I’m pretty sure you don’t solely read this blog if you are interested in dividend investing. Among your weekly reads, you probably include other great dividend blogs such as the ones I mention on my stock website resource page.
Have you noticed something very common?
Most bloggers report their monthly dividend income. I noticed throughout the years that many dividend investors focus on dividend income and not total return. For them, it doesn’t really matter if their capital grew or not during the past 12 months. What really matters is how much the portfolio generated in cash flow. It goes with the general dividend growth philosophy focusing on buying companies that will always increase their payments year after year no matter what happens. For example, if you bought Coca-Cola (KO) 50 years ago, your dividend payment doubled just about every 7 years during that period. Today, if you calculate your yield based on your purchase price, you will be amazed by how much this company is paying you.
Do you look at your monthly dividend income?
The idea of tracking your monthly income derived from your portfolio is not bad at all. This is one of many ways to make sure you are on track with your investing plan (you have one, don’t you?). For retirees, this is even more crucial since the quality of their retirement depends partially on how much they receive from their portfolio.
Tracking dividend payments allows you to compare from the previous year and make sure your dividend growth goal is reached. The whole purpose of buying a dividend stock is not only to receive the dividend payment, but an ever increasing distribution! This is why I don’t mind buying low yield dividend stocks such as Apple (AAPL) and Disney (DIS) since I know their payout will increase.
There is also a very good feeling linked with receiving money each month. It’s like having a second job but not really having to go to work each morning to earn your pay check. I can understand why people take pride in reporting their numbers and feel good about achieving dividend income milestones. But to be honest, I don’t track this number at all, and I am a dividend investor… what’s wrong with me?
Why I am less concerned about how much I received last month
If you read those dividend income reports around the web, you probably noticed that I never post such articles. I don’t even know how much I receive on a monthly basis in my investment account. All I know is that I invest my liquidity in an index fund and buy another position whenever I have enough money. Most of the time, I’m selling an existing position to buy a new one and simply add the cash received from the dividend with my new purchase. The money never sleeps as it is invested in the index fund in the meantime and I’m pretty happy with this strategy.
Instead of tracking my dividend income, I track my total return and the year-end dividend yield my portfolio generated. It saves me lots of time and calculations as I only look at this metric once a year, usually during the holidays on a morning while my wife is sleeping and the children are playing with their new toys.
From an investing perspective, I don’t understand the importance of tracking my dividend income.
I don’t mean to offend anybody, but I simply don’t understand why it matters. Most investors use their money to build a nest egg that will insure a comfortable retirement. You can call it financial independence or financial freedom instead of retirement; it all comes down to the same thing: totally or partially living off your investments. Therefore, what truly matters at the very moment you are about to withdraw money from your portfolio is how much is there and what yield it generates.
Personally, I would feel a lot more comfortable with $1,000,000 generating 3% in yield or $30,000 per year but the ability to grow versus a portfolio of $800,000 generating 5% or $40,000. The hard core dividend investor will tell me my $1M portfolio generates less in income and that I will have to take money out of my capital to keep up with a $40,000 income and the 800K will never have this problem. At first glance, this makes sense, but not when you dig further.
Assuming both portfolio values grow by 5% each year; then, the $1M portfolio grows by 50K per year while the 800K grows by 40K. Even if you have to pull money out of the $1M portfolio at the beginning to get to the same income, here’s what happened over the next 20 years:
As you can see, the $200K value difference at the beginning becomes almost 300K after 10 years and 450K in 20 years. This is why I think your total return is a lot more important than your dividend yield. I appreciate the fact that portfolio #2 will generate more money in dividends and this amount is less likely to be affected by a down market. However, after 10 years, once both portfolios will have endured a complete economic cycle, their total return will be around 5%. Of course, the best scenario would be to have a $1M portfolio generating a 5% dividend income but I often see that higher dividend yield show less growth and investors who focus on the dividend payment leave a lot on the portfolio value growth table.
How tracking my total return helps me becoming a better investor
I like to track my total return and compare it to two different benchmarks. The first one is the stock market in general. Therefore, I look at both the TSX and S&P 500 to see if I outperformed them or not. This is not my most important benchmark as I’m well aware dividend stocks react differently than the overall market. Therefore, it’s only normal to not beat this benchmark every year.
This is why I use a second benchmark which is two dividend ETFs (VIG for my US stocks and XDV for my Canadian holdings). As a dividend investor; I have two options: build my own portfolio or buy a dividend ETF. The only good reason to spend time building my own portfolio is if I can beat the ETF. Because if I can’t, I am simply wasting time while I could have invested my money in a single ETF and earned better returns and probably better yield as well. This is why I track my return and compare them to a benchmark while I completely ignore my dividend income.
What about you? What do you track? Your dividend income or your return? Or both?
