One of my financial goals for 2014 is to generate $12,000 (pretax) from passive income. This isn’t going to be easy because last year we made about $10,000 last year from dividend, rentals, peer to peer lending, and interest. The heavy lifting will be done by our dividend portfolio and should account for about 75% of our passive income. Our rentals are doing better, but we need to repaint the rental home this year so that will be a big bill. The P2P lending is doing quite well, but I don’t have a huge amount invested so the income will probably be under $1,000. I started with $10,000 in P2P lending in 2011.
In 2013, we generated $8,036 of our dividends from our taxable account. This is an 18% increase from 2012 ($6,791.) The increase came from additional investment AND dividend increases. For 2014, I’d like to generate about $9,000 from our dividend portfolio and reinvest most of this.
My strategy for this portfolio is to invest in stocks with good track records of dividend growth. In this portfolio, I plan to minimize trading and focus on dividend income. I’ll update this article every quarter so we can see how our dividend portfolio is doing compared to VIG (Vanguard Dividend Appreciation ETF).
This year should be much more stable for our dividend portfolio. We won’t be able to add new money here unless we have a windfall of some kind. I do need to plan to make a few moves in 2014 on the investments highlighted above, though.
Intel is a big chunk of this dividend portfolio. I probably need to sell about half and invest the proceeds in different stocks to spread out the risk. I used to work for Intel and obtained these stocks at a discount via grants and the employee purchase plan. My average cost basis is $9.11 so I’m not looking forward to paying the capital gain tax.
In 2012, Kraft Foods spun off into two companies – groceries and snacks. Mondelez International manages well known snack brands around the globe such as Oreo, Cadbury, and Trident. Kraft had a great track record of increasing their dividend payout, but it looks like Mondelez is struggling with their dividend a bit. The current dividend yield is only 1.6% and it is increasing very slowly. On the other hand, MDLZ did very well since the spinoff and gained 32% in 2013. I’m planning to sell this off at some point and buy other dividend growth stocks.
VWO and VPL
VWO and VPL are international ETFs from Vanguard. I like them, but they are not a good fit for this portfolio. I’ll sell them off at some point.
Here is our dividend income record
- 2012: $6,791
- 2013: $8,036
In 2012, I slowly moved from growth stocks to dividend stocks. That’s why you see the gradual increase in dividend income. In 2013, I transferred $20,000 from our saving account at the end of Q3 and we’ll see more dividend this year. I don’t think we’ll see a similar increase in the dividend income going forward. We won’t be able to add significant new money in the next few years and will be depending on the companies to raise the dividend yields.
Here is an easy way to see what sectors you’re invested in. Personal Capital recently added the “US Sectors” under their Investing tab. A quick look here tells me that our dividend portfolio is somewhat unbalanced. Nearly 50% of our investment is in consumer spending. I need to pick up some utilities, industrials, and communication services this year.
They did have one mistake here. The unknown is ABBV. That’s a pharmaceutical company and it should be under healthcare.
Sign up with Personal Capital to easily check your sector weighting.
Passive Income 2014
Here is the plan to generate $12,000 in passive income this year.
- Dividend: $9,000
- Rentals: $2,000
- P2P lending: $900
- Interest: $200
As usual, the big question mark here is the rental income. I’m not sure if we can hit $2,000 next year. I guess we’ll see how it goes.
How about you? Do you have a plan to generate passive income? If you see any problems with our dividend portfolio above, don’t hesitate to call me out. I still have a lot to learn about dividend investing.
Follow up – 2015 Dividend Portfolio
Dividend Investing Resources
- The Dividend Guy – Best 2014 Dividend Stock Picks Book (Free for 5 days!)
- dividata – See dividend growth and current dividend payout.
Disclaimer: This is not a recommendation. My stock picking track record isn’t great so you need to do your own research. This post will help us keep track of the gains and dividends to see if they meet my passive income goal. If you need help with financial planning, consider signing up with Personal Capital. Personal Capital will help you keep track of all your investments in one place and can hook you up with a personal financial adviser as well.
Disclosure: If you sign up with Personal Capital, we may receive a referral fee depending on the size of your portfolio.