Dividend Income Update – Q1 2016

Dividend Income Update - Q1 2016

I started investing in the stock market when I began working full time in 1996. First, I contributed to my 401k. After a few years, I was able to fully max out my 401k contribution and kept that up until now. Currently, my retirement funds are all invested in low cost Vanguard funds. I also started investing in my taxable brokerage account since the beginning. I started off small and invested in “growth” stocks. By growth, I mean whatever my friends were talking about. I had some winners and losers, but didn’t make any big wins like Apple and Google. In 2010, I decided to retire by 40 and started converting my taxable account into a dividend portfolio. This time I focused on buying solid big companies with a track record of dividend growth. My goal is for dividend income to cover about 25% of our cost of living after Mrs. RB40 retires. The rest of our monthly expense will be covered by a combination of business income, rental income, interest income, and side hustles.

Here is the recap of our dividend income so far.

  • 2012: $6,791
  • 2013: $8,036
  • 2014: $8,759
  • 2015: $10,695
  • 2016: projected $10,925

The stock market was a wild ride in Q1 2016. The S&P 500 index dropped 10% by mid February and then made a quick recovery. By the end of Q1, we were at about the same point where we started the year. Our dividend portfolio did relatively well so far in 2016. One of our stocks had a big stumble and cut their dividend, but the rest seems to be doing okay. Let’s take a closer look.

RB40 dividend income

Dividend Income Q1 2016

In Q1 2016, our dividend income was $2,827. That’s an 18% improvement from Q1 2015, not too shabby. The great thing about a dividend growth portfolio is that our dividend income should increase over time. This is due to three factors.

  1. Reinvested Dividend– I reinvest our dividend income in new stocks. I don’t DRIP because it complicates the tax when you sell. Although, now that the broker keeps track of everything, it should be pretty easy. In 2015, I reinvested our dividend in Phillip Morris, Omega Healthcare Investors, and Caterpillar.
  2. Dividend Growth– Most of the companies in our portfolio should increase their dividend payout every year. More details below.
  3. New Investment– We try to add new money to our dividend portfolio whenever we can. In Q1 2016, I purchased 100 shares of Kinder Morgan Inc. The price was beaten down to under $12 and I purchased right at the bottom. I’m looking to buy more stocks at a bargain price this year.

Of course, it’s not all good news. The world economy is going through a challenging time and setbacks are inevitable. KMI had a pretty bad year in 2015 and they cut dividends by 75%. That’s a big deal to dividend investors. The stock also dropped from a high of $45 to a low of $12. Kinder Morgan is a midstream pipeline company and the weakened crude and natural gas prices hit them very hard. I think they are still a good company and they should recover eventually. That’s why I purchased 100 shares earlier this year to average down my cost basis.

Dividend Growth

Here are the companies that increased their dividend in 2015 so far. Most of them are just one or two cents increase, but that’s still better than nothing. Actually, if you look at the percentage, the increases are pretty good. Quite a few of the increases handily beat inflation.

StockDividend Increased in Q1
Eli Lilly2%
Abbot Lab8%
Western Union3%
Universal Corp2%

*Ford paid out $1 Billion in special dividends in January 2016. They had a good year in 2015.

Dividend Portfolio Performance

Our dividend portfolio did quite well in Q1 2016. We gained 5% via price appreciation and 1% via dividend. This compares favorably to our benchmark – VIG, Vanguard Dividend Appreciation ETF. VIG is up 4.5% plus 0.5% dividend. We’re a full percentage point ahead and I am very happy with that.

 2016 Dividend Target

My dividend income target for 2016 is $11,500. That’s about $900 increase from 2015. At this point, we are a bit behind the pace. My spreadsheet indicates that we’ll receive $11,266 in dividends this year. I’m not too worried because the other companies should increase their dividend payout later this year. Also, I am hoarding cash at the moment. I still think we will see a bigger stock market decline this year and I want to be ready to buy more shares. Anyway, we should be able to meet my dividend income target this year.

You can see my 2016 dividend portfolio here.

Dividend Coverage Ratio

As I mentioned in the beginning, my goal for our dividend income is to cover 25% of our expenses. For Q1 2016, our dividend income covers 22% of our expenses. This is improving slowly and I think we’ll get there by 2020.

Do you invest in the stock market? How did you do in Q1?

If you need help keeping track of your finances, try using Personal Capital to manage your portfolio. You can see all your accounts in one place and easily check the overall performance.