Disclaimer: I own shares of AAPL, DIS, KO
Hi Mike,
Really like your blog and glad that you were able to get Dividend Monk up and running again. One extra aspect of the analysis of the $1M and $800K portfolios that I think is important to add is what the investor does with the excess dividend income above the $40K they need every year. If the investor reinvests the excess and adds it to their total portfolio value the $800K portfolio eventually overtakes the $1M portfolio in total value in year 13 and continues to outgrow it. Even if you adjust the $40k annual withdrawal for inflation each year the $800K portfolio still ends with the higher value. I think this is an important part of the analysis because the investor will do something with the excess dividend income. Either use some or all of it to augment their retirement lifestyle above the $40K or reinvest the excess to continue growing their portfolio.
Hello Jason,
That’s a good point and I think I should do another table as there is also dividend income to be reinvested with the 1M$ portfolio later down the road. Therefore, the 1M$ portfolio will probably continue to beat the 800K portfolio.
Here’s a simple example: if you have a portfolio of 100K invested in DIS and AAPL, you yield about 1% and earn only $1,000 in dividend income. Your other portfolio of 100K holds KO and JNJ earning 3.5% yield for $3,500 in dividend payment. Considering you bought both portfolio 3 years ago, which one would you prefer? AAPL and DIS shows a bigger growth potential than KO and JNJ. this is why I prefer more growth to my stock value than a high yield.
Cheers,
Mike
Interesting article. I was thinking the exact same thing the other day about the utility of tracking dividend income on a monthly basis. I also do not track my dividend income publicly, since I doubt this matters to anyone else. Checking my stats on dividend income is not a value added activity. The only think that matters to others and myself is learning more about dividend investing, dividend companies and strategy.
I have a few questions to you:
1) What is the time period you find important for benchmarking returns? 12 months, 24 months etc?
2) What happens if your total return is lower than say your benchmark?
3) How long have you been tracking your return for?
Hello DGI,
We definitely think alike 🙂
I like the perception of doing “added value activities” instead of simply “working” on my portfolio. Here are my answers:
#1 I do it year after year, but my main goal is to compare my performance over at least 3 – 5 years. This is where numbers really take sense. Beating the market or your benchmark for one year could be simply luck and missing your target simply bad luck. However, if you can maintain a good performance after 3 and then after 5 years, you can say your investing strategy works or not. I can finally do it for 5 years as I started dividend investing in June 2010. In an ideal world, I would do it on 7 and 10 years, but I was investing in other categories back then.
#2 If I couldn’t beat my benchmark after 3 years, I would seriously reconsider spending time managing my portfolio. This comes back to the “added value” activities. If I can’t add any value to my portfolio, there is no point for me to keep working on it. I could use my time and energy on something else.
#3 5 years for dividend investing, but only 3 years of pure dividend investing (I took 2 years to switch my portfolio to 100% dividend stocks). Therefore, my results as a dividend investors are from 2012 even though I started dividend investing in 2010 and I started investing my first dollar in 2003. Lots of things have changed since then!
I’m one of those bloggers that report monthly dividends as well as graph out month-over-month and year-over-year changes. I’m not using this dividend income for anything other than reinvesting at this point. I do it solely because I love working with numbers and spreadsheets; it simply is fun to see those dividends increase over time, nothing more than that.
I don’t mind the time it takes. At the end of the year I do compare my performance to that of the S&P 500, and I have been beating the market most years. I think I have a better chance to have market beating returns in individual stocks, plus the dividend increases are much more consistent. Over time the dividend paying ETFs do payout increasing dividends each year but that increase doesn’t seem to happen each quarter to the same degree that it would with a stock. I’ve always wondered where that excess dividend increase goes.
Hello Scott,
I never took the time to look at what is inside the ETF and how it reflects with its dividend growth. That’s a pretty good question! I worth taking the time to look into it. Maybe a part of the growth goes into paying the ETF fees?
Cheers,
Mike
I just read a section in Dividend Mantra’s new book talking about the dividend ETFs. He specifically mentioned that VIG (Vanguard Dividend Appreciation Index Fund) actually paid less distributions in 2013 than it did in 2012. VIG also specifically seeks to invest in companies that grow their dividend.
SCHD is another option, which has performed very well since its inception in 2011. SCHD (Schwab US Dividend Equity) specifically says that it invests in only companies which, among other criteria, have at least 10 consecutive years of dividend payments. (Now, this doesn’t specifically say that the companies raise their dividends, but I’m guessing the majority of these do.)
VIG
Year, Annual Payout/Share
2012, 1.41
2013, 1.388
2014, 1.585
SCHD
Year, Annual Payout/Share
2012, 0.81
2013, 0.9038
2014, 1.0469
I have my brother invested a lot into SCHD; of these two dividend ETFs that I picked, SCHD actually looks pretty good from a dividend increasing standpoint (and has performed at the market or better) on top of it. An 11.5% dividend increase in 2013 and a 15.8% increase in 2014. Not bad at all.
