Dividend Income Update – Q3 2015

Growing our dividend incomeDividend income is my favorite form of passive income. I like rental properties too, but not this month. One of our tenants is leaving at the end of October and I have quite a few things to do. I’m improving the unit and increasing the rent. Dividend income is much easier and I don’t have to spend much time on it at all. Eventually (20+ years), I’d probably move most of our investment into our dividend portfolio. It’s just so much easier than rental properties.

Anyway, 2015 is quickly coming to a close and it’s time for the Q3 dividend income update. One of my goals for 2015 is to generate $10,000 in dividend income. Let’s see how we are doing so far this year and go over a few highlights and lowlights. We will also check on our 2020 passive income challenge.

Dividend income Q3

For the 3rd quarter, our dividend income was $2,739. That’s a little higher than $2,678 from Q2. The great thing about the dividend 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.
  2. Dividend Growth – Most of the companies in our portfolio should increase their dividend payout every year.
  3. New Investment – We try to add new money to our dividend portfolio whenever we can. In Q1, I purchased 100 shares of AT&T and 150 shares of PM. In Q2, I purchased 100 shares of Omega Healthcare REIT. In Q3, I purchased 50 shares of CAT. Q3 was a great time to add to our dividend portfolio, but we ran out of liquidity. We used the cash we had to contribute to our Roth IRAs and my i401k.

Of course, we’ll have some dividend decreases too, but they should be temporary. These drops are usually due to selling stocks and dividend cut. Hopefully, these events don’t occur too often.

Dividend income update Q3 2015

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 increase is pretty good. Quite a few of the increases handily beat inflation.

StockDividend Increased in Q1
Intel4.3%
AT&T2.2%
Ely Lilly2%
Abbott Lab9.1%
Abbvie16.7%
Coke6.5%
Western Union23%
Walmart2.1%
Kinder Morgan Inc2.3%
Universal Corp.2%
Ford15.4%
Dividend Increased in Q2
General Mills7%
Procter & Gamble3%
Kinder Morgan6.7%
Hasbro7%
JP Morgan10%
Dividend increase in Q3
Target7.7%
Leggett & Platt3.2%
Umpqua Bank6.7%
National Retail Properties4.8%
Philip Morris2%
Caterpillar10%

Dividend Portfolio Performance

Q3 was a down quarter for the stock market and our dividend portfolio was hit too. At the end of Q2, we were up by 2.2%. Today, we are flat for the year at 0% gain (including dividend.) Many stocks are down quite a bit. Here are some notable ones.

  • Shell and Chevron are not doing very well in 2015 because crude oil price dropped. Both are down about 12%.
  • AbbVie (-15%) The pharmaceutical business is tough.
  • Mattel (-20%) I probably should just sell and cut my losses. It looks like Mattel is in a prolonged decline.
  • Procter & Gamble (-17%) Declining volumes.
  • Walmart (-30%) Walmart’s earnings will drop for a few years because they are investing in their online business and increasing wages.
  • Kinder Morgan Inc (-22%) KMI is a pipeline company and they are under pressure due to continued weakness in oil and gas price.
  • National Retail Property (-12%) Not exactly sure what’s going on with this one. Consumer spending was weak in Q1, but picked up in Q2.
  • Deere & Co. (-11%) According to the news, the farm economy is entering a downturn.

Whew, 2015 is turning out to be a tough year. It’s pretty amazing we are flat for the year considering these big drops. We are actually doing very well compare to my bench mark – VIG, Vanguard Dividend Appreciation ETF. VIG is down 2.2%, including dividend. I would love to pick up some more shares, but we don’t have much liquidity at the moment. I’ll hold on to these stocks and see how it goes. I’m most worried about Walmart and Mattel. Can they turn things around?

2020 Passive Income Challenge

I thought this quarterly update would be a good place to keep track of our 2020 passive income challenge as well. The goal is to have enough passive income to cover all our expenses by the end of 2020. Let’s see how we did in Q3 2015.

