Passive Income Update For August 2008

Finally got some time to add up all the passive income for the month of August. While June was a record breaking month with over $3,300 in passive income, July and August have been pretty lackluster in comparison. July’s income was $2,115.61 and August’s total was hardly any better with $2,134.57.

Maybe I can use the same excuse that government statistians use when talking about the economy and blame on seasonal variations! But the fact is that revenue dropped due to 2 main reasons. I pre-sold annual advertising in June that rightly should have been ammortized over the year (according to Generally Accepted Accounting Principles). Also, since I was busy with my move to Los Angeles, I didn’t really have time to look for advertisers or respond in a timely fashion to those that contacted me.

But the good news is that traffic to the site didn’t drop off, and apart from direct advertisers, revenue that was dependent on traffic remained almost constant. And of course, my dividend income was pretty stable despite the recent large drop in equity prices and the strengthening dollar which caused a 5-8% drop in the value of my foreign dividends.

Here’s the breakdown:

A reader emailed me a few days ago asking what’s the best way to start generating online income. I told him to start blogging about something he was passionate about. That way, he’d be able to keep up his motivation during the initial few months when he probably wouldn’t be making any money. Once he had written a few dozen articles or posts, he should start seeing some search engine traffic. If you’re in a highly competitive niche, you’ll need to make sure you have a lot of other sites linking back to you. Do a search for creating a back-link campaign to find out how to do this.

Once you see search engine traffic you should include ads in your site.  I include ads from Comission Junction, Adsense, Linkworth, Text-Link-Ads, ADSDAQ and Kontera. While individually they aren’t significant amounts, the income is consistent and together it all ads up.

Amazon affiliate income has dropped a lot since the beginning of this year. Not sure if this is seasonal since there are more sales between Thanksgiving and Christmas, but I’ve finally gotten around to adding an affiliate link prominently on the site and I expect this to have a positive effect. How much of a positive effect remains to be seen.

The affiliate income from Ebay has been growing steadily. It’s up nearly 7-fold in the past 5 months. Last month I added a storefront on this website which focuses on business, cheap real estate, gold coins and other income producing ventures and this has already started producing referrals. Some of the other sites are .info sites that I bought for $0.99 from GoDaddy and they were created using BANS. For a little more info on how to generate passive income from sites, look at the 2nd half of this post (look for the section on Niche Sites).

RevResponse did well last month, partly due to a $50 bonus. They basically provide free publications and white papers on various topics ranging from finance and banking to search engine optimization and car detailing. Check out the Free Financial Magazines link. Bloggers might also want to check out the Sales & Marketing articles too. Mature programmers might remember a famous programming magazine called Dr. Dobb’s Journal. Well, it’s available for free too. And the best part is I get paid for providing my readers with free useful information! Yes, you can  money selling magazines! (well, technically you’re giving them away).

A lot of oil and gold stocks have been beaten down recently. My portfolio of Canroys wasn’t spared either, but I’m not going to panic and sell them right now. I’m getting a decent amount of dividends each month and I’m happy to keep on holding them for a while. We’ve seen some pretty bizzare events in the financial markets lately and I’m sure not going to panic after everyone else already has (the time to panic is before everyone else!).

Anyway, its time to wind up this post. I have the last 6 hours of Math camp tomorrow! It’s a lot more fun than I thought it would be!

Time To Go Long The Dollar?

Regular readers know I’ve been pretty pessimistic on the outlook of the US economy and bearish on the US dollar as well. However, since it seems like everyone is echoing the same sentiment, could it be that we’re due for a short (or medium) term spike in the US Dollar?

According to Lou Basenese, editor of the The Alpha Intelligence Alert, think it’s time to go long the USD.
Here are some of the reasons he cites:

1. Bernanke & Paulson Rediscover “Verbal Intervention.” Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke finally got off their duffs to defend the dollar. Paulson got things started in Qatar on Sunday. Speaking to the leaders of the Gulf oil states, he urged the countries to think twice about abandoning their dollar peg, as “ending the peg is not the solution to the inflation problem.” And Bernanke stepped up today. Speaking, via satellite, to an international monetary conference in Spain he insisted Fed policy will be a key factor, “ensuring that the dollar remains a strong, stable currency.” After such a long silence, this week’s tag team approach is nothing but a positive development.