Don’t know why VIG dropped…maybe related to losses stemming from ARCP? I’d have to look into it more to find out. I wonder what the portfolio turnoff is and how long before a company that decreases or cuts its dividend is dropped from the index.
Hello Scott,
Thx for the suggestion, I’ll have a look at SCHD. At first glance, its seems stronger than the VIG (better div yield, better div growth and performed slightly better since inception).
This will be a good benchmark!
Cheers,
Mike
DG,
Nice post. Obviously I am one of the guys that posts the monthly income report. Similarly – I focus on buying companies that offer a great valuation point – whether its a company that yields 2.3% or a company that yields 5% – trying to find a great company at a better valuation price. It is interesting that 95% of us dividend investors track the income. You bring up great post ideas, such as, “Why I track my Dividend Income” or the pros and cons of tracking dividend income. Either which way, I think I track to see/ensure that my assets cash flow back to me are growing at a rate that outpaces a career, a great way to supplement other forms of cash flow for living, to see what portion of your current expenses it is covering, to see how much more you need to go to pause more in life to say – I’m done (haha). You bring up great points.
I do see that you stated you do sell positions and enter others – thoughts with that?
Thanks Div Guy, talk soon.
-Lanny
Hey Lanny,
Thx for your comment. I think I don’t really have a problem with dividend investors tracking their dividend income. I think the problem I have is that I read so little portfolio total return articles. Therefore, I’m under the impression that most dividend investors (bloggers anyway), don’t really track their returns (or they are not good enough) to be published.
My perception is that at the end of the day, what really matters is my total return, I don’t really mind if it’s coming from dividend or stock value growth.
I’m constantly trying to improve my portfolio but I have limited liquidity. Therefore, each time I find a company that shows stronger growth potential than a current holding (example, selling BNS to buy SNC), I do it to improve my overall return. I like splitting my portfolio into two segments: the core portfolio where I don’t plan on selling those stocks ever and the growth portfolio where stocks are picked to perform over 18 months to 2 years.
Cheers,
Mike.
I try to write a total return article at the end of each year. I just think it makes more sense to do annually rather than monthly. You could say the same thing about the monthly dividend updates, but at least that’s always a positive number. It is much more fun to write about increasing numbers than the month-to-month fluctuations that a portfolio can experience in the short term.
I do agree with you though. Ultimately it is the total return of the portfolio that matters, be that through capital gains, increasing dividends, or a combination. I’m just starting in my career and I’d much rather invest in high growth stocks that may not pay much of a dividend now (or one at all) but that would ultimately have more total growth. If you need income in the future, you can always sell the lower yielding companies to buy the AT&T’s of the world.
Over the next few years I’m definitely going to be opening up some smaller positions in more speculative companies. I’m prepared for a few to lose a lot but (my hope) is that the gains of a few will more than make up for it.
Once your portfolio is strong enough, you can take smaller position in riskier companies. I agree with you, doing a monthly return report would not be representative as some months could be catastrophic and others could lead you to think you are a genius.
I’ll definitely start following your blog Scott. Thx for commenting, I didn’t know about your blog before!
Cheers,
Mike
Mike,
Okay, okay, Definitely understanding more. For instance: My portfolio at the end of year of 12/31/14 = $133,174. It now stands at = $145,434. Difference here is $12,260 less all contributions = $3,724. $3,724/133,174 = 2.80% through 3.5 months so far is my return, which is fairing better than the S&P at 1.86%.
I like where you go with it and I think I’ll incorporate a quarterly inclusion of this possibly… Thoughts?
-Lanny
Mike,
Need to rewind – I stand corrected. The contributions I reduced my difference in market values INCLUDED dividends reinvested, which – as you said and we can agree on – are part of the overall return. Therefore, the difference between my MV now vs last year is at $5,209 or a 3.91% return overall with appreciation and dividend reinvestment. Not too bad, and is more than double the S&P.
-Lanny
@Lanny
You want to use the ROR calculation in a spreadsheet to truly track the return on investment. It takes into account all the contribution dates against the end value.
Otherwise, what you are doing gives you a good bird’s eye of your return.
Hey Lanny,
Yes, including dividend is part of the total return and makes sense to do it this way. But don’t forget to count dividend paid with the S&P 500 or any other ETF as a benchmark to make sure you compare apples to apples.
Over a short period of time, comparing your return to a benchmark is not very useful (you can either be very lucky or suffer a bad luck). However, over 3 years and more, you will see if your investment strategy produces results justifying the fact you are taking time to manage your portfolio. For example, many poor investors should be better off paying 1.5% MERs to a financial advisor and would get better results even if they don’t beat the market.
