New year and a new priority

I have prioritised income growth for the past seven years since I left my last job. My portfolio income has nearly doubled in that time. In this new year my priority is to sustain my current income levels whilst aiming for more capital growth.

January

Despite much excitement and significant price movements in the trading of GameStop in the USA, and in Bitcoin, the UK stock market enjoyed only a modest rise in the first few days of the year before falling back below the opening year position. The FTSE All Share Total Return index which covers capital and income returns from all UK listed shares recorded a small loss of -0.81% in January 2021.

My investment return for the month was a fall of -2.37%.

My individual holdings recording share price movements ranging from a loss of -6.23% to a gain of +1.72% with an unweighted average result of a loss of -2.56%.

Capital

This capital graph shows the portfolio value at each month end since 31 December 2013. Starting at an index of 100.00 this has varied between a low of 87.43 at 31 March 2020 and a high of 127.04 on 31 December 2020.

At the end of January 2021, the capital value of my investment portfolio is down by -2.59% since its’ peak at the year end. Investment returns were a loss of -2.37%, and draw down expenditure deducted -0.22% in the month. The capital measure on the graph fell to 123.75.

Income

I have tracked the annual level of my dividends received since 31 December 2013 as shown in the income graph. This income graph shows the annual dividend income as a percentage of the opening portfolio value. My income has increased from 3.37% on 31 December 2013 to peak at 6.58% on 31 July 2020.

In January portfolio income increased by +0.28%. The income measure on the graph rose to 6.49%. That is a 92.75% rise since draw down started on 31 December 2013. The increase was mostly the result of the automatic re-investment of dividend income in more shares, but also partly from dividend increases announced.

Portfolio

The table below shows the composition of my portfolio at the end of the month. This has been analysed by sector, that is by geography for equities, or by type for non-equities.

	Yield %	Capital %	Income %
UK	4.70	39.35	35.29
Asia Pacific	5.07	24.79	23.97
Global	4.60	19.02	16.71
Bonds	8.75	7.81	13.02
Property	7.82	7.33	10.94
Cash	0.21	1.70	0.07
	5.24	100.00	100.00

The next table below is the same portfolio but analysed based on the income and growth characteristics of each holding. I have classed my holdings with dividend yields greater than 6% as high income. I expect most of their returns to come from dividends. Those yielding between 4% and 6% are classed as income, and those between 3% and 4% as growth and income. Holdings yielding less than 3% are classed as growth. I expect most of their returns to come from share price growth.

	Yield %	Capital %	Income %
High Income	7.36	35.91	50.40
Income	4.88	31.46	29.27
Income & Growth	3.95	22.94	17.27
Growth	1.96	7.99	2.99
Cash	0.21	1.70	0.07
	5.24	100.00	100.00

	Yield %	Sectors
High Income	above 6%	UK, Asia Pacific, Bonds, Property
Income	4% to 6%	Global, UK, Asia Pacific
Income & Growth	3% to 4%	UK, Asia Pacific, Global
Growth	below 3%	UK

Going forward as dividend reinvestment and dividend increases raise my portfolio income then I aim to gradually reposition my investments away from high income holdings which are currently 35% of the portfolio and towards growth holdings which are only 8% of the portfolio. I am hopeful that there will be no more dividend cuts from any of my holdings. I am relying on these investment trusts using their retained revenue reserves to supplement the dividends they receive so as to maintain or increase their dividends. Any dividend cuts will impede my strategy.

I remained inactive in January with no trades other than automated dividend reinvestments.

Cash

My annual draw down spending is around 3.46% of my portfolio value, based on the last two years spending and the opening and closing values for that period. My cash holdings are sufficient to cover about six months of spending. In addition to this, dividends being paid out each year are sufficient to cover about four months of spending. My other dividends received are being immediately re-invested in more shares in order to grow my income. This cash position means I will need to sell some investments in the next six to nine months in order to cover spending. I will probably sell something in the next two months before the end of the tax year. I aim to stay fully invested so as to maximise portfolio income, but as I am 98.30% invested at present, I recognise that I will need to raise more cash soon.

Expenditure

Draw down expenditure for the last twelve months was 60.57% of my current portfolio income. This compares to draw down spending in 2020 being 62.54% of my actual portfolio income in 2020. Spending this January was lower than last January, and current income is higher than 2020 income.

Conclusion

Now that my portfolio income is significantly higher than my expenditure, I no longer feel a need to prioritise income growth. I am, however, reluctant to accept a lower level of income because I regard the excess income as a margin of safety. It means I have scope to absorb dividend income cuts or unexpected extra expenditure. Seeking more capital growth whilst I sustain my current income levels will likely be a slow process.