Image credit: flickr by CIMMYT

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.

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34 thoughts on “Dividend Income Update – Q1 2016”

  1. how much money in dividend paying stocks do you normally need to have invested in order to get paid 50k per year?
    could it be 1.5 millions? or much less?

  2. I’m sure I could back the math into it, but how much do you have invested to gain this amount in dividends? Do you spread your funds across dividend paying stocks evenly? What’s your target average return and do you have a portfolio percentage return desired? Do you own any dividend paying stocks on margin? And do you ever consider selling covered calls against your dividend stocks?

  3. Nice growth in your portfolio. It is really motivating to see growth a work like that.

    It looks like your timing was spot on for KMI. I bought too early, average cost basis is 16,5.

    Just this week, I on purpose added a DGI stock to my play portfolio. Maybe I start my portfolio already now and not close to retirement.

  4. Hey Joe that is a really impressive amount of dividends you’ve received. One day we would love to receive that amount in a year, not just a quarter. But we are right at the start of our investment journey of course.

    Dividends are a great way to get passive income without having to do anything else to work for it 🙂


  5. Sorry if I’m a bit confused. I thought the dividend income was used to live on, for expenses. But you say you reinvest the majority of it. So which is it?

    • Sorry for the confusion, I updated the article to help clarify.
      We’ll reinvest the dividend income while Mrs. RB40 is working. Once she retires, then we will use it to live on. Depending on our other income, of course.

  6. VOO is simply the S&P 500 index as a whole. Yield is about 2.1% currently. VIG is a bit of a misnomer because its dividend yield isn’t terribly much higher than the whole index. Currently around 2.18%, which is pretty low by today’s standards. You might want to take a look at something like the PowerShares S&P 500 High Dividend Low Volatility ETF (SPHD). It currently has a yield of 3.27% all while still tracking the S&P 500 Low Volatility index. Don’t get caught-up with low expense costs, its how the funds actually perform that matter. VIG hasn’t really been accomplishing what its supposed to, despite the name.

  7. 22% coverage is fantastic. Nice work. To your point, I agree, you should see some nice dividend increases in coming months that will get you to 25%. Nice work sir.

  8. Congrats on the successful quarter, Joe.
    Similarly, I when I first opened my taxable trading account, I was kind of all over the place with limited success. I too have now kind of settled on blue chip dividend growers. I’m not sure if that’s the optimal approach versus a pure index strategy but it fit my personal strategy of building a relatively stable, tax efficient income stream bucket while allowing my retirement account buckets to continue to grow untouched and with less concern having a high equity mix. It’s going to force me to retire later than needed but I’m hoping to have my dividend income replace nearly all of my take home pay.

    Q1 ended up ok for me. The horrible start to the year was balanced out by an excellent rebound in March. However, we’re definitely in a phase of uncertainty, particularly the questions around companies’ abilities to grow their earnings and correspondingly grow their dividends. And I share your pain Joe with a big dividend cut by one of my energy stocks last year.

  9. I love the upward trending chart. Didn’t realize that Ford gave such a huge special dividend, the company is clearly doing well. At ~$1,000 dividend per month, that money is now large enough you can just reinvest it to buy another stock. The compound affect really takes off.

    • I was surprised by Ford’s move as well. Their stock price wasn’t doing well so they gave out special dividend to attract investors. I think they are a good value play.

  10. Congrats for your great Q1 results!
    I wonder how you can explain your performance compared to VIG. What is the trick?
    In my case I’m invested in VIG and VOO and it seems that for both short and long terms (one and five years) VOO has better results so I don’t see the benefit of dividend stocks.

    • From what I understand, VIG is a bit more conservation. I shoot for 3% dividend when I add new investment. I think VIG is less concern about the yield. They value stability and dividend growth. VIG probably would do better in a down market.
      As for VOO, I think VIG should beat VOO in a down market as well. Dividend stock is usually better if you’re looking for income.

  11. Great quarter. I’m right there with you in terms of being back to where I was at the start of the year. Also bought KMI in its dip, and am looking forward to some serious gains over the next few years. My best accounts are beating the S&P 500 by 10% while generating dividends, but my worst accounts are -2% while generating no dividends.

    It’s not quite time to upgrade my outlook on 2016 yet, but hopefully I can spend the rest of the year establishing my dividend portfolio. Right now it’s a very small part of my overall investments, because I’ve taken the stance that I’m only going for dividend growth investing with new money. How did you have the guts in 2010 to sell your existing taxable investments (all growth stocks or ETFs?) and buy only dividend stocks?