I created my own spreadsheet to track a whole lot of dividend/investment data.
i broke it out so i can see my dividend payemnts by month, total year’s dividends, increase in value, and then i use those numbers to compare to previous year.
for example i can quickly see that in 2014 my investments increased by 10.51%, had a dividend return of 6.28% and that the dividends were 27% higher than 2013 (those big growth numbers are due to not having a lot of investments to begin with and adding a lot of capital)
Your tables and approach for withdrawals seems rather awkward. Personally, I would remove the dividend % column and stick to a 4% of portfolio balance maximum withdrawal annually.
Hello Bernie,
The purpose of the table was to show two different scenarios where you have a bigger portfolio generating less dividend than the smaller one. The best of both worlds would be to have a 1M$ portfolio generating 5% dividend and withdrawing only 4% of the total value :-)o
I do share my dividend income because it’s one of the easiest to share. It’s also a good way to show that it provides a cushion in down time. A long time ago I was sharing my Net Worth but found it too personal. Every now and again, I share my ROR but it’s really boring to write about it … There is another aspect of sharing data that people want more details and more information, while I share my stock holdings, I don’t share how much I have in each. That’s because my overall portfolio value is not what I want to discuss. I get the odd question by email and I share the value.
While overall portfolio value is important, retires care very much about the dividend income earned. It pays the bills. Knowing that you don’t have to dip into your capital is a huge relief for them. The 4% draw down rule is a practical theory and doesn’t help anyone know if they will run out of money by outliving it. The 4% rule is used widely by the financial sector and I have argued it not not applicable in these day and age. It needs to be less than 4%.
I personally am looking at retiring from my dividend income and not a 4% withdrawal strategy. Does that mean I ignore performance? Not at all. Does that mean I have a high turn over in my portfolio to chase performance? Not at all.
When looking at data, and a portfolio composition, it’s important to understand the stage in life that the investor is in (accumulation or withdrawal).
Mike, you have been called out through comments as not a long term hold dividend investor like many want to be and your point on total portfolio value only emphasize your strategy. When I look at your trades and your approach, it seems to me you trade just like you did before using dividend stocks, you just narrowed your stock picking strategy to dividend stocks and focus on performance. The fact you don’t track your dividend income is very interesting, how do you assess the performance of the stock? Stock value only? or stock value plus the dividend received? I know exactly how much dividend a stock has earned me and that’s part of the return in my opinion for that stock, not just the stock price.
All in all, I felt that sharing portfolio performance is like focusing on stock picking and trying to show off. It only leads to assessing if you should be better off index investing … Back in circle on trying to assess the best performing strategy. While I do track my ROR and performance, my ability to retire from my dividend income is my focus. That doesn’t mean I will simply ignore growth and buy high yield stock in my accumulation years. It needs to be understood that portfolios have to transition between appreciation and capital preservation.
Hey Dividend Earner,
I appreciate your comment, but I’m not quite sure I understand why you see me as a trader and not a dividend investor.
I used to make 2 to 5 trades a month before investing in dividend and now I’m doing 2-3 trades a year, this is a big difference. So far this year, I’ve made 2 trades in four months (almost five) and it was selling BNS to buy SNC plus increasing two of my position with new cash + dividend reinvestment.
I don’t expect to trade any of my holdings until the end of the year. I’m a bit surprised most commenters see me as a trader… I mean which kind of traders makes 2-3 trades a year? that’s more like a buy and hold strategy overall, don’t you think?
The thing is that I rather buy a company paying dividend and showing strong growth potential instead of keeping a company that will likely not generate any stock value in the 3-4 upcoming years (BNS) and simply increase it dividend… while the stock I bought (SNC) will do both: generate stock value + increase dividend anyway.
Last year, I’ve sold MCD for the same reason; the stock has problems showing growth (-2.72% from April 2012 to April 2015) and this situation will continue for a few years, trust me. What’s the point of keeping this investment to get a 3.50% dividend yield that will increase by 5% each year to calm down investors. OR you can sell MCD, buy another company that will do both: increase its dividend payout (then you are not left behind) and generate stock value growth at the same time. I sold BNS and MCD over the past 12 months for the very same reason: they don’t show an interesting growth potential for the next 5 years. All they will do is blind investors with shares repurchase and dividend increase up to a point the boat will go sideways if they don’t do any modifications.
When I bought BNS, it was based on a solid analysis but I was wrong; this is the bank who performed the least over the past 5 years on the stock market. All banks increased their dividend, so what really matters was to pick the right ones, not to pick a bank :-).
From 2011 to 2014, the amount of dividend received in my portfolio tripled while my portfolio size doubled. This shows you that dividend matters to me. If I was simply trading right, left and center, my dividend payment would not increase that fast. I’m tracking my dividend income year after year, but not month after month. I just take way more pride in seeing my portfolio growing in value then receiving my monthly pay check.
Anybody could pick 10 dividend aristocrats tomorrow morning and claim they see their dividend payment increase year after year. I don’t see why dividend growth should be the most important criteria to look at when it’s time to assess a portfolio performance even for dividend investors.