2. The “Smart Money” is Cashing In. The smart money – Wall Street institutions – tends to be a great leading indicator. If you can figure out what they’re doing in time. Right now they’re sending a clear signal – take profits on your bearish dollar bets. Case in point, as the dollar met heavy selling on May 21, the smart money took almost $100 million in profits out of Currency Shares Euro Trust (NYSE: FXE). Enough to top the Wall Street Journal’s “Selling on Strength” screen. And this isn’t the first time the ETF recently made the list. All told, the increased selling activity indicates the smart money fears we may never see such high prices again.

3. George Soros Changed His Mind. Even the smartest investors are entitled to a mulligan. After bouncing roughly 3% off the March lows, in recent weeks, George Soros told the Wall Street Journal he is now “neutral” on the dollar. And expects it to strengthen over the next 12 to 18 months. Accordingly, he “greatly reduced his bets against the greenback.” Bottom line – we should pay attention when this hedge-fund phenom changes his mind. Here’s why, copied and pasted from my first article in defense of the dollar…

“A trader named Jean-Manuel Rozan once spent an entire afternoon arguing about the stock market with George Soros. Soros was vehemently bearish, and he had an elaborate theory to explain why, which turned out to be entirely wrong. The stock market boomed.”

“Two years later, Rozan ran into Soros at a tennis tournament. ‘Do you remember our conversation?’ Rozan asked. ‘I recall it very well,’ Soros replied. ‘I changed my mind, and made an absolute fortune.'”

My guess is he will make a fortune on this change of heart, too.

4. The Fed is Done. Okay. Maybe one more cut looms on the horizon. But after that, it’s time to get back to fighting inflation and hiking rates. Futures traders awoke to this same reality once revised GDP numbers were released May 29. They ratcheted up their bets that the Fed would raise rates in late October, putting the odds at 88%. Before the release, odds of an October hike stood at 70%. As I said last time, the Fed will hike again. Soon. And such moves will immediately strengthen the dollar.
5. Busted Rhymes and Tattered Clothing. The crickets are chirping among the rappers and super models. It’s been a long time since we’ve heard (even rumors) about the world’s fashionistas and rhyme-slingers extolling the virtues of the euro over the dollar. In other words, when pop-culture embraced the dollar hating, it signaled the inflection point. And it’s time for them to get caught on the wrong side of the trade for such foolish speculation.

6. The Retail Investor is (Blindly) Headed for the Slaughter. Sad as it may be, the retail investor tends to always show up late to the profit party. Right now they’re headed to the slaughter. The proof – the number and popularity of currency ETFs literally exploded in recent years. As one long-time advisor told an reporter, “I’ve never seen this much interest in currency ETFs before…There’s just a pile of money coming into these funds now.” And that pile, according to my research, sits around $4 billion, despite most of the ETFs being less than two years old. This reminds me of my days back at Morgan Stanley. Whenever management decided to launch our own Small Cap Growth Fund for example, because the asset class was so “hot,” the asset class was too hot. It was time to recommend our clients take profits. And now that betting against the dollar is fashionable on Main Street, it’s time we head the other direction or risk getting burned like the rest of the performance chasers.

7. New President = Clean Slate. Whether Barrack “Haven’t-Been-to-Iraq-In-A-While” Obama or John “I-Have-Anger-Issues” McCain gets the nod, a new president will get a clean slate to establish their very own dollar policy. At least temporarily. And thanks to record crude prices, expect the new Commander-in-chief to move from the current administration’s weak lip service to more meaningful actions in support of the dollar.

8. We’re Still Not Decoupled. At least not from Europe. Doubts about euro-zone growth continue to pop up. The latest – a weaker than expected composite purchasing managers index reading, compiled by the Royal Bank of Scotland and NTC Economics. The measure from across the 15-nation euro-zone slumped to 51.1 in May, the worst in nearly five years. Bottom line – the European Central Bank is in a pinch. It can’t hike rates in the face of a slowdown. And it can’t cut rates with inflation running around 3.5%. In the end, the stalemate buys the dollar time to narrow the interest rate gap.

