as follow (ignore dividend pay dates for now). BNS pays a quarterly dividend of $0.85 CAD. BNS closed at $72.13 as at November 28, 2018.

Fiscal 2018

4th quarter – increased from 82 cents to 85 cents.
2nd quarter – increased from 79 cents to 82 cents.

Fiscal 2017

4th quarter – increased from 76 cents to 79 cents.
2nd quarter – increased from 74 cents to 76 cents.

Fiscal 2016

4th quarter – increased from 72 cents to 74 cents.
2nd quarter – increased from 70 cents to 72 cents.

Source:  Bank of Nova Scotia

P.S. Another reason why I love dividend growth stocks is their history of increasing dividend payments periodically. In this case, BNS has raised twice a year in the past three years. It’s like getting a raise two times in the one year!

Here’s how the DRIP would work:

2000 shares x $0.85 = $1,700

This is the amount of your quarterly dividend payment if you took it in cash.

DRIP

$1700 / $72.13 = 23.568 shares

This is the number of shares you would receive

In a brokerage account, they would reinvest only full shares and pay the remainder in cash. If you have a DRIP directly through the company (Comupshare administers the DRIP) the fractional shares would be reinvested. This means you would now own 2023 shares of BNS. Next quarter if the dividend is $0.85 again and the stock is trading at the same price you would receive $1719.55 in dividends. In one year, assuming no change in above, you would have 2094 shares of BNS paying out because of the DRIP. Over a longer period, you can really see the power of compounding your DRIPs.

I have chosen to implement a tactical DRIP because some positions have become large. I would like to allocate the funds elsewhere and build other positions.

Options Writing

Options writing is the process of selling or writing an option (call or put) against an underlying security, in this case, a dividend growth stock.

Puts

As a put seller, I collect premiums for writing the put. If the security is trading below the strike price at expiration, I will be obligated to purchase the security at the strike. If the stock is trading above the strike my short puts will expire worthless. Either scenario works for me because I’m writing puts on dividend stocks that I don’t mind owning. (Note: I only write cash secured puts.)

Calls

As a call seller, I collect premiums for writing the calls. If the security is trading above the strike price at expiration, I will be obligated to sell my security at the strike. If the stock is trading below my strike the calls will expire worthless. Again, I’m good with either scenario. (Note: I only write covered calls.)

The Trades

Trade 1 – I wrote some puts on Philip Morris (PM) Nov 16 expiry, strike 86.50 for a credit of $1.01. For both the calls and puts one contract controls 100 shares of that security. If you wrote one contract on this position the credit would be $1.01 x 100 = $101.

Trade 2 – I wrote some puts on PM Nov 16, Strike 87.50 for a credit of $0.90.

I also wrote some puts on XLP, Nov 16 expiry, Strike 54 for a credit of $0.25. These options expired worthless and I kept the premiums.

Trade 3 – PM pulled back quite a bit this day and I saw volatility spike for this security. As a result, I rolled out my Novembers expiry to Decembers (same strike and number of contracts). The November puts cost me $1.02 (more than my original sell); I received $2.91 per contract for the Decembers. Net credit $1.89.

Trade 4 – I sold some shares of BNS at $71.00, original shares was purchased in October for 69.95. Gross profit of $1.05 per share.

Trade 5 – I rolled the PM Nov 86.5 puts down and out to PM Dec 85 puts. The PM Nov 86.5 puts cost me $0.87; I received $2.21 for the PM Dec 85 puts. Net credit $1.34.

PM Review

Looking at the price of PM you can see it’s starting to hit resistance near the 200-period exponential moving average (EMA) just above $88. With that said, PM is holding its 20 and 50 EMA. The Slow Stochastics and the Histogram are still trending in a positive direction. The MACD hasn’t crossed over in a positive direction yet. If it does it could mean a trend reversal for PM. If it continues in the negative direction there could be some more of a pullback for PM.

Overall, I don’t mind owning this dividend stock since it’s been beaten down so much this past year. PM has a dividend of 5.27% as at November 30th, 2018. They pay a quarterly dividend of $1.14 or $4.56 per year. Also, PM has raised its dividend every year since being spun off from Altria (MO). In 2008 their dividend was $1.84 a year. This represents a 147.8% increase over this period. Source: Philip Morris. Btw… I’m also good if my puts expire worthless.

Trade 6 – I wrote some calls on BNS, December 21, strike price 74. Net credit $0.40. I originally purchased shares of BNS in October at $71.82.

Trade 7 – I purchased additional shares of BNS at 70.55. The average price of BNS is now 71.20. BNS closed at $72.30 as at November 30. Since the charts look like BNS could run a bit more I’ll hang on to it for a little longer.

BNS Review

BNS broke through the 50-day EMA of $72 on November 29 which is a good sign. Another good sign was that it was able to close above this price yesterday. With the stochastic and MACD trending positively there is a good probability (baring bad news) of BNS hitting $74 (first resistance) to $75 (200 EMA).

BNS is the third largest bank in Canada. The stock has pulled back significantly from its 52-week high of $83.79. Also, BNS is the most international bank of the big five banks with interest in emerging markets. At its current price, their dividend is yielding 4.7%.

Trade 8 – I purchased some shares of Enbridge (ENB) at $43.35. The security dropped as low as 42.19 before rebounding quickly. ENB closed at $43.90 as at November 29. The security looks to be hitting resistance at $44 but the other indicators still look promising. I’ve decided to hang on to this position to see how it plays out.

ENB Review

$44 proved to be resistance as the stock pulled back on November 30. The stock pulled back to a day low of $43.06, its 50-day EMA but was able to close at $43.66 down $0.29 (a good sign). Also, the stochastic still looks good but the RSI is slightly negative with the MACD looking neutral. If the stock can break its 200 EMA, there could be a run to $47. If it breaks below $43, the stock could drop to $42, in which case a $42 to $44 channel could emerge. 

Enbridge is a Canadian energy distribution company transporting various fuels across North America. ENB pays a quarterly dividend of $0.671 per quarter or $2.684 per share annually, this represents a $0.615% yield. ENB has paid dividends for over 64 years. Over the past 20 years, it has grown its dividend at an average compound annual growth rate of 11.7%. It expects to grow its dividend 10% through 2020. Source: Enbridge

Final Thoughts

The volatility of the markets have worked out well for me in the month of November. Volatility is a key component in options pricing. As volatility increases, so too does the cost of an option contract. The increased premium received and the successful swing trade has allowed me to reach my monthly targets. These profits can now be reinvested into more dividend growth stocks, again, the main contributor to our financial independence and slow travel lifestyle.

 

Note: If you have recently signed up to be a subscriber please kindly re-subscribe. We were experiencing technical difficulties which has now been rectified. Thanks!

You may also like...

2 Responses

  1. CanadianPassiveIncome says:

    nice steps!

    sounds lkke your doing great and look forward to following your journey and learning more about options and puts.

    cheers

    • Ernest says:

      Thanks for dropping by CPI!!!

      I will definitely post more about options (puts and calls), swing trading and my experience working with PMs (Institutional and Retail).

      Ernest

Leave a Reply