Let me approach your questions differently… and it has nothing to do with what I do. It’s really about the general approach.
#1 I don’t think it’s about Total Returns at all. Every one who invests and save money should have goals and work towards those goals. If someone walks into a financial advisor office, is the only answer you get that it’s about total returns? There is a whole profile that is assessed and then goals are put together and investing decision comes from there. The ability to save, invest and horizon timeline all play a factor in it. Technically speaking, indexing is probably the way to go over 50 years, so why bother then … Why spend 8 years of showing whether or not you can beat one index. Well I bother because I have different goals than beating an index. It’s just that simple. Does that mean I don’t care about performance, not at all. Performance matters and I hold low yield stocks with great performance.
#2 Comparing to an index can be flawed. Sure that’s the only way they can evaluate the mutual funds people but as individual investors, if you compare a portfolio performance of $500K to one index, are you saying that you would convert that portfolio to that index as soon as you feel you cannot beat it? Probably not, you would switch to a set of indexes since you need to diversify yourself with indexes. Now you just changed the future performance of your portfolio. You compare your portfolio to an index but the reality is that you should compare your CDN to CDN index and US to US index … It’s all flawed comparisons but it is a benchmark. I think that choosing a goal (i.e. a benchmark) is important but it doesn’t have to be an index. You pick the Dividend index, while others pick the SP500 and others just pick target growth. Does it really matter what the measuring stick is?
#3 Showing dividend income reports on a monthly or annual basis does nothing to make investing decisions outside of showing what dividends can do over time. It’s a historical table so any readers that look at my history can see that it doesn’t go down, that it provides a cushion. That’s about it. On top of that, readers appear to like it. Why not show it then?
Dividend Earner,
Here’s how I see it according to your point:
#1 Total returns matter but the benchmark to use is different to each investors. I use a US and CDN dividend ETF because my portfolio is showing only US and CDN dividend stocks. The point is to know that my time and energy is well invested managing my portfolio or if I do a terrible job and I could do something else with my time. Here’s an example: if my investor profile leads me to a portfolio with 30% bonds, 50% CDN stocks and 20% International stocks I have three options to invest: a)contact a financial advisor and invest in funds or in his portfolio, b) buying a few indexes and playing the coach potato portfolio or c) do his due diligence and create his own portfolio with handpicked stocks and bonds (or make a mix with ETF or funds, but the point is that he actively manage the portfolio). Then, if someone doesn’t have the time, the knowledge and the interest of building a portfolio, option A is the only one that makes sense as he will do terrible things if he is left on his own (this is not only my opinion, empiric researches have proven this many time in the past). Then, if he wants to actively manage his portfolio by his own (option C), he must consider the time required to do so. If he constantly underperformed mutual funds or an ETF basket with the same asset allocation, it would only be normal to use his time elsewhere and go with the mutual fund or ETF basket. If you spend 2 hours per week on your portfolio and you don’t perform well, why don’t you use this 2hrs to spend more time with your wife, kids, friends or doing sport or another activity? Unless managing stocks is a passion and considered your hobby at the same time, it doesn’t make sense to continue if you can’t generate something interesting out of it. It’s like cooking for 5 hours and your dinner taste like crap… what’s the point?
#2 As mentioned before, the benchmark used should be in line with your investor profile and your investing goal. There is no point trying to beat the S&P 500 if 50% of your portfolio is in CDN stocks. I’ll continue with my example stated in #1. Imagine your goal is to generate a 5% dividend growth on your portfolio. You spend 2 hours per week managing your portfolio to achieve it. At the end of the year (or whatever period you want to use), you achieve this goal. This is great and you can keep on going with this scenario. But consider that year all mutual funds or ETF baskets with the same asset allocation generated a 10% dividend growth that year. Same asset allocation, same level of risk ,same goal; other investment vehicle requiring NO TIME per week outperformed your goal. It’s great to have achieved your goal that year, but honestly, you wasted your time. If this 2hrs per week spent on your portfolio is still what gives you the most happiness and you don’t see anything you could do with it; then it’s fine. However, most people I meet in my life tell me they lack of time. Well… it’s a good example of time you could use at something else while achieving or exceeding your goal without a single effort. If my goal is to change my winter tire on my truck and I spend 4 hours on it because I’m not good with mechanic, I think it’s better off for me to give my truck to the garage and enjoy my 4 hours on something else. This is why it is important to use a benchmark.