9. Institutions are Secretly Hedging their Bets. It’s not news that international stock funds significantly outperformed U.S.-focused funds over the last seven years. Or that the dollar decline aided their outperformance. However, few realize these very same funds are now protecting their portfolios against a dollar rally. Three of the top money managers in the business (Harris Associates, Dodge & Cox and Henderson Global Investors) are now hedging up to 55% of their currency exposure. A big jump, considering the international funds from Henderson and Dodge & Cox never hedged their exposure since opening in 2001.
And last but not Least…

10. The Dollar Decline is Getting Too Long in the Tooth. As I said before, “the cyclicality of the markets instructs us that the pendulum will eventually swing back the other way.” Combine that with Einstein’s theory of relativity and one thing is clear: Although the “real” value of our flat currency may never recover, its relative value certainly will. And with the worst of the financial crisis probably behind us, I stand by my conviction. The worst of the dollar weakness is behind us, too.

Consider this my second warning that the dollar will rise. And soon. That makes now perhaps the last opportunity to position your portfolios for maximum gain.

Good investing,

Lou Basenese

If you do feel like going long, Rydex Strengthening Dollar 2x Strategy (RYSBX) is a good way to enter this trade.

If the dollar does strengthen, there’s a good chance my commodity investments (includes gold and oil stocks) and foreign currency ETFs will decline. I might use RYSBX to hedge against the rising dollar.

$2,811 In Passive Income For April 2008

I was so busy in May that I completely forgot to post April’s passive income summary. On the bright side, April was a been a record breaking month for me with total “passive” income amounting to $2,811.42. On the flip side, I’ve been so busy, I haven’t been paying attention to my sites and May’s income will probably be lower.

If you recall, the income for March 2008 was $2, 667.18, so this is $144 jump is a 5.4% increase. However, one of my stocks is a Japanese REIT, and it paid out a quarterly dividend amounting to about $230, so the $140 increase isn’t a real increase – it’s going to disappear for May. Besides, the jump from February to March’s passive income was 11.9%, so this isn’t as good. (In case your wondering why I’ve invested in a Japanese REIT, here’s a good posts on why Japan’s real estate is a good investment.)

But so long as I can sustain it over $2,500 per month, I’ll be happy. Especially since I’m going to pursue my MBA full-time and I won’t be able to work.

Here’s the breakdown:

A new addition this month is the affiliate income I made from Ebay. In the past I’ve bought A LOT of gold coins on ebay. Since most of the gold coins are of a specific type, and I like to automate repetitive tasks, I used to have searches emailed to me on a regular basis. However, since I also like to try and monetize everything, I decided to set up a store to serve as both a place to aggregate my favorite searches and generate some affiliate income. Here’s my gold coin site, aptly called French Gold Coins. Check out the coins under the Recommended list – these are my favorite coins. The site is a .info site that I bought for $0.99 from GoDaddy and it was created using BANS. For a little more info, look at the 2nd half of this post. I also set up a site to aggregate news pertinent to Gold and Gold Coins, as another example of how to automate repetitive tasks.

Last month I mentioned that my Adsense revenue was dropping since I was being smart-priced. In an attempt to prevent that I modified the way Adsense shows up on the site – only search engine traffic sees Adsense now. Other traffic gets shown ADSAQ ads, which is helping compensate for Adsense’s lost revenue. February’s Adsense income was over $400 and has been dropping ever since. But I think I’ve figured out the issues and expect it to be pretty much constant at this level, or maybe slightly higher.

On the other hand, Linkworth has done really well on my sites. March’s income was almost double of February’s and as expected, April’s income was even higher. I’m very happy with their service and I strongly endorse it. It’s a good addition to Adsense, since it doesn’t conflict with their TOS (terms of service) and its always a good idea to have multiple streams of income. Incidentally, the only decent book EVER written by Robert G. Allen is Multiple Streams of Income: How to Generate a Lifetime of Unlimited Wealth!. All of his other books are crap, but surprisingly, this is one of my favorites!

