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Finance

Dividend Review – July 2022


Is this a quick market recovery or just a dead cat bounce?

That’s the question most investors are asking and something I’ll cover quickly in what will eventually be a dividend update.

The S&P 500 is up 6.9% in the last month and up over 11% since the recent lows and everything is awesome, right?

Well, it’s not quite all roses and rainbows as the market is still down nearly 15% YTD since it reached all time highs earlier this year. Still, I won’t complain about a small recovery unless it’s nothing more than a mean trick!

After all, a bear market rarely takes an obvious path down so it’s possible it’s just a dead cat bounce. If you’re not familiar with the weird term, it describes a short term recovery after a fall caused by a variety of reasons but mainly the idea that a bottom is in and stocks are oversold. That causes people to start buying, thus boosting prices until they eventually realize that stuff is worse than we thought which leads to further price reductions.

It’s possible that’s not the case here but since no one knows the future, it’s also quite possible the ride down isn’t quite over and we’re just taking a brief break.

You can see how this looks in practice in the graph below of the Dow Jones during the 2008 bear market.

It’s not a straight line down and includes a bevy of dead cat bounces as the market tries to find a new floor before eventually making its way further down. In fact many of the largest positive moves in history have come during a prolonged downturn.

October 2008 had two 10%+ days which made it seem like things were looking up but that was just a false bottom as the market still took months before it eventually bottomed out.

So what am I doing about all this? Not much as usual. I’m not a market timer and 80% of my portfolio is in index funds and ETFs which I continue to buy up with new funds no matter the price.

However, I do have another 20% where I more actively trade. Actively trade is a bit of a misnomer as most of that money is still in long term investments, just in more individual positions. Still, I do have a higher cash position than usual at the moment and have been using the reduction in prices to reduce that a bit.

For me, the price today and the price a few months from now doesn’t really matter to me since I’m investing with a 5 year plus horizon in mind. Hopefully this downturn doesn’t take that long but even if it does, what else am I gonna do? Might as well just keep investing and keep on trucking.

Now that we’ve covered that, I can jump the dividend review! July is a smaller month but I’ve been seeing some decent growth rates in these months due to an increase in investments in individual holdings in my M1 accounts. I’m also starting to see bigger dividend raises as companies try to keep up with inflation on that front.

Last year July came in at $291.31 so let’s see where it sits now.

July Dividends

dead cat bounce

July’s dividends came in at $363.37, not quite the $3K plus month like June but a solid result for what’s regularly a tiny month.

It’s nice to see these non quarterly months start to crest the $300 mark and grow at a pretty decent clip with a 24.7% bump over last year.

While it’s still a small portion of my overall dividends, this type of growth will mean that I can start to see these months approach new thresholds each year.

Last year we broke the $200 mark in all months and this year I’m starting to see $300 each month. Soon I’ll be at $400 and so on and so forth. It’ll be nice to see these months in the $1,000+ range eventually but I’m probably a few years away from that.

Re-investing July’s total means that my forward income will increase by $11.26. Not a huge amount but it’s that plus the continued investments that help the growth seen in the above graph. That’s the beauty of compound growth! I’m more than double my 2018 results and hope to see even better growth four years from now.

For the year, that brings the total to $7480.48 or a 8.9% boost over the same time frame last year.

Steve, my dividend employee, earned $2.18/hr. this month and his annual wage dropped to $6.41/hr. It’s not quite enough to live on yet but I’m not focused on dividends right now. Hopefully in the future, with growth and continued investing, Steve can support more of my lifestyle with his income.

The nice thing about the year is that Steve’s biggest months are still ahead. My dividends are focused in the quarter ending months but especially in December as seen in the data below.

December sure is a big one and really drives the overall results so it’ll be interesting to see what type of growth I see there. Still, even these small months are starting to jump out on the graph as growth ramps up there.

The one positive of a market downturn is that buying shares at a lower prices leads to higher yields and a better future yield on cost as prices rise and dividends increase. Since I’m still in my accumulation period, I don’t mind the downturn and will take advantage of lower prices when I can.

While low prices and portfolio reductions are not a great thing to see on paper, they are actually beneficial to future returns. After all, you get more shares with your current dollars and any dividends are re-invested at lower prices.

Rising yields can help those looking for income from bonds as well. While rising yields have been a negative on bond prices this year, future issuances will be higher yielding and that will boost payouts in bond funds as well.

Inflation adjusted bond funds are having a great year too and rates from I-bonds are very attractive right now. Hopefully inflation slows down because if it doesn’t, further rate bumps will certainly have an impact on many asset classes from stocks to bonds to real estate. We’ll see how that’s going in an inflation report that’s due out soon.

We’ve been in a period of easy money which has led to elevated valuations. Now that’s coming to an end so it’ll be interesting to see how the market reacts to it. Personally I expect further declines in asset prices in the near term BUT I’ll continue to be nearly fully invested since far more money has been lost trying to wait for the bottom than just staying in the market and buying on the way down.

Eventually the market will recover and while it looks bad on paper now, that doesn’t really matter to my future self. Hopefully you’re in a position to feel the same way.

Thanks for reading and hope your July was a good one.



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