#3 I didn’t say I was against dividend income report and while I noticed several bloggers do it, I also notice several readers commenting on them and I agree with you; they like it. It’s fine with me. There is definitely an interest to read about those report. It doesn’t mean I understand the buzz around it. I look at my companies once a year to make sure they increased their dividend and I read all quarterly results for each company I follow to validate they continue showing strong fundamentals (leading to future dividend growth). IMO, making sure companies I hold show strong fundamentals leading to dividend growth this yaer, but also in 5 years from now is more important to know how much I receive in $ last month. Cash get deposited and I invest it as per my investing plan. The day I’ll need my dividend income, it will matter as I will live from it, but that will happen in 35 years, this is why tracking monthly something that I’ll need in 35 years doesn’t interest me. I don’t say it’s useless, then again, there is a real interest for those posts, I’m just saying I prefer tracking something else.
Thx for the respectful discussion. I love learning form others point of view and debating. I know you won’t change your mind and I won’t either, but this discussion is good information for everybody 🙂
Regards,
Mike
I think this article does a good job in bringing to light that portfolio growth is an important factor in am “all” dividend portfolio used as income. I see it this way,…suppose there is no growth in a portfolio?,…how about negative return over 10 years?,…is it possible?, YES, is it probable, again YES!,…as a DIY investor I believe it is important to stay focused on portfolio management,…so ya, “tracking total return” is a must!
Darn right I track my monthly dividend income — that’s what I live off of!
But I’m not so narcissistic that I’d expect the world to be interested in how much I’m earning in dividends.
Haha! good one!
I totally understand how it is important for retiree to track their source of income, regardless if it’s dividend, pension or other sources of income. When you live from it, you must know what to expect next month!
I lean towards your perspective, in that I don’t track my dividends monthly, but I wouldn’t mind seeing it done on your site for a trial period. Extra info is always a good option! Thanks. Bill
I might report an annual dividend income article. I think this would make more sense for everybody. thx for the feedback!
Hi Mike,
I track them both.
One wrinkle I am in the process of understanding is how it all plays against the IRA RMD rules. High capital appreciation drives larger RMD requirements, whereas high yield –low capital appreciation– lets me meet the RMD w/o liquidating positions for a longer time. Really not obvious what the best portfolio strategy should be.
Mike,
Interesting perspective.
I track my monthly dividend income, both publicly (for the blog) and privately (I’d still look at it every month if I didn’t blog). I’ve noticed that in terms of pageviews and comments, the dividend income updates are some of the most popular articles I write, so there must be a reason for that.
For me, it comes down to “How financially independent am I?”. And I can directly compare my expenses to my dividend income every single month and answer that question with a real number. And guess what? The dividend income increases every single month, whereas the portfolio value oscillates like the sea. Total return comes and goes with Mr. Market’s mood. I couldn’t care less what KO’s or JNJ’s TR was over the last year. If investors don’t like those stocks and push their yields up, that’s just fine by me. Sure, if you’re getting smoked by the broader market over 10 years or something, then you might be doing something wrong. But the odds of that happening when you’re focusing on fantastic businesses with great fundamentals and so much cash flow that they can pay growing dividends are quite low.
It really comes down to paying bills. My dividend income will be paying my bills here one day within the next few years, rendering me FI. So, yeah, I’d like to know how I’m doing in that aspect, and tracking it monthly makes a lot of sense in that respect. Not tracking my dividend income every month would be like saying “I don’t look at my paycheck every month and compare that to my expenses.” or something else silly. If you plan on living off of your assets – selling off your portfolio using the 4% SWR or something – then dividend income will matter less, but it will still matter since it will probably make up a good chunk of that 4% anyhow.
Just my take!
Best regards.
Hey Jason,
I understand you track your income to lean toward FI, it’s roughly the same principle for retiree; you need to know if you have enough to pay your bills. I see the interest from readers for dividend income report, but I’d really like to know why they find it so captivating. For example; I already know you are going to post higher dividend income next month than the year before. And in your case, since you invest new money each month, I know you will post higher income month after month. It’s not surprising, it’s mathematical. In your 46th income report, it will also post higher income than the 45th…. I must not be normal 🙂 hahaha!
I’m not sure what the mystery is? They find it captivating because, as jason mentioned, people plan to live off their dividends monthly. That’s it. The end.
Thus, nothing else really matters.
Thanks for the chatter. It’s good to know you guys are starting early in life.
My problem is to get the most out of my current portfolio for the next ten years+.
I need enough to supplement my retirement benefits to provide a reasonable life style. Growth in value is important but need for dividend return is greater, so the gamble is stocks that pay 3% or income trust that pays 10% based on a 100,k portfolio.
Comments please
i track my monthly dividend because i budget to use the dividends as part of my income . i do not include stock appreciation in this budget . i treat stock appreciation as a way to grow my portfolio
jim
If I were living off my dividends (or getting close to doing so), I would probably track mine monthly or at least quarterly as well. However, I’m still quite far from leaving the workforce, so checking all the monthly numbers seems like overkill to me as well.
In terms of a pageviews strategy for the FI blogs though it seems to be a smart choice. It’s also probably great motivation if your struggling.
