Dividend income is my favorite form of passive income because it is truly passive. I don’t have to do anything and the dividends keep rolling in. I like having rentals too, but they are just more work. 2015 wasn’t a great year for stocks in general, but our dividend portfolio did okay. It managed to pull off a small positive gain if we count the dividend payment. We also exceeded our goal of generating $10,000 in dividend income so that was really awesome. My goal for 2016 is to increase that dividend income to at least $11,500. Let’s see how our dividend portfolio performed in 2015 and take it from there.
The main strategy for our dividend portfolio is to invest in solid companies with good track records of raising their dividend. This way, our dividend income will grow every year even if we can’t add new money. We have been doing pretty well so far since we started following this strategy. Here is our dividend record since 2012. Prior to 2012, most of the investment in our taxable account was in growth stocks.
- 2012: $6,791
- 2013: $8,036
- 2014: $8,759
- 2015: $10,695
- 2016: projected $10,925
Actually, our 2016 dividend income should be a little higher than projected. The great thing about the dividend portfolio is that our dividend income should increase every year. This is due to three factors.
- Reinvested Dividend – I reinvest most of our dividend income in new stocks. This will increase our total shares.
- Dividend Growth – Most of the companies in our portfolio should increase their dividend payout every year. There will be some exceptions as companies face problems. See KMI below.
- New Investment – We try to add new money to our dividend portfolio when we have extra savings. This will also increase our total shares. In 2016, I plan to hoard cash and buy when stock is down.
2015 Dividend Income
In 2015, the S&P 500 index ended up right about the same level as it started. Individual stocks varied widely,though. Our energy stocks dropped quite a bit, but some others did very well. Overall, our dividend portfolio lost about $5,000 in value. However, we came out ahead if we take dividends into account.
2015 gain: 1.8%
Dividend portfolio value (1/1/2016): $300,249
Also, we beat our benchmark – Vanguard Dividend Appreciation ETF (VIG.) VIG had a negative year even when you count dividend. This is very important to me because if we can’t beat VIG, then I might as well just invest in VIG instead of individual stocks.
Worst Dividend Stocks
Kinder Morgan Inc.
KMI had a terrible year. The stock dropped nearly 65% and they are cutting dividends by 75% in 2016. I’m thinking about picking up some more shares, though. I need to do more research, but I believe the business will back to normal once the energy price recovers. Of course, it might take a few years to get back to where it was.
Walmart dropped 30%. I think the dividend is still safe at the moment.
Shell dropped 27% last year. They seem to be more sensitive to the oil price weakness than other oil companies. Exxon and Chevron also dropped, but not as much as Shell. If oil price continues to be low, the oil companies probably will have to cut dividends at some point.
Our long term goal is to generate $15,000 in dividend income per year by 2020. Mrs. RB40 plans to retire then and the dividend income would help pay for our cost of living. For 2016, I think we should be able to meet our incremental goal of $11,000 in dividend income. The projection is based on current dividend payout and it is already very close to $11,000. Most of our companies should raise their dividend next year and push us over. I’m also hoarding cash and plan to add more shares if we see a big slide in stock prices next year.
Do you invest in dividend stocks? Should I pick up more shares of Kinder Morgan?
Disclaimer: I have positions in all the stocks listed here. 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.
For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.