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Dividend Growth Portfolio for Passive Income

by retirebyforty on January 6, 2014 · 56 comments

in asset allocation, dividend, investing, passive income

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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. 

Dividend Income

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).

dividend growth stock portfolio passive income

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 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.

Dividend Growth

dividend growth stock portfolio income record

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.dividend growth stock portfolio sector weighting investing income

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.

  1. Dividend: $9,000
  2. Rentals: $2,000
  3. P2P lending: $900
  4. 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.

Dividend Investing Resources

 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.

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{ 56 comments… read them below or add one }

eddie January 6, 2014 at 1:29 am

since u own in blocks of 100, y not sell covered calls to generate more monthly income??


davidmichael January 6, 2014 at 8:57 am

Covered calls sound good in theory. After working with them for 20 years, I would strongly advise against them. You can lose everything with covered calls on a swift market drop and limit your upside as well. Holding sound dividend paying stocks for life makes a great strategy and simplifies the tax burden.


Dividend Growth Investor January 12, 2014 at 1:25 pm

I am not Joe, but I would NEVER sell covered calls on a position I own. With covered calls, you are essentially limiting all your upside for a few pennies. Of course, the downside is wide open in both scenarios. Therefore, any option premiums you receive is not worth the foregone capital and dividend appreciation you are giving up.


101 Centavos January 6, 2014 at 3:04 am

Nice mixed salad.

Since this is a taxable account, have you considered MLPs?


Dividend Growth Investor January 6, 2014 at 5:21 am

I am not Joe, but I would NEVER sell covered calls on a position I own. With covered calls, you are essentially limiting all your upside for a few pennies. Of course, the downside is wide open in both scenarios. Therefore, any option premiums you receive is not worth the foregone capital and dividend appreciation you are giving up.


Dividend Growth Investor January 6, 2014 at 5:23 am

That was meant for Eddie ;-)

As for 101 Centavos – Joe mentioned he owns Kinder Morgan, which is an MLP indeed.


Dividend Growth Investor January 6, 2014 at 5:20 am


Welcome to the camp of dividend growth investing! The benefits of income growth, without need for further additions will help out in your retirement for decades to come!

It seems to me that you might be better off selling those rental properties and maybe dollar cost averaging the proceeds into REITs. I believe your returns would be better, than those from your 4plex.

As for selling, it does seem like Intel and Royal Dutch Shell generate lions share of dividend income, so it might make sense to trim them a little (particularly since you do not plan on adding more cash). On the other hand, if you never add to those position again, but reinvest dividends and proceeds from ETF sales to other dividend growth stocks, the overall weights of INTC and RDS/B will decrease over time. Plus you won’t have to pay huge capital gains taxes, which would reduce your base for earning dividends.

One question – I hope you are holding RDS.B not the A shares. Otherwise, with A shares you pay a withholding tax to the dutch government, but with the B shares – you don’t (although Uncle Sam still needs to take his share)

Best Regards,

Dividend Growth Investor


retirebyforty January 6, 2014 at 3:14 pm

Actually, I’m considering selling the 4 plex and just buy a house. :)
That way I don’t have to deal with mortgages anymore.
I’m definitely trimming some Intel this year. RDS.B is probably okay for now.


Moneycone January 6, 2014 at 5:39 am

Solid, quality companies! How do you reinvest dividends – DRIP or do you selectively reinvest?


retirebyforty January 6, 2014 at 3:43 pm

I didn’t like DRIP because it’s hard to keep track of. Now the brokerage keep track everything so maybe I should think about DRIP again. I have been reinvesting manually because I wanted to diversify.


Chris January 6, 2014 at 6:34 am

Hey Joe, just wondering if you think you’ve turned the corner with your rental properties? I’ve been pretty lucky with mine so far (fingers crossed), so I’m always interested in reading about other’s experiences. I enjoy the blog, keep up the good work.


retirebyforty January 6, 2014 at 3:44 pm

I think we have turned the corner with the rentals. The rental home was doing well, but it need some big maintenance items now. I’m pretty sure the 4 plex will do better this year. I’ll write an update soon.


