Gold price

The Retiree's Dividend Portfolio: John's April Update: Occidental Petroleum Is Liquid Gold

Sep 30, 2022

Investment management. Portfolio diversification.

Olivier Le Moal/iStock via Getty Images

What's Up With Occidental Petroleum?

Occidental Petroleum Corp. (OXY) was one of the worst-performing stocks in the portfolio no less than six months ago. Their poor performance was influenced by a number of factors, including poor oil pricing and high use of leverage to make the Anadarko acquisition possible.

It doesn't take much more than a glance at the company's financials to understand how much trouble the company was in during June 2020, whereas now it is a cash-flow machine.

Occidental Petroleum - SA Financials - 1

Occidental Petroleum - SA Financials - 1 (SeekingAlpha)

Occidental Petroleum - SA Financials - 2

Occidental Petroleum - SA Financials - 2 (SeekingAlpha)

We expect June's earnings report to be absolutely phenomenal given the increase in WTI Crude pricing (it hasn't dropped below $90/share since the beginning of April).

There is more discussion about OXY's use of debt and its goal of deleveraging in the dividend summary section below.

Background

For those who are interested in John and Jane's full background, please click the following link here for the last time I published their full story. Here are the key details about John and Jane that readers should understand.

  • This is a real portfolio with actual shares being traded.
  • I am not a financial advisor and merely provide guidance based on a relationship that goes back several years.
  • John retired in January 2018 and his only consistent source of income is Social Security.
  • John has begun drawing $1,000/month from his Traditional IRA to supplement his retirement income.
  • Jane officially decided to retire on December 31, 2020. She is now collecting social security as her primary source of income.
  • John and Jane have other investments outside of what I manage. These investments primarily consist of minimal risk and minimal yield certificates.
  • John and Jane have no debt and no monthly payments other than basic recurring bills such as water, power, property taxes, etc.

John and Jane requested my help after we discovered that their financial advisor was charging excessive fees and engaging in trades that appeared to be more favorable to the advisor than it was to John and Jane. I do not charge John and Jane for anything that I do and all I have asked of them is that they allow me to write about their portfolio anonymously in order to help spread knowledge and to make me a better investor in the process.

Generating a stable and growing dividend income is the primary focus of this portfolio, and capital appreciation is a secondary characteristic.

Dividend Decreases

No stocks cut their dividend/distribution that was payable during the month of April.

Dividend And Distribution Increases

Seven companies increased their dividend/distribution or paid a special dividend during the month of April in the Traditional and Roth IRAs.

  • AFC Gamma (AFCG)
  • EPR Properties (EPR)
  • Kite Realty (KRG)
  • Realty Income (O)
  • Occidental Petroleum (OXY)
  • Bank OZK (OZK)
  • WP Carey (WPC)

We have already covered EPR, O, and WPC in either the Taxable Account or Jane's Retirement Account article (see links at the end of the article), so I will not write another summary, but will still include a brief summary of the dividend change.

AFC Gamma - The stock price has seen a lot of movement over the last month, dropping to new 52-week-lows even after a reasonably strong quarter. This increase marks the third consecutive quarterly dividend increase. It should also be known that since going public, AFCG has always generated more distributable income than it paid out in dividends. The biggest risk to AFCG's business model would be the legalization of marijuana (from the Federal level), because this is what currently prevents them from being able to legally take out business loans from traditional financial institutions. AFCG currently has no loans in non-accrual status and carries an average interest rate of 18% on the loans it funds. As long as the federal government avoids changing the status of marijuana operations, I believe we will continue to see AFCG thrive.

Chart Data by YCharts

The dividend was increased from $.50/share per quarter to $.55/share per quarter. This represents an increase of 10% and a new full-year payout of $2.20/share compared with the previous $2.00/share. This results in a current yield of 10.99% based on the current share price of $17.64.

EPR Properties - The dividend was increased from $.25/share per quarter to $.275/share per quarter. This represents an increase of 10% and a new full-year payout of $3.30/share compared with the previous $3.00/ share. This results in a current yield of 6.43% based on the current share price of $51.32.

Kite Realty Group - The big development has been the recently completed merger with Retail Properties of America (RPAI) that closed in October 2021. KRG has long flown under the radar even though the company has gone through a major transition where it eliminated non-core properties and focused on grocery store anchored shopping centers in areas with higher income/more affluent populations. The most recent earnings announcement in may resulted in an increased FFO guidance of $1.77/share (midpoint) vs the previous midpoint of $1.72/share. KRG has seen practically every metric improve since the merger, and it seems fair to suggest that management didn't oversell the merger with RPAI and that now investors will be able to benefit from the improved share price and regular dividend increases. The dividend payout to FFO with the most recent increase (yet another one that was announced to be paid in July) still puts the payout ratio at 47.5% which is exceptionally low.