Div Guy: Love your article but I am going to offer a slightly different take. My first question is whether or not your entire portfolio is invested only in dividend paying stocks or not? I think dividend growth is extremely important and trust me it becomes more and more important as you approach retirement. I have to say that I am guilty at this stage of my life looking at my monthly dividends more than I am my total portfolio return. After all, its the dividends that I am going to live off of. A couple of points. I believe Ned Davis has a great chart showing total returns of S&P 500 stocks that increase their dividends vs those that pay but don’t increase their dividend vs those stocks that don’t pay dividends at all. I believe his chart goes back to 1972 if I remember correctly but I do not remember what year it goes to. Anyhow the dividend increasers had the greatest total return over the time period he tracked. Secondly, reinvesting dividends over a long period of time only increases the amount income the stock will throw off and sometimes just the benefits of dollar cost averaging will increase your return. Your two charts show a 4% and 5% growth. I understand that over the long term, the market as measured by the S&P has averaged around 10% annually but that doesn’t help if you are retired and the market tanks like it did 2000-2002 and 2008 if I remember correctly and you need to tap the equity of your account. This is why dividend growth at any age is important. It sure is nice to live off the dividends while you are waiting for your stocks to bounce back and not add insult to injury by tapping the equity of your portfolio when the market is down. However, I am not that much of a dividend growth zealot that you only invest in dividend growth stocks. Growth is important and investing in a diverse portfolio of growth stocks is also a priority. I do consider my dividend growth stocks, although part of my stock portfolio asset allocation as an income strategy. Of course, much of what you say in your article is age dependent, for example, the younger you are the more you can invest in lower yielding stocks that may grow faster and the older you are the more you need to invest in higher yielding stocks to get that income, I would say that as I get older(over 60), I am much more concern with income than growth. Having said that I do believe that with a well diversified portfolio you may very well be able to have the best of both worlds.
Hello Mark,
thx for your comment.
100% of my money is invested in dividend stocks (no bonds, no funds or anything else). I obviously focus on total return because my portfolio will last another 50 years (I’m 33). At retirement, I will definitely consider more the dividend yield. But still, I think I will prefer selling some DIS shares on top of its dividend than keeping a “dead” dividend stock such as Sycso (SYY) which is a dividend aristocrats, but showing +8% over 10 years.
You are right, you can achieve both growth (dividend and portfolio value) with a strong and well balanced portfolio.
Cheers,
Mike
I track both and even equal weight (roughly) by monthly income. Income is my main focus, TR is secondary, probably because I’m retired and nearing the distribution phase. One metric I don’t track and think is meaningless is yield on cost (YOC), current yield is much more important and will be paying the bills. I try to maintain a current yield in the 4% to 5% range with a >8% DGR. It hasn’t been very difficult to achieve this goal to date since I started my DGI journey in mid 2008.
I have exactly ONE chart and spreadsheet. It simple tracks the total value of the account. I breakout the the starting amount from month to month and any additional investment made during the year. I then have a nice chart, that shows growth with and without dividends, from 2004 to date and the continuous climb of the account. The dividends are reinvested quarterly with any additional funds that I wish to add in.
I LOVE lean methods. good job on keeping your investment tracking simple!
PS: can you send me a model of this spreadsheet 😉
I am interested in sustainable, constantly increasing dividends. I am a physician who wants to work, hopefully, into my 70s. (My practice is both profitable and with handleable stress load).
I have lived overseas and travel, outside of doing missionary work, bores me.
I have a 20 year horizon on everything I buy—I buy nothing that I would not want to hold 20 years.
Therefore, my stocks are CVX,XOM,PM,CB,AFL,MMM. They are all dividend aristocrats except for PM, which will be. At this point, with a total non-mutual fund account of about $220,000 (I have about $180 K in mutuals), and $150 K of that in taxable accounts, I have only about $5000 or less to worry about in dividends per year.
That will, of course, increase. (My wife manages $130 K of the taxables accounts, I have about $25 K—she’s a summa cum laude graduate in accounting from Alabama, I am an MD—I leave the girl strictly alone). But right now ALL of my SEP and 457 (b) non-taxable accounts are set to reinvest any dividends paid.
In short, the reporting on dividend income doesn’t really matter to me. What I am much more interested is in how many of your stocks hit Dividend Aristocrat status and how many stop growing or CUT/hold steady the dividend.
I don’t need to know your income. I need to know your stock picking methodology and outcome.
Do I track my divendends? I’d have to answer yes, and no. Yes, I have a spreadsheet with all my income producing investments (stocks, REITs, MLPs, savings acct) and I update it every month or so to reflect DRIPs, new purchases, dividend increases,… But I never, ever look at how much dividend income I have in a given month. My spreadsheet tracks a forward 12 month view of expected dividend income. Today, that income is entirely reinvested so the actual amount is moot. What I focus is the growth curve. On a yearly basis starting in 1991 I’ve tracked the family net worth. As we’ve converted growth stocks to a income portfolio in anticipation of retirement in the next few years I’ve added the fwd 12 month dividend view to that spreadsheet. My goal has been to grow the income number by at least 20% yearly. This income growth comes from compounding DRIPs, dividend growth, new investment savings and selling growth stocks and buying dividend stocks. The trajectory is such that my passive income will more than cover our expenses come retirement, not counting potential CPP, OAS and a modest DB pension from my first employer.