Done by Forty January 6, 2014 at 6:38 am

Very cool stuff, Joe. We don’t invest specifically for dividends, but I’m always intrigued by the process and like learning more. We want to buy rental property in 2014 (currently just rent a room in our house for $400/mo + 1/2 utilities) as that sort of income jives more with our personalities, I think, than individual dividend stocks.


retirebyforty January 6, 2014 at 3:45 pm

Rentals are good too if you are comfortable with being a landlord. It’s just hard for me. I’d like to live in a multiplex and then rent out a few units. That would work better for me.


Scott Costello January 6, 2014 at 7:11 am

To be honest I have no idea when it comes to the stock market, so most of what you wrote about went over my head. I do want to learn and reading someones first hand experience is how I learn best.

I’m 37 years old myself and have been investing in real estate the past 4 years to try and find the best way to achieve my passive income goals. I haven’t been very successful in real estate, but I definitely have learned a lot in the last 4 years and am currently tweaking my focus a bit to see if I can get better returns.

I really enjoyed your post and look forward to following you further.

Thanks Joe!


retirebyforty January 6, 2014 at 3:46 pm

Good luck with real estate. I haven’t been very successful with rentals. The cash flow is low and I guess I’m a bit impatience. The value went up quite a bit though so maybe it’s time to sell.


nicoleandmaggie January 6, 2014 at 7:31 am

I prefer growth stocks, and I prefer minimizing the tax burden and the paperwork hassle. We’re still investing, not taking out.

We do get some dividends because we have broad-based indexes, and we DRIP those back into the index. I also have one utility stock that spits out $600/quarter or more pretty reliably. I keep that because it irrationally makes me happy.


retirebyforty January 6, 2014 at 3:48 pm

I like growth stocks too. I’m always trading the growth stocks though so I’m putting the growth stocks in my Roth IRA. $600/quarter is nice.


Mike Collins January 6, 2014 at 8:04 am

Have you thought about reinvesting the dividends to increase the number of shares you own? More share would equal more dividends, assuming you don’t need the income right now.


retirebyforty January 6, 2014 at 3:48 pm

We do reinvest most of the dividend. I updated the article and made that more clear. Thanks.


Dennis January 6, 2014 at 8:06 am

I’m curious as to why you even invest in dividends if you don’t need the income. Wouldn’t that money be better utilized in growth stocks? As you can tell I’m not really up on what dividends are used for and am pretty basic investor so I’m curious as to your thinking behind it.


Passive Income $amurai January 6, 2014 at 10:26 am

While his return may be good you have to realize there is a much greater chance of default on a higher risk loan. With dividend stocks that increase their payout consistently, you get a steady stream of income and don’t have to worry as much about the market ups and downs. Especially if you DRIP the payouts back into the stocks. Down just means you can buy more shares of the stock which means more payouts on the back end.


nicoleandmaggie January 6, 2014 at 1:13 pm

I dunno about this… my utility stock (you’ve heard of it) with the regular dividend payouts declared bankruptcy and didn’t pay out for a couple of years before it started paying out again. My broad-based dividends do go up and down with the market. Why wouldn’t they? Profits go up and down with the market (on average) whether they’re paid out to stock-holders or reinvested in the company. Lower stock prices usually means a lower expected dividend, so you’re not DRIPping as much.


retirebyforty January 6, 2014 at 3:51 pm

It’s just a different strategy. We should be in the 15% tax bracket this year so we don’t have to pay tax on dividend.
I reinvest most of the dividend for now.
Originally, I thought we’d need the dividend income, but we are doing quite well without it.
I invest in growth stock in my Roth IRA.


davidmichael January 6, 2014 at 9:03 am

Looking at your returns, it seems like the best return is generated by P2P investing. A $100,000 investment would give you about $9000 a year according to the latest studies and your own results.


Eric January 6, 2014 at 10:03 am

Why not just invest in a dividend growth fund like VIG. It is always tough to beat the benchmarks, and with the super low fees Vanguard charges, it could just make sense to invest there.


retirebyforty January 6, 2014 at 3:54 pm

I’m giving it another year. If I can’t beat VIG, then that’s probably what we’ll go with in the future.


mike January 6, 2014 at 10:42 am

Hi Joe:

that is a solid portfolio of stocks you have. I am impressed with how you were able find great companies to invest in.