Investors should expect to see a combination of dividend yield increase and higher share price as the payout ratio moves into a comparable range with other REITs (around 70%).

Chart Data by YCharts

The dividend was increased from $.19/share per quarter to $.20/share per quarter. This represents an increase of 5.3% and a new full-year payout of $.80/share compared with the previous $.76/share. This results in a current yield of 3.90% based on the current share price of $22.19.

Realty Income - The dividend was increased from $.246/share per quarter to $.247/share per quarter. This represents an increase of .2% and a new full-year payout of $2.964/share compared with the previous $2.952/ share. This results in a current yield of 4.35% based on the current share price of $68.61.

Occidental Petroleum - OXY is one of the largest energy holdings in John's retirement portfolio. This stock has long been a laggard in the portfolio, and the situation dramatically changed three months ago with the escalation in energy prices. OXY's hard times after its acquisition of Anadarko have become a faint memory, as the stock price cratered with the market's pricing in default for OXY. Management has stated that the dividend is sustainable at $40 WTI which means that would be a long fall from the $113.70/barrel that WTI trades for as of market close on May 17th. Determining whether or not OXY should be ranked as a Buy or Hold likely depends on the optimism for energy prices to remain at decade-level highs. We do not plan to add additional shares, but this is because John's total investment in OXY is already a substantial part of his portfolio.

I expect that OXY will be able to easily meet its deleveraging goals, which will only increase its ability to begin buying back shares and accelerating dividend growth.

Chart Data by YCharts

The dividend was increased from $.01/share per quarter to $.13/share per quarter. This represents an increase of 1200% and a new full-year payout of $.52/share compared with the previous $.04/share. This results in a current yield of .77% based on the current share price of $67.94.

Bank OZK - Bank OZK has continued to perform well since I began tracking them after their crash, which was the result of concerns about their Real Estate Specialties Group (RESG) portfolio. Analysts speculated that the collapse of this portfolio was imminent and that the entire portfolio was littered with troubled assets. In hindsight, it appears that a few assets stopped performing within a short period of time, but these were isolated problems that were not indicative of the rest of the portfolio. The most recent earnings in April saw earnings easily beat analyst estimates, and the RESG portfolio originated a record of $3.14 billion. This was the second quarter in a row of record originations for the RESG portfolio. Prospective investors might consider the recent pullback an entry point in OZK, and I believe that the days of sub-$35/share are in the past. It should also be noted that OZK has raised its dividend every quarter for the last 27 years straight. OZK has one of the most impressive dividend growth records of any financial institution. I rank OZK as a Buy based on the historical dividend yield and the recent pullback in price.

I would rank the preferred shares (OZKAP) as an even stronger Buy, given the potential for price appreciation and locking in a solid yield that is more than double the common shares. For more information on this, read the article Bank OZK: The 6.4% Preferred Shares Are Now Too Cheap To Ignore by The Investment Doctor. We recently added shares of OZKAP to the portfolio, but this happened after all data was pulled, so it will not be reflected in my account update screenshots.

Chart Data by YCharts

The dividend was increased from $.30/share per quarter to $.31/share per quarter. This represents an increase of 3.3% and a new full-year payout of $1.24/share compared with the previous $1.20/share. This results in a current yield of 3.16% based on the current share price of $39.22.

WP Carey - The dividend was increased from $1.055/share per quarter to $1.057/share per quarter. This represents an increase of .2% and a new full-year payout of $4.228/share compared with the previous $4.22/ share. This results in a current yield of 5.20% based on the current share price of $82.89.

Retirement Account Positions

There are currently 39 different positions in John's Traditional IRA and 22 different positions in his Roth IRA. While this may seem like a lot, it is important to remember that many of these stocks cross over in both accounts and are also held in the Taxable Portfolio.

Below is a list of the trades that took place in the Traditional IRA during the month of April.

Traditional IRA - April Trades

Traditional IRA - April Trades (Charles Schwab)

Below is a list of the trades that took place in the Roth IRA during the month of April.

Roth IRA - April Trades

Roth IRA - April Trades (Charles Schwab)

As you can see from the images above, the month of April saw a lot of share purchases (many of which were for stocks that had pushed on their 52-week-lows). Part of the reason for so much activity was that the Traditional IRA became flush with cash after CyrusOne (CONE) was acquired in an all-cash offer. This doesn't mean that we only bought shares because of how much cash was there, but it definitely encouraged a review of the portfolio to also see what we need to do to replace the lost income previously provided by CONE.