Text-Link-Ads is also doing moderately okay although its taking more time than Linkworth. I think you may not allowed to use both of them on the same site, so see which one works better for you. Between the two, my favorite is currently Linkworth, for the obvious reason that it’s generating more revenue for me. 😀

Amazon affiliate income has started to pick up and hopefully it will continue as I learn more about affiliate marketing and try out different techniques to boost it.

In March, I made $60 from Domain Embarking, a site that helps you earn money from parked domains. Since they only pay out quarterly, I didn’t make squat from them, but I’ve added a couple more sites and have had a couple of people sign up using the affiliate link so I expect to make a little bit more in the next cycle. I expect to make more than enough money to pay for the registration fees and my hosting for all my sites through the income generated through Domain Embarking.

Prosper is still handing out $25 signup bonuses to new lenders and that program generated $175 in April. My total proper account value is now $2995 of which $800 is cash. I’ve been so busy I haven’t had time to invest that amount. I have my own criteria for investing in loans and it usually narrows my universe of investment-grade loans to under 20 at any given time. Of that half will ask loans for real estate projects which I don’t do and eventually they’re only 3 borrowers who I’ll think are worthy of lending money to. Here’s a good post on How Not To Bid On Prosper.

I also made around $1,151 from some oil investments and other dividends. Some of the stocks pay over 10% in annual dividends. Two of the oil investments are paying 15-18%. The third oil investment is currently barely producing, but that seems like it will improve over the next few months and boost that portion of my income too. Also, as the price of oil stays around $100 per barrel, the monthly payout (which is typically delayed by 3 months) will increase a little bit.

I also made about $128 in interest from savings and CDs. My gut feeling is that the Federal Reserve will probably keep the interest rates steady for the rest of the summer. However, even if they do drop the rates (I don’t think we’re going to see a rate hike for a year or two) it won’t make a very significant difference in my income. And I’ll probably be spending that money while I’m in college so I don’t have any expectations from it anyway.

I have some minimal expenses for domains and hosting. I pay about $119.40 for annual hosting on Dream Host. I had several periods of downtime last month and they did credit my account with an extra month. I like that they have one click installation for wordpress, php forum software, mysql databases and other stuff. I’ve used GoDaddy in the past and I didn’t like their interface at all, although I have heard it has improved. Dream Host is a lot easier to use in my opinion. If you use coupon code “PassiveIncome” you’ll get $19.40 off the annual fee or you can use “Dividends” to get free domain registration. I also pay around $60 for domain registrations which I usually register with 1 and 1. At $6.99, they’re pretty cheap. However I did go and register a bunch of domains for 99 cents so next year I’ll probably be paying close to $175. On a monthly basis, these costs will work out to roughly $25 (or they will once the domains go full price). GoDaddy currently has a promotion – .com domain transfers for only $6.99 and .info domains for only 99 cents.

As you can see, I have multiple streams of both online & offline income. My online income is generated from 10 different companies. The other income is produced from the dividends of about 10 different stocks and 3 oil investments. Having diversity is very important. Periodically, one of them will taper off (like adsense did), and not being too concentrated in it prevents your passive income totally disappearing.

Having any sort side income that sufficiently large to allow you to pay the rent and put food on the top is a great stress reliever. It also provides you F*** YOU money, in case you don’t see eye-to-eye with your boss or you feel that your job is sucking the life out of you! For stubborn and opinionated people, having F-U money is awesome!

I hope I’ve inspired all of you to try and boost your passive income or maybe add new sources to increase your current income streams.

Please let me know how you’re all doing.

Profiting From The Rise In The Price Of Oil

As I mentioned 5 weeks ago when oil breached $115/barrel, demand for the black gold will cause the price to keep on rising. On Wednesday, I drove to USC where I had an interview at the Marshall School of Business for the full-time MBA program. While driving there, I heard that Oil had exceeded $133 per barrel. I had a great interview (where I spoke about my background, my interests, the state of the economy, what a moron George W. Bush is, and the current elections) and then proceeded to a friends’ place to spend the night.

