Introduction
Hi. I created this portfolio 7 years ago to demonstrate what can be accomplished through dividend growth investing. It is not hypothetical. I manage it in real time with real money.
Here’s what you should know about this portfolio:
- It is not presented as best or a model. It is designed to demonstrate what you can accomplish with dividend growth investing.
- The portfolio exists at E*Trade. Its inception date was June 1, 2008, and I have been managing it ever since.
- The goal of the portfolio is not to maximize wealth – it’s to optimize income. I manage the portfolio with that central income goal in mind. (The complete business plan for the portfolio can be found here.)
- The plan is working. The portfolio’s income has increased every year. In fact, income growth has far outpaced inflation.
To learn more about the background and purpose of my Dividend Growth Portfolio, please see this article.
The Dividend Growth Portfolio
Notes for August, 2015
• I received $112 in dividends in July, bringing the 2015 7-month total to $1,711. July is a slow month for dividends. The total so far this year is 5% more than at the same time last year.
• There is $770 in cash in the portfolio, representing dividends accumulated since the last reinvestment. I expect that total will exceed $1,000 in August, meaning that I will make my next reinvestment this month.
• Ventas (VTR) is expected to spin off some of its assets later this year. I will be investigating what (if anything) to do with that holding. Earlier this year, BHP Billiton spun off some of its assets into a new company. I received stock in the new company, which I sold for cash that I added to the kitty for reinvestments.
• Because a large price run-up gave me unexpected profits and dropped the current yield in Hasbro (HAS) to 2.3%, I investigated whether to sell it. I discussed the situation in this article. In the end, I decided to hold onto the stock, because it is doing what I want – increase its dividends each year. Its increase streak is now 12 years.
Dividend Reinvestments in 2015
I accumulate dividends in cash and reinvest them when they reach $1,000. Here are the purchases made so far in 2015. The next purchase will be made this month. I expect to receive more than $300 in August, which will push the cash total above $1,000, which is my trigger to reinvest. I have not yet decided what I will buy.
• January: Bought 30 shares of AT&T (T), adding to existing position
• May: Bought 24 shares of Coca-Cola (KO), adding to existing position
Dividend Increases in 2015
KMI: 2% (January) +7% (April) +2% (July)
LNT: 8% (January)
O: 3% (January) +0.2% (May)
OHI: 2% (January) +2% (May)
T: 2% (January)
HCP: 4% (February)
DLR: 2% (March)
KO: 8% (March)
SJR: 8% (March)
HAS: 7% (April)
PG: 3% (April)
JNJ: 7% (May)
PEP: 7% (June)
Companies usually increase their dividends on a consistent schedule. Here are the rest of the increases expected this year.
- BBL: September
- MCD: December
- MSFT: December
- PM: October
- VTR: December
Plus, KMI, O, and OHI typically increase every quarter. KMI has already announced 3 increases for this year (1 to go), and the other two have announced 2 increases each (2 more to go for each one).
Dividend Growth Targets and Achievements
The financial goal for this portfolio is to achieve 10% yield on cost within 10 years of when I started it in 2008. (If you need to brush up on yield on cost, see Dividend Growth Investing Lesson 6: Yield and Yield on Cost.)
In dollars, that works out to a dividend delivery rate of $4,678 per year by June 1, 2018.
The blue line on the following graph shows the DGP’s actual dividend rate as of June 1 each year through 2015, plus my projection for June 1, 2015. The red line is the goal line. The blue line needs to stay with the red line in order to achieve the 10-year target.
As you can see, the blue line is hugging the red line, meaning that I am on track to meet the long-term goal in 2018.
The dividend flow rate as of June 1, 2015 was $3,223 per year, as shown on the graph. Therefore, the graph above will not change for the next few months, as it is too early to make estimates of what the rate will be on June 1, 2016.
The rate at which cash dividends flow into the account gradually increases as companies riase their dividends and I purchase new shares. In January, I will make my first estimate of the run-rate for June 1, 2016. Then I will keep updating the estimate each month until June 1, 2016 is reached and the actual rate is known for 2016.
The portfolio’s “end date” for purposes of this demonstration will be June 1, 2018.
The following bar chart shows the dividends received each year since the portfolio was started. By the end of this year, total dividends received in 2015 should be around $3,100. Year to date, I have received $1,711, or about 5% more than the same period last year.
– Dave Van Knapp