April was also the beginning of a huge swing in preferred share pricing which bodes well for John's retirement portfolio (as you can see he is no stranger to preferred stock).

April Income Tracker - 2021 Vs. 2022

Income for the month of April was up modestly year-over-year for John's Traditional IRA and up modestly in his Roth IRA. The average monthly income for the Traditional IRA in 2022 is expected to be up about 9.3% based on current estimates, and the Roth IRA is looking to grow by an astounding 13.6%. This means the Traditional IRA would generate an average monthly income of $1,200.37/month and the Roth IRA would generate an average income of $640.92/month. This compares with 2021 figures that were $1,098.38 and $564.25 per month, respectively.

SNLH = Stocks No Longer Held - Dividends in this row represent the dividends collected on stocks that are no longer held in that portfolio. We still count the dividend income that comes from stocks no longer held in the portfolio even though it is non-recurring.

All images below come from Consistent Dividend Investor, LLC. (Abbreviated to CDI).

Traditional IRA - April - 2021 V 2022 Dividend Breakdown

Traditional IRA - April - 2021 V 2022 Dividend Breakdown ("CDI")

Roth IRA - April - 2021 V 2022 Dividend Breakdown

Roth IRA - April - 2021 V 2022 Dividend Breakdown ("CDI")

Here is a graphical illustration of the dividends received on a monthly basis for the Traditional and Roth IRAs.

Retirement Account - Monthly Dividends Received - April 2022

Retirement Account - Monthly Dividends Received - April 2022 ("CDI")

Based on the current knowledge I have regarding dividend payments and share count, the following tables are a basic prediction of the income we expect the Traditional IRA and Roth IRA to generate in FY-2022 compared with the actual results from 2021.

Retirement Projections - April 2022

Retirement Projections - April 2022 ("CDI")

Below is an expanded table that shows the full dividend history since inception for both the Traditional IRA and Roth IRA.

Retirement Projections -April 2022 - Full Dividend History

Retirement Projections -April 2022 - Full Dividend History ("CDI")

I have included line graphs that better represent the trends associated with John's monthly dividend income generated by his retirement accounts. The images below represent the Traditional IRA and Roth IRA, respectively.

Retirement Account - Monthly Dividends - April 2022

Retirement Account - Monthly Dividends - April 2022 ("CDI")

Here is a table to show how the account balances stack up year over year (I previously used a graph but believe the table is more informative).

Retirement Account - Month End Balances - April 2022

Retirement Account - Month End Balances - April 2022 ("CDI")

The next images are the new tables that indicate how much cash John had in his Traditional and Roth IRA Account at the end of the month, as indicated on his Charles Schwab statements.

Retirement Accounts - April 2022 - Cash Balances

Retirement Accounts - April 2022 - Cash Balances ("CDI")

The next two tables provide a history of the unrealized gain/loss at the end of each month in the Traditional and Roth IRAs, going back to the beginning of January 2018.

Retirement Accounts - April 2022 - Unrealized Gain-Loss

Retirement Accounts - April 2022 - Unrealized Gain-Loss ("CDI")

John has finally begun taking disbursements from his Traditional IRA, and he currently receives $1,000/month.

Traditional IRA Withdrawals - April 2022

Traditional IRA Withdrawals - April 2022 ("CDI")

I like to show readers the actual unrealized gain/loss associated with each position in the portfolio because it is important to consider that, in order to become a proper dividend investor, it is necessary to learn how to live with volatility. The market value and cost basis below are accurate as of the market close on May 18, 2022.

Here is the unrealized gain/loss associated with John's Traditional and Roth IRAs.

Traditional IRA - April 2022 - Gain-Loss

Traditional IRA - April 2022 - Gain-Loss ("CDI")

Roth IRA - April 2022 - Gain-Loss

Roth IRA - April 2022 - Gain-Loss ("CDI")

The last two graphs show how dividend income has increased, stayed the same, or decreased in each respective month on an annualized basis. Now that we are in our fifth year of tracking, the trend for each respective month of the year has begun to show interesting trends for when income increases year-over-year.

Traditional IRA - April 2022 - Annual Month Comparison

Traditional IRA - April 2022 - Annual Month Comparison ("CDI")

Roth IRA - April 2022 - Annual Month Comparison

Roth IRA - April 2022 - Annual Month Comparison ("CDI")

Conclusion

The portfolio had eight dividend increases in the month of March, and it's pretty sweet to be followed by another seven increases in the month of April. As noted at the beginning of the article, the major increase by OXY was a very welcome sight. It marks the true turning point where it went from one of John's more speculative investments to potentially one of the best-performing stocks as oil prices reach record highs and the company makes good on its promise to seriously deleverage.