I later heard that oil prices hit $135/barrel. That news was broadcast incessantly on all the news channels and I kind of felt that it was being overdone. Whenever everyones saying that the price of something is breaking all records, it usually pulls back. I think thats why the US Dollar had shown some strength this year. I woke up on Thursday and bought the ULTRASHORT OIL & GAS ETF (AMEX: DUG), it went up a dollar and I exited my position, happy to have made enough money to pay for my gasoline bill for this month.

After that I went to UCLA for a class visit. I attended a class on Risk Management. One of the case studies they discussed was a deal between Amoco (American Oil Company, which is now part of British Petroleum) and Apache (APA) involving the sale of an oil producing property. Amoco sold the property with a guarantee to pay Apache a certain amount of dollars if the price of oil dropped below a certain amount. On the other hand, they would participate in some of the profits if the price of oil exceeded a certain amount. This was managed through the use of Put and Call Options.

It was interesting to see how large companies managed to hedge the price of oil through options, and especially ironic since oil was all over the news that day. Its not too different from how you can hedge your own expenditures on gasoline and heating oil. If you’re bullish on the price of oil and are willing to bet on this movement, you can buy the United States Oil ETF (USO). You can also buy options on this too.

Similarly, if you’re bearish you can buy the ULTRASHORT OIL & GAS ETF (DUG). You can also invest in Oil Futures contracts, however, if you’re that brilliant I doubt you’d be reading this blog!

But making directional bets in any asset class requires a certain amount of knowledge, homework and commitment. Its much easier to invest in high-yield Canadian Income Trusts like ERF, PGH, AAV, HTE, PEY-UN.TO, etc. They pay out a pretty good dividend (over 8% for most of them) and that should theoretically go up as the price of oil & gas goes up. (I say theoretically since there is some uncertainty regarding the Canadian Governments’ taxation of these trusts, so there is a black cloud hanging over them).

So far I’ve been pretty happy with my investments. I had been buying more on dips. For those of you lucky enough to have bought AAV under $9 back in January, in addition to the monthly dividends, you’ve already seen a 40%+ appreciation in the stock price! (unfortunately I wasn’t one of the lucky ones!)

But there are many ways to profit from the economic news if you keep your eyes open. By the way, USC called me on Friday. I got admitted to their MBA program with a Fellowship (tuition remmission)! So now it’s time to decide between UCLA, USC and UCSD!

How Passive Is Your Passive Income?

I’ve been lumping in my online income with my passive income, but it isn’t really passive. It may not be very strenuous and it gives me geographic flexibility and I don’t have to show up for work every day, but there is some effort involved. Unfortunately I’m not as clever as Courtney Tuttle, who says he has a site that makes $3,500/month with no ongoing maintance. (If you’d like to buy an existing site that generates income, check out the online businesses for sale on my business & investment store). I’ve just had some limited success with Domain Parking, buts that the extent of my truly passive online income.

Simply put, my online income isn’t really passive. It’s a lot more passive than the website and seo consulting work I do by a huge margin, but its not as passive as dividneds or royalty checks.

So what are the best ways to earn really Passive Income?

1. High Dividend Stocks
There are a lot of stocks that paying quarterly or yearly dividends. Over time, the power of compounding (with a little help from inflation) can substantially increase the value of your dividends. My mother bought the Indian subsidiary of Unilever (Ticker: UL) called Hindustan Lever about 20 years ago. She’s being reinvesting most of her dividends and today her annual dividends are larger than the value of the original stock purchase. American Capital Strategies (ticker: ACAS) has been growing its dividends approximately 10% every year. According to The Dividend Investor,

If we invested $100,000 in ACAS on December 31, 1997 we would have bought 6906 shares. Your first quarterly check would have been $1,726.50 in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $17,095 by December 2007. For a period of 10 years, the quarterly dividend has increased by 300 %. If you reinvested it though, your quarterly dividend income would have increased by 890%.

Yes, reinvesting the dividends in companies that have historically kept increasing their dividends is key. Even though you might get only 2.5% return today, eventually with the increase in stock price and rise in dividends, your annual return should be greater than 12%. This concept is very well explained in Prof. Jeremy Siegel’s excellent book, The Future for Investors, which I highly recommend.