I was wondering how your 401k looks and other retirements accounts look like. (Im assuming the above is a SEPERATE account sitting on the outside of retirement stuff) What stocks do you have in it. I would be curious to know.

I’m trying to figure out what I need to do with my 401k. Since in a 401k, I can’t touch the money til I am much older. So I can’t rely on that passive dividend income to pay for day to day stuff.




retirebyforty January 6, 2014 at 3:58 pm

My IRA is mostly invested in index funds and bond funds.
My Roth IRA is invested in growth stock.
You can look into the rule 72(t). It is possible to take some money out earlier.


Anil @ PeerCube January 6, 2014 at 10:44 am

You own stocks in too many different companies in your dividend portfolio. I don’t believe diversification helps with dividend paying companies as such companies tend to be stable. You will benefit from a concentrated dividend portfolio composed of high dividend paying companies. Look into Dogs of Dow, Dogs of S&P500, Aristocrat strategies to pick some high dividend paying stocks. Add a few MLPs, REITs, and Junk Bond ETF/Funds to complement stocks.


retirebyforty January 6, 2014 at 4:00 pm

Thanks for your input. Most of these stocks are in the Aristocrat and Challenger. How many stocks would you comfortable with? Just 3-5 or around 10? It would be nice to consolidate a bit.


Anil @ PeerCube January 6, 2014 at 5:38 pm

Depending on the size of the portfolio, I most probably will have 5-7 dividend paying stocks, 1-2 MLPs, 1-2 REITs, and High Yield Bond ETF. I would diversify across market segments, preferably low correlated segments.


payitoff January 6, 2014 at 11:32 am

how much do you have invested in P2P?


retirebyforty January 6, 2014 at 4:03 pm

I started with $10,000. It’s now about $1,1700.


Ryan January 6, 2014 at 11:51 am

I don’t think you have too many companies represented here- although it’s a shame you don’t have more of Kinder Morgan (and even more of a shame I own none). But seeing you do this quarterly is an eye opener, and something I will model my charting after. I think for a lot of people, the actual Vanguard fund might be a good option, considering valuing a company can be a difficult thing.


retirebyforty January 6, 2014 at 4:02 pm

Thanks. I think VIG is a good option too. If I can’t beat it this year, I’ll probably just invest in VIG with any additional money.


George January 6, 2014 at 12:20 pm

Great info as always, I’ve been concentrating on dividend stocks much more now then I ever have in the past and feeling really good about this approach. Thanks to you I have even starting edging my way into VIG as well. I’m not going to put everything into it but it will play a role in my total portfolio.

I have a somewhat related question to you and/or anyone here. I’m looking for a place to store my Emergency Cash Funds (thus it has to be highly liquid). I see banks like Ally, Captital One, Barcalays, and Discover Bank offer some of the best rates (.75 – .90%). Anyone have experience with these banks good or bad?


retirebyforty January 6, 2014 at 4:06 pm

Here you go. :)
I like Amex saving. The rate is .85% and that’s better than most other banks.
Currently, I have my cash saving at a local bank. Their rate is 1%. You should look at some local banks and see if you can find a good promotion. Some banks have nice reward checking deals.


golay January 6, 2014 at 12:49 pm

Hi Joe,

Have you thought of buying PM shares (Philip Morris International-PM), there is consistant dividend growth since the spin off with Altria and now is at 4.4%.

Our dividend portfolio provide us a very good 21’000USD and I expect to reach 25’000-28’000.

I follow your site since 2012 and I target to retire by 50, living in Switzerland it’s very difficult to retire by 40…

Cheers and keep-up



retirebyforty January 6, 2014 at 4:07 pm

Yes, PM is on my watch list. I think I need to pick up some utilities first, though. Great job with your dividend portfolio and thanks for reading Retire by 40!
Good luck with your target date as well.


Pretired Nick January 6, 2014 at 1:47 pm

I’m always amazed how similar our situations and strategies are. Are you planning to gradually migrate lower-paying stocks into higher paying or are you focused more on broad diversification? Seems like you could easily hit your number by migrating to some higher dividend stocks across the portfolio, but obviously that leaves you pretty vulnerable as you narrow your collection.


retirebyforty January 6, 2014 at 4:10 pm

As long as they keep raising dividend, I’m mostly okay with this selection. I think the lower % yield are actually due to stock price appreciation. This portfolio is buy and hold so I don’t want to trade much.