As I get closer to being ‘OldGuy’ and living off this income, I’ll pay more attention to the actual numbers, especially as the growth investments become a relatively small proportion of total investment. Today that ratio is roughly 50/50. I expect in 5 years it will be 75/25 or maybe a little more. I don’t ever anticipate 100/0 as long as I have the time and interest in monitoring my investments as I believe it makes sense to take advantage of market anomalies to gain extra returns, which in turn can be used for income investments.
i would tend to go with your variant…..after all consider the following
situation…….you have a bear market in stocks , but your div. remains constant..
consider then , that as the bear market progresses , one third of the companies lower or even cut off thier dividends due to increasingly bad eco background……what then ?
a lot of dividend investors have started in the last then years….bear markets
have been sharp , but brief….
what happens if you have a japan style 2o year bear market…?
i still think value investors will win…..but they should not willfully thumb thier
nose at market action…..
Excellent reading,long into the preservation phase ,now have much more to consider.
thanx.
Hi Mike,
Interesting post and it certainly started a lively discussion which is always good!
I do post monthly dividend stats on my blog, and last year I compared my stock portfolio to the S&P and VHDYX. It was quite time intensive though but I plan on doing a repeat later this year. I also hold funds such as VHDYX for current income as well as using indexes and a total return / asset allocation strategy in my retirement account. I do track my monthly investment income since it supplements my salary and along with budgeting, it helps me plan for retirement.
I guess I’ve always seen posts about dividend income as a means to encourage people to continue investing with a buy and hold approach. It’s one way to show monthly progress and keep people saving. Also being cognizant of the dividend may help turn a panic-sell thought into a more considered sell decision, if the stock price drops but company fundamentals are sound.
I do have a question about your tables though since you’re showing very high dividend percentages at the end (7.58% for portfolio 1 at year 20). It looks like you’re increasing the net value by 5% every year, then increasing the dividend growth by 5% each year and using this to calculate the dividend income.
In reality, that’s not going to happen; as the yield increases, assuming it’s a good investment, it’ll become increasingly attractive so more people will buy the stock pushing the price up and the yield back down. I think a more realistic calculation is to increase the dividend amount by 5% each year, and derive the yield instead e.g.
Year 1 value = $1,000,000, Dividend Income = $30,000
Year 2 value = $1,050,000, Dividend Income = $30,000 x 5% = $31,500 (not $32,760 as you show), Dividend Yield remains 3%.
In other words, the dividend yield is a function of the dividend payment made against the current price – it doesn’t dictate the dividend amount. Companies increase the DPS amount that they pay, not the yield. If net value growth is the same as DPS growth over 20 years then the dividend yield should remain unchanged through that period.
Best wishes,
-DL
Totally, totally agree. I’m not a blogger, but I do subscribe to a lot of personal finance blogs. I never could understand most dividend investors who are so obsessed with yield when building your nest egg by whatever means is the main goal. You AAPL and DIS are perfect examples. I also own these stocks along with SBUX, GOOG, FB, but also own dividend stalwarts like PM, KMI, PG. If it were not for AAPL, DIS, SBUX, GOOG, FB and I only invested growing dividend stocks my portfolio would probably be one third less the size than it is today. Sure there is more fluctuation with some of the low yield dividend stocks(or no yield) but these are fly by night companies with a high beta.
Mike,
You raise a lot of good points. I personally only look at the forward 12 month expected dividends since this is a fairly accurate measurement (and hopefully conservative since there should be increases in the dividends from most companies every year). One thing you might consider, though, is the compounding capabilities of a high yielding stock, such at AT&T (T).
T is currently paying a 5.5% dividend. If the stock goes nowhere and the yield stays the same, I can compound my income simply by reinvesting the dividends, and this amounts to a 5.5% annual increase. However, if the company grows earnings by a small amount, say 3% annually, the dividend and stock price go up accordingly, then the increase becomes 8.5%. I like a mix of stocks growing earnings at a market beating pace (GOOGL, for example), earnings and dividends greater than the market (GILD, SBUX, NKE, DIS, V), blue chips growing moderately and paying relatively safe dividends (JNJ, PEP, PG), and those growing relatively little but paying a higher dividend yield that I can reinvest (T, VZ, O, SO). There are really many ways to grow your portfolio and income and you might find values in any of them at different times.
Good luck with your blogs. I know that it can be a lot of work. I barely have time to read all the great ones.
Cheers,
KeithX