2. Oil & Gas Royalties

While there is a lot of fraud and speculation in direct oil drilling programs, they can be very, very lucrative for investors. Charlie Munger invested about a $1,000 in such an oil drilling program in the 60s and he’s estimated that its paid out over $500,000 in royalty payments since then. Apparently it still pays out $2,000 a month. Of course, most people NEVER see these sort of returns, but for the average person, investing in Canadian Oil & Gas Royalty Funds (or Income Trusts) is the next best thing. I’ve invested quite a bit of money into both the direct oil wells and the Canadian Income Trusts (or Canroys) and the overall result has been pretty positive in both (which is in excess of 12%).

3. Royalties on Books and Patents

Royalties on Books and Intellectual Property Rights can be even more lucrative. However writing a best-selling book or creating a something thats worth patenting can extremely time consuming and expensive. For most authors and inventors, its a labor of love – something that they would pursue even if there was no monetary reward to it. But many ebook writers who sell get-rich-quick books about “making money online” are getting very wealthy. Most of these books are garbage and the only people getting rich are their authors and resellers. Not a very ethical way to make money.

4. Rental Income on Properties Bought at the Bottom of a Real Estate Cycle.

If you bought rental buy and hold property in California, Nevada, Arizona or Florida during 2005 and 2007, my heart goes out to you. A lot of smart people got suckered into buying at the top of the market and are paying for it. However, if you buy correctly, preferably at the bottom of a real estate cycle, real estate can provide excellent passive income and fantastic tax advantages as well. According to Charlie Munger at the 2008 Wesco Financial Annual Shareholder meeting, “most real estate investors don’t pay any income tax, except once every 20 years or so“. Bought correctly (that is based on value, not speculation), rental properties can provide a steady stream of cashflow that is somewhat inflation-indexed. I say somewhat, because in the short-term anything can happen, but over a long period of time, real estate is going to match the rate of inflation.

5. Investing In Timber

Similar to Canroys, there are companies that grow trees specifically for timber and pay pretty decent dividends. There are also direct tree-planting programs where you can invest a minimum of $5,000 and own a portion of a timber operation. The company does all the work for you and supposedly cuts you a check once a year after a specific time interval. The endowment funds of Harvard and Yale have apparently been investing in timber for several years now with great returns.

6. Domain Parking (or Embarking)

There are many people who buy and hold hundreds of domains (I know a guy who owns 750). They either park them with Sedo or another domain-parking service. These services stick relevant (and sometimes not-so-relevant) ads on your site. The idea is that if someone comes to the site through browser type-in traffic and clicks on an ad, you get paid a portion of this ad revenue. I had hosted several sites with Sedo and made a whopping 2 cents per month. I’ve recently been trying out a new service called Domain Embarking that is working pretty well for me.

1st Carnvial of Dividends & Passive Income

Welcome to the very first edition of carnival of dividends and passive income.

I’m going to kick it it off with my own submission on How I Made $2,667 in Passive Income In March. Of course, if you’ve already read it, you can read about the Tax Benefits of Passive Income or about Earning Passive Income from Domains.

Dobromir presents Emerson Electric (EMR) Dividend Analysis posted at Create Rising Passive Income From Dividend Paying Stocks.

Geoff presents How did I make 5-figure Passive Income in 2007? posted at Wealth Monkeys.

Writers Coin presents Why I Quit One Source of Passive Income posted at The Writer’s Coin, saying, “Moral issues far outweighed the desire to make money by deleting emails”

Will presents Why I Still Love Real Estate Investing: Being A Landlord posted at Your Finish Rich Plan, saying, “I’m a sucker for passive income. My idea of financial freedom is that of rental and dividend income totaling roughly twice my expenses, leaving me free to pursue other interests (which may very well be other money-making ventures). That’s why despite everything that happened in the real estate market the past couple of years (or maybe because of it), I want to be a real estate investor, and more specifically, a landlord.”

The Dividend Guy presents Considering REITs In a Dividend Portfolio posted at The Dividend Guy Blog.

Tyler McKinna presents Dividend Growth Fund Stratgies Revealed posted at Dividend Money, saying, “An article outlining dividend growth investing strategies and how major mutual fund managers approach stock selection.”