    • Good luck on your dividend portfolio. KMI went back up right after I made the purchase. I was thinking I should have bought more. Hindsight is 20/20. 🙂
      The transition from growth to dividend was a gradual process. It took 4 years for us to move over. You can see our dividend income was still increasing in 2012. It helped that growth stocks were doing well. It was time to sell, take profit, and move into something safer.

    • Good luck on your dividend portfolio. KMI went back up right after I made the purchase. I was thinking I should have bought more. Hindsight is 20/20.
      The transition from growth to dividend was a gradual process. It took 4 years for us to move over. You can see our dividend income was still increasing in 2012. It helped that growth stocks were doing well. It was time to sell, take profit, and move into something safer.

      • I’m in the same KMI boat. Average cost is probably around $18/share. I still have a bunch from around 2006 pre-merger that will never be underwater, but it’s hard to have bought some later in the 20’s and then have the dividend slashed. In hindsight, I wish I had unloaded at least a little when it spiked to $42.

        I think the outlook is good, though. The reality is that KMI is not as linked to oil as the market assumes. But it does trade lock-step with the price of oil. It’s odd that when I see higher prices at the pump, I actually smile.

  12. I love dividend growth investments! It looks like your portfolio is doing quite well Joe! $2k per month in dividends is nothing to sneeze at!

    We’re aiming for $4k per month in dividends this year! I think we’ll make our goal too!

    Thinking about KMI, I think you’re right….over time it will be fine. Their assets today aren’t earning as much, but contracts don’t last forever, and gas won’t stay cheap forever. Given time you should do OK.

    I think it was a smart move.

  13. Very impressive. After reading so many blogs on dividend investing, I’m very tempted to throw my hat in the ring. I think for now I don’t want to divide my attention from my other projects, but I’m deeply considering it for 2-3 years from now. Thanks for the numbers!

    • Thanks! The nice thing about our dividend portfolio is that it doesn’t take that much time. Once you get it set up, you don’t need to spend a lot of time on it. Our rental properties are much more work.

  14. Very impressive Q1. I’m sure you will hit the $11,500 goal, as it’s well within reach based on your projection. I love the KMI buy you had at the bottom that allowed you to average down. I’m hanging onto my small KMI position, as I believe it will rebound nicely and start increasing dividends again soon.

    • I think it might take a few years for KMI to bounce back. They are a bit over leveraged from what I understand. Once the oil and gas price increase, KMI should do pretty well.

  15. Joe,

    That is some impressive dividend income you have going forward. As companies keep growing dividends, and if you reinvest those dividends, your total dividend income could easily grow by 8%-10%/year ( and thus double every 7 – 9 years). If you add in money, the growth will be even faster.

    And $11,266 in annual income is almost $1,000/month. To put it in perspective, some people work ~138 hours at a minimum wage job just to make the same amount of dividend income you earned without a sweat. Owning income generating assets is the way to gain financial freedom!

    Best Regards,

    Dividend Growth Investor

    • It would be great if we reach $20k in about 4 years. We’ll keep working on it.
      You’re right about the minimum wage. That’s a whole person working for me. 🙂

  16. I have an all stock investment portfolio and it tracked the market relatively close for Q1. I don’t have a specified amount designated toward dividend stocks currently, but may consider that once I near early retirement. Have you had good success beating VIG historically and would you ever consider splitting your dividend portfolio up between your current strategy and the VIG? Thanks for the post!

    The Green Swan

    • I think VIG beat us one year, but otherwise, I had a pretty good record. I think VIG is geared more toward stability so their yield is a bit less. I try to get 3% yield. I don’t really want to split the portfolio. I may convert the whole thing to VIG if they consistently beat me.

  17. That’s really a good increase. I don’t invest in dividend paying stocks but get interest from CDs and a stable value fund. I like saving more and taking very little risk. They don’t pay as much but the interest is guaranteed. Right now I’m making $5835/yr. ($3700 from 401k stable value fund + $2135 from CDs) and I also get $2130/yr. as a company match in my 401k which is kind of like earning interest. So I’m making about $664/mo. The interest in my 401k stable value fund will increase next year since I’ll be adding $6000/yr. to it for catch-up contributions. My CD interest increases slightly each year also until they mature.


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