Prateek Maitra January 6, 2014 at 2:23 pm

Hi Joe,

This is a great passive income strategy, but if this is indeed your portfolio, you could maximize this by selling covered calls. It means you collect a premium every month for every 100 shares of stock you own. You are selling the OBLIGATION to sell the shares at a certain price within a specific time window. What are the pros? Collecting passive income in addition to dividends. Selling the stock at a healthy gain if the stock passes the strike price that you select. You own over 1800 shares of Intel, right? You could write 18 contracts at a strike price of $27 (see screenshot: The premium per contract is $16. The premium total of 16 * 18 = $288. If the stock does not hit 27 before the 27th, you’d keep the $288. If the stock passes 27, you must sell your shares (at a healthy gain of course, and you’d keep the $288) After commissions and such, you’re looking at a gain of approximately $250 a month. If the stock creeps up, adjust your strike price up a bit. The idea is to keep the strike price just high enough that the stocks don’t get called away from you, but low enough that you collect a nice premium every month. Passive Income at it’s finest!!


Dividend Mantra January 6, 2014 at 4:39 pm


Good looking portfolio there! I agree with your idea on selling some of INTC and spreading the proceeds around a little bit.

Over $8k in dividends for one year is awesome! I hit almost $4k last year, but I’m hoping to increase that by at least $1k in 2014. It’s onward and upward. :)

And I concur with a commenter above that PM looks good hear for both yield and growth.

Best wishes!


retirebyforty January 7, 2014 at 4:42 pm

Thanks for your input. Good luck with your dividend in 2014. You are adding more every year so I’m sure you’ll hit your goal soon.


[email protected] January 6, 2014 at 10:39 pm

Hey Joe,
I have a post at my blog that has my top 5 dividend picks. I love my growth stocks but I need to balance it out with some income.


Bill Jones January 7, 2014 at 7:35 am

Hi Joe,

It looks like you’ve got a nice portfolio rolling. I have almost a philosophical question related to this post. With the bull market 6 years old and billionaires dumping stocks ( how does this make you feel regarding your strategy.

Personally, it makes me a little nervous. That’s just me though.


Financial Samurai January 7, 2014 at 11:19 am

Looks good to me. I just dump everything into a dividend etf to simplify.


retirebyforty January 7, 2014 at 4:45 pm

I’ll probably do that if I can’t beat VIG this year.


Evan January 7, 2014 at 11:41 am

“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.”
– WOW! That is fantastic. I am still under a grand myself but I know I am on the right path.

“I’ll update this article every quarter so we can see how our dividend portfolio is doing compared to VIG (Vanguard Dividend Appreciation ETF).”
– That is a great fund to compare my results to! I have always struggled with that question since just comparing it to the S&P500 index seemed wrong.


Chris C January 7, 2014 at 8:55 pm

Seems like you have all the sectors covered (or virtually all of them), and $9,000+/yr dividend income is really sweet!


Chris January 7, 2014 at 9:03 pm

Curious question though, why wouldn’t you move some over from Intel to Shell?
Sorry for the second post, our dog sniffed the touch-screen laptop and it submitted the previous post before I wanted to send it. :-)


retirebyforty January 7, 2014 at 10:39 pm

I want to get some utilities to diversify a bit. It looks like I have too much consumer and tech stocks right now.


Under The Money Tree March 13, 2014 at 10:56 am

Nice income report! Sounds like your portfolio is doing well. I assume you’ve got these all sheltered from the tax man as far as is possible?


retirebyforty March 13, 2014 at 10:56 pm

Actually, these are in my taxable account. I don’t really look at my retirement accounts because I can’t access them right now. Tax on dividend isn’t that bad at the moment.


Passive Income Mavericks April 27, 2014 at 7:27 am

You have a nice looking portfolio and I own many of the same stocks and some high-dividend Vanguard ETFs in my 3 portfolio (DRIP, HID1 & HID2).

Keep up the good work.


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