KCLau presents How to Identify and Invest in the Hot Stocks of Tomorrow posted at KCLau’s Money Tips, saying, “A review of the book “Finding the Next Starbucks by Michael Moe””

Mark @ TheLocoMono presents Tracking Your Prosper Portfolio with Money Plus posted at Just Personal Finance, saying, “Using Money Plus to track your Prosper income can help you simplify your knowledge of how much money you are making and project your cash flow/growth.”

FIRE Getters presents Etrade’s Quickplan – Personalized & Easy Retirement Planning! posted at FIRE Finance.

Lulu presents Got My Repayments from Lending Club posted at How I Save

We end with an article about music and money, which not quite relevant, is still pretty good nonetheless. Jeremy Zongker presents All I Really Needed to Know About Managing Money I Learned From Music posted at Destroy Debt.

That concludes this edition. Submit your blog article to the next edition of Carnival of Dividends and Passive Income using the carnival submission form. The next edition of this carnival will be on the 7th of May, 2008.

Technorati tags: , ,

Oil Break $115 Per Barrel

Oil just broke through $115 per barrel today. While this may come as a shock to many , I’ve been preparing for it for the past 2 years. All the signs of an oil shortage have been visible in the media, but most people have either been ignoring it, been in denial or been too focused on what Paris Hilton or Brittany Spears have been up to!

China and India together have  a third of the world’s 6.66 billion people. If 10% of these 2.2 Billion people start buying cars, that’s 220 million new cars on the planet ready to start guzzling more gasoline. I think thats the current number of cars in the US, so effectively the demand on oil is set to double over the next few years. And along with Tata Motors new $2,500 car, you can be sure that eventually atleast 20% or more of India’s and China’s population will be driving cars instead of cycles or mopeds that give 247 miles/gallon. That 247 number is  not an exaggeration. Owners of Suburbans should refrain from crying right now.

Based on the growing prosperity in just these two countries, the demand for the world’s resources is growing at a furious pace. Unfortunately, oil is a key component of prosperity and the global supply of it is somewhat stagnant. Despite a few  new oil fields being found here and there, new reserves are not keeping up with the depletion. According to one report, all the oil in Alaska would last the US for only 6 months.

If you think that gas prices are high at over $3.50 per gallon (I just paid $3.95 for mid-grade for my wife’s Acura TSX), wait until summer. There are reports that the refineries are absorbing the cost of high oil prices right now (and some of them have hedging contracts in place to mitigate this high price), but within a few months they’ll be passing this burden on to the consumers. Oil prices at the pump could very well hit $5 and if this trend continues, it could hit $8/gallon. 

In the UK, petrol (that’s what the rest of the world calls gas) costs about 1 pound per litre, which equates to $7.50-8.00 per gallon. Now you Suburban owners can cry now if you like. Or you can start investing in oil related investments like Canroys and oil drilling programs.

January’s Dividend Income & How The Subprime Mess Has Affected Me.

I’ve been traveling for the past month so this post is a little late. I had already posted my online income which was $778. I finally got a chance to add up my monthly dividend income from my stocks, Canroys, CDs and savings accounts.

The grand total for January was $764.10 from a dozen different stocks. Its lower than it was for December because some of my stocks pay out quarterly dividends. But overall, the amount of dividends is trending up due to the Dividend Reinvestment Program (DRIP).

A DRIP allows you to re-invest your dividends back into the stock. You don’t have to pay a brokerage fee for this, so if you don’t need the income its a good way to put your make back to work. Not only that, but many companies will actually give a discounted share price on stock purchases made through DRIPs.

If the company doesn’t have a DRIP, your brokerage company should be able to set up automatic dividend re-investment for you. Unless you’re getting a few thousand dollars a month in dividends, this is a cheap way to reinvest your money. According to Prof. Jeremy Seigel’s excellent book The Future for Investors, you should avoid trendy growth stocks in favor of stable companies with sustainable cashflows which is returned in the form of dividends. Using historic data, he also proves that the reinvestment of such dividends is the true source of superior stock returns.

Added in this $764.10 is the $31 in interest payments that I received from my Prosper loans. In addition to the $31, I also received another $158 in principle repayments.