  • Dividend Portfolio: $2,739
  • Rental property: $215
  • Interest: $25
  • P2P Lending: $167
  • Joe’s retirement accounts: $4,887
  • RB40’s retirement accounts: $1,291

Total passive income*: $9,324

Q3 expense: $15,661

FI Ratio: 59.53% (FI Ratio = passive income / expense)

*This is pre-tax income so I will have to account for tax later. I’ll just shoot for pre-tax income to surpass expense for now. We’ll deal with tax when we actually reached that point.

Our FI ratio was pretty good in Q3. Many of my Vanguard funds paid out in Q3 so the income there was much higher than in previous quarters. The rental income is a pretty low because I made some improvement to our duplex. So the income side was pretty good, but our expense was higher too. We took a 2 week vacation to Costa Rica and it inflated our expense for the quarter. We really need to buckle down in Q4 and live more frugally.

Anyway, 60% FI ratio is quite good. We probably won’t achieve my goal of 66% for 2015, though. I will have to look at this again when 2015 is over. At this pace, we won’t achieve our goal of covering all expenses with passive income by 2020. We probably will have to make some drastic changes before Mrs. RB40 retires.

Dividend stocks are great for retirees

Q3 was tough because the market was very volatile. None of our dividend stocks reduce their pay out so our dividend income hasn’t been impacted. That’s the nice thing about owning “safe” dividend stocks. Of course, if the economy decline further, we might see some dividend reduction. Meanwhile, I’ll try to scrape some money together so I could buy more dividend stocks while they are on sale.

I still love our dividend portfolio. It doesn’t require much work and the dividend increases every quarter. That’s a great fit for someone who is thinking about early retirement. If you’re in the 15% tax bracket or below, you don’t even have to pay tax on your dividend income.

Are you investing in dividend stocks? How did you do so far this year?

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!

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24 thoughts on “Dividend Income Update – Q3 2015”

  1. I picked up a few dividend stocks I had my eye on all year during the September panic. Q3 was a very exciting time to scoop up some bargains. Dividend stocks are a pretty small portion of my net-worth, since I love investing aggressively and most dividend stocks do not fluctuate too much in price. But the closer I get to early retirement, the more I will transition into dividend stocks.

    Hope you guys can build up some cash reserves again for the next panic/bargain shopping season. Good luck in Q4!

    -Casey

    Reply
  2. A high dividend strategy is poor Value strategy and dangerously undiversfied.why would you want to build large company Value portfolio. Dividends are not a stand in for high quality bonds . I would much prefer cap gains that I can write off with capital losses.

    Reply
    • Most large cap stocks are diversified in themselves, both in rev sources and geographically, so I’m not sure I agree with the premise they are dangerously undiversifed, particularly if you are conscious of you industry spectrum.

      The benefit you seek, offsetting gains with losses, assumes you trade, rather than invest. Which is not very passive.

      Reply
  3. Joe,

    Love the update. You’ve got a pretty strong portfolio, all in all. Some companies are facing some difficulties, while others are killing it right now. That’s why we diversify.

    The market oscillates wildly – up and down all the time. But the dividend income, especially if you’re properly diversified, tends to generally move in just one direction: up. 🙂

    I personally love that juxtaposition, especially considering that my expenses don’t go down just because the stock market is.

    Keep it up. You guys are doing really great.

    Cheers!

    Reply
  4. I love dividend investing because it’s pretty easy (vs. the headaches of renting), entry and exit costs are super low, and I pick companies that increase faster than inflation. I looked to build a portfolio that can cover our basic needs (mortgage, utilities, etc.) just because it was a convenient target. There are a lot of familiar names on your list and mine (the AbbiVie and Abbott split is one that comes to mind, that’ll be a tax pain when we sell!).

    Reply
    • Being a landlord is a lot of work. It’s a great wealth builder, though. An alternative is to use a property manager, but I haven’t found a really good one yet. Yes, I hate dealing with the tax when I sell too. Last year, KMP converted to KMI and it took me weeks to figure out what to do with tax.