Market weakness continues to rear its ugly head (in particular since the beginning of April).

Chart Data by YCharts

Using the most recent balances from the Gain-Loss tables above, we can see that John's portfolio (strictly from an account balance perspective) is weathering this storm nicely.

Traditional IRA Balance - $372.5K As of March 31st vs $370.7K as of market close May 18th. This results in a decrease of -.5% during the same time frame above. (If we subtract the dividends collected this number would be closer to -1.0%).

Roth IRA Balance - $227.2K As of March 31st vs $219.3K as of market close May 18th. This results in a decrease of -3.5% during the same time frame above. (If we subtract the dividends collected this number would be closer to -4.0%).

Regardless of how you look at the portfolio, there is no doubt that it keeps pumping out enough dividends to allow for some reinvestment, but most importantly, to give John and Jane the income they need to supplement their retirement. Therefore, the key is to make sure we continue investing in companies that will have the ability to continue paying dividends even when times get difficult.

April Articles

I have included the links for John and Jane's Taxable Account and Jane's Retirement Account articles for the month of April below.

The Retirees' Dividend Portfolio: John And Jane's April Taxable Account Update

The Retiree's Dividend Portfolio - Jane's April Update: Preferred Shares Very Attractive

Article Format: Let me know what you think about the format (what you like or dislike) by commenting. I appreciate all forms of criticism and would love to hear what I can do to make the articles more useful for you!

In John's Traditional and Roth IRAs, he is currently long the following mentioned in this article: AFC Gamma (AFCG), Aflac (AFL), Apple Hospitality REIT (APLE), Avista (AVA), BP plc (BP), Brixmor Property Group (BRX), Crown Castle (CCI), Canadian Utilities (OTCPK:CDUAF), Chatham Lodging Trust (CLDT), CVS Health Corporation (CVS), Chevron (CVX), CSX (CSX), Dominion Energy (D), Digital Realty Preferred Series J (DLR.PJ), Duke Energy (DUK), Eaton Vance Floating-Rate Advantage Fund (EAFAX), EPR Properties (EPR), EPR Properties Preferred Series G (EPR.PG), General Dynamics (GD), Healthcare Trust of America (HTA), Iron Mountain (IRM), Kinder Morgan (KMI), Kite Realty Group (KRG), Lowe's (LOW), Main Street Capital (MAIN), Masco (MAS), Altria (MO), New Residential Investment Corp. Preferred Series B (NRZ.PB), Realty Income (O), Occidental Petroleum Corp. (OXY), Bank OZK (OZK), Bank OZK Preferred Series A (OZKAP), PacWest Bancorp (PACW), PepsiCo (PEP), iShares Preferred and Income Securities ETF (PFF), VanEck Vectors Preferred Securities ex Financials ETF (PFXF), Pinnacle West (PNW), PIMCO Income Fund Class A (PONAX), Nuveen Nasdaq 100 Dynamic Overwrite Fund (QQQX), Global X Funds Nasdaq 100 Covered Call ETF (QYLD), RPT Realty Preferred Series D (RPT.PD), STAG Industrial (STAG), Southwest Gas (SWX), ATT (T), Toronto-Dominion Bank (TD), Truist Financial (TFC), T. Rowe Price (TROW), Cohen Steers Infrastructure Fund (UTF), VICI Properties (VICI), Valero (VLO), Umpqua Holdings (UMPQ), Ventas (VTR), WestRock (WRK), Warner Bros Discovery (WBD), and W. P. Carey (WPC).

This article was written by

Matthew Utesch profile picture

Graduated in 2011 with degrees in Pre-Law and Business Administration from Eastern Washington University. Completed my MBA at Whitworth University in May of 2017. Began career as a Loan Officer, but am now working for Umpqua Bank as a Secondary Marketing Financial Analyst.Started my first Roth IRA at the age of 16, but began seriously investing closer to 2011 at the age of 22. My investment strategy is largely focused on generating retirement income from dividend-paying stocks. I do not hold any professional investment licenses, but I spend a significant amount of time educating children, teenagers, and young adults on basic finance. I also specialize in cash-flow analysis for those nearing retirement or who are in retirement.

Disclosure: I/we have a beneficial long position in the shares of AFL, APLE, EPR, GD, KMI, MAIN, O, OZK, T, UMPQ, VLO, WRK either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article reflects my own personal views and I am not giving any specific or general advice. All advice that is given is done so without prejudice and it is highly recommended that you do your own research. This article was written on my own and does not reflect the views or opinions of my employer.


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