I was also receiving about $300/month from investments in various commercial real estate projects that were diversified by being in different projects in various states. Unfortunately, I’ve been informed that the funding for commercial lending has taken a severe hit and the developers are unable to refinance to cash me out. This means, that my money is going to be tied up for a while. I’ll get more info when I get back, but I caution everyone against lending money for any sort of real estate projects. This also includes borrowers on Prosper who are lending for real estate investments or related projects. I was hoping to put this money to good use to buy more Canroys, some of which are yielding 15% right now. Thats not likely to happen soon. 🙁

I had stayed away from investing in trust deeds on residential properties thinking that they would have a higher likely of default. But in the past few months we’ve seen that subprime mess has caused the market to lose faith in the credit rating system. This has caused lending for everything to dry up, including municipal bonds, which has prompted Buffett to offer to buy these AAA rated bonds at a discount and thus “rescue” the borrowers. Unfortunately, its also negatively impacted commercial developers.

Hopefully I can get my principle back from the developers. If not, my loan will convert to an equity stake in the project and it’ll probably be a long time until I get cashed out. Let’s see how this pans out.

Good News For Canroys?

I’m a big fan of Canadian Royalty Trusts, also called Canadian Income Trusts or Canroys. But lately, they have been under a lot of selling pressure. Coupled with the sell-off in global equities is the overhanging tax change that the Canadian government implemented last year. According to the change, canroys will lose their tax-exempt status and from 2011 there will be the usual double taxation that affects most companies (except for US REITs).

Accordingly, the share prices of most canroys have dropped considerably from their peaks and their valuations have become quite attractive at these levels. But there’s some good news for canroys.

Growing discontent with the ruling Conservative party has created a situation where the Labor party might come into power. The Labor party has promising to either extend that conversion deadline to 2017 or to significantly decrease the trusts’ post-2011 tax rate. Either of these would represent huge positives for the trusts. This strange situation of the liberals becoming energy trust saviors has even encouraged many life-long conservatives from the Albertan energy patch to help bring down the current Conservative government.

If this becomes a reality, canroys should see renewed interest and a spike in the share prices. Lets see how it plays out. Till then, I’m happy to keep collecting my dividends!

$1921.11 In Passive Income For December ’07!

My Passive income for December 2007 was $1,921.11.

Here’s the breakdown:

  • Online Income: $568.55
  • Savings Accounts: $128.47
  • Real Estate Trust Deed: $300
  • Direct Oil Drilling Investment: $163
  • Dividends from Canroys: $499.21
  • Other Dividends: $261.88

As usual, I ignored any income from Prosper loans. I did however include the $75 in referrals fees. If you’ve been thinking of lending or borrowing money on Prosper, now is a good time to do it. They’re offering a $25 incentive to new members.

Adsense revenue was down from last month, but since I wasn’t posting often due to my traveling, that was to be expected. Hopefully I can boost my online revenue this year. Once I’m done traveling, I should be able to focus more on this.

Traffic to the site has been increasing steadily every month, but until Google assigns it a pagerank I probably won’t get any direct sponsors.

The US Dollar has also strengthened against the Loonie in the past 6 weeks, so this has reduced the payout from my Canadian Royalty Funds. But I expect this trend to reverse and the dollar will continue weakening this year. On the other hand, I’m re-investing the dividends and so the number of shares and resulting dividends are slowly increasing.

I also expect interest rates to drop from the current 4%+ range to under 3% in 2008. But its only 6.6% of my passive income so that shouldn’t make too much of a difference.

The good thing is that the income is diversified across various investment classes and there are over 20 income streams. The largest source is the real estate trust deed which represents 15.6% of this month’s passive income. Even if the 4 largest income producers dry-up, I’m still going to be getting $1,200 per month. This is the best thing about having multiple streams of income.

Hopefully I’ll be able to cross the $2,000 mark soon and the $3,000 mark this year. (If the dollar becomes extremely weak against the Loonie, that’ll be much easier to achieve, but I hope the dollar doesn’t tank. Of course, unless Bernanke increases the interest rates, the dollar will not strengthen ).