      Reply
  5. I also track the expense to passive income ratio. Joe, your expenses include your house mortgage, right? So once the house is paid off the ratio will look much better. After leaving my job at a large company (for reasons similar to yours) our cash flow was dreadful although we have plentiful investments. I couldn’t take it any longer; we paid off the house (against all of my finance education). That affects our ratio. I am anticipating that will put us at 76% (based on 2014 total dividends). Good luck and thanks for sharing.

    Reply
    • Yes, we still have a mortgage. I want to pay it off before Mrs. RB40 retires. It’s not the optimal thing to do, but our cash flow would be much better. 76% is great! Good luck to you as well.

      Reply
  6. This is huge! I love dividend stocks. It’s like a treasure hunt searching for a stock that is undervalued AND has a strong dividend. You stand to profit from the stock’s eventual appreciation (hopefully) and the dividend. I think it’s one of the best ways to secure passive income – especially without the hassle of managing a property. Good work!

    -DP

    Reply
  7. Hey Joe, love to see the dividends update. We are planning on dividends being a very large portion of our early retirement income. We don’t plan on using DRIP either, mainly from the standpoint of investing in the best option (or what seems to be!) at the time! Looks like you have a nice portfolio there, thanks for sharing!

    -Mr. RB35

    Reply
    • You’re right. I’d rather see what stock is a good investment at the moment. It’s more work, but you have more control. Good luck!

      Reply
  8. We have about $15000 invested in a our after tax brokerage account. It’s currently generating $90 of dividends every quarter (total of $360). It’s all Vanguard index funds. I want to invest an additional $5K this year to bring our yearly dividends up to approximately $450. I missed out an opportunity to buy when markets were down a couple of weeks ago, because I wasn’t sure if we had enough cash or if the market was low enough.

    Reply
    • Keep working on it! At this point, you probably should average in a bit at a time. Time in the market is the best way to invest. Don’t worry about timing the market at this point. You’ll look back and say why did I agonize so much with $5k?
      Good luck!

      Reply
    • I felt the same way during the September panic: I was not sure if it would keep going down and if I should invest my extra cash. Luckily I set up a game plan to invest a portion of my cash when it drops by 10%. If it dropped by 10% more, I would have invested the rest. So I picked up a few stocks I had been watching that got beaten up, but only invested about half of my cash. I guess me and you can just save up more cash while we wait for the next opportunity! In the mean time, I suggest you set up a game plan like I did before the next market dip.

      -Casey

      Reply
  9. I collect dividend paying stocks like some people collect baseball cards. Only buy high quality stocks that should be able to maintain and hopefully keep raising their dividends. Not really concerned with short term price volatility as I generally do not sell I’m more focused on increasing the dividend cash flow. When stocks dip I’m become a buyer I just love it when stocks go on sale. Been testing a new theory about buying stocks that people hate. Used to feel “taken” buying gas but now that I own some gas retailer stocks I smile every time I feel that they are ripping me off. Funny how that works. Canadian bank stocks as my Mum and her friends at the retirement home like to say are golden. They are like owing a casino in Vegas, the house never loses. She says they are like the government but instead of raising taxes they increase service charges. Now every time I see a bank fee go up instead of muttering something under my breath I smile because when they make money she and her friends make money.

    Reply
    • That’s what I’m doing with Shell and Chevron. I got tired of complaining about the gas price and owning some oil stocks make a big psychological difference. I’m sure energy companies will come back at some point. The world economy can’t be stuck in neutral forever. Walmart, on the other hand, has a big challenge ahead of them. If they can execute their strategy, then they should come back.

      Reply
  10. I haven’t checked our Q3 performance yet, but I have taken advantage of the market to pick up some stocks I’ve been watching. Looks like you are not too far off your goal for dividends this year.

    Reply
    • It’s great that you were able to pick up some shares while the market was down. We don’t have much cash now so we’ll be on the sideline for a while. If the market weakens more, then I probably will trade in some bonds for stocks. We’ll see how it goes the rest of 2015 and next year.

      Reply
  11. I have a small dividend portfolio that will probably return $1,000 in passive income for the year. And it’s definitely encouraging to receive dividend payouts every month regardless of the stocks’ values. I’m also invested in some index funds and ETFs, as well.

    Reply

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