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How To Effortlessly Increase Your Dividend Yield


Last week, I gave a midyear update on our dividend stock portfolio. It’s lagging behind the S&P500 index a bit, but it’s on par with Vanguard Dividend Appreciation ETF (VIG.) Our dividend yield so far in 2013 is 2.47%. This should go up by the end of the year because many stocks are scheduled to pay dividends in Q4.

Anyway, many of the comments I received suggested that I shouldn’t focus on the short term performance. Erich said that I should calculate the dividend based on my cost. I haven’t done that before so I thought I’d try now to see what it would look like. I’m not sure what the technical term for this is, so I’m just calling it “cost based dividend” for now.

The idea is that solid dividend companies will increase their dividend payout over time. If you hold their stock for the long term, then your cost based dividend should be higher than the current dividend yield. I have only been a dividend investor for a couple of years, so most of my dividends haven’t had a chance to grow yet. Let’s take a look at a few stocks anyway.


It’s actually a bit unfair to look at Intel. My Intel stocks are all from stock grants or the employee purchase plan. The overall cost is much lower than the current market price and this makes the cost based dividend very attractive. Intel is my biggest position so I thought we should go over it.

Intel dividend growth stock

My cost per share was around $9 and this pushed the cost based dividend to nearly 10%. Intel stock price isn’t really going anywhere, but a 10% dividend is pretty awesome. I know it’s a little unfair because my cost was so low, but you could have purchased Intel in 2009 for $12.50. At that price, your cost based dividend would be 7.2%. That’s not quite as good as 9.88%, but you can’t get that kind of dividend from any solid blue chip company if you buy today. You need to get in at the right valuation and hold for the long term.


Shell is my second biggest position and it’s doing somewhat worse. I had Shell (RDS-B) for about 2 years now. The current price is lower than my cost so this is a loss at this point (not counting dividend).

royal dutch shell rds rds-b dividend growth

As you can see, I’m down about $4 per share. Surprisingly, the cost based dividend is not that far off from the current dividend. This is because Shell increased their dividend over the last two years from $3.36/share to $3.6/share. Hopefully Shell will recover at some point and my cost based dividend will increase accordingly.

A few more stocks

Here are a few more stocks in my portfolio that has pretty good cost based dividend yield.

dividend growth increase yield

These companies have a long track record of increasing their dividend, so my cost based dividends should keep increasing the longer I hold these stocks.

How to increase your dividend yield

So what have I learned?  There are two ways to maximize your cost based dividend.

Buy when the stock is down. When the company recovers, it usually will raise the dividend to reflect the stock price. Of course you need to do some research and predict if the business will recover. Some companies never recovered from the housing bubble market crash, but most solid blue chip companies have bounced back nicely since then.

Buy dividend growth stocks. Select companies with a long track record of raising their dividend.  Here is a site that I found very useful – Dividata. You can see the dividend history of the stocks you’re interested in.

grow your dividend yield

This is what I’m looking for when I buy dividend stocks.

Time: You also need to sit tight for a while and let time to do its magic. I said effortlessly, not fast. 🙂

Keep in mind that I have only been investing in dividend stocks for a few years. I’m still trying to learn more and figure out how to invest for the long term. Dividend growth stocks are great because with the right company, your yield will keep increasing every year. If all goes well, then in 10 years, my cost based dividend should be quite reasonable. Dividends also get preferential tax treatment so that’s a nice bonus.

Do you like dividend growth stocks? Am I missing anything? Wouldn’t it be great to get 10% dividend yield on all your investments?

S&P 500 Dividend Aristocrats: Companies in the S&P 500 that increased their dividend payout for 25 consecutive years. See the full list of Dividend Aristocrats at Wikipedia.

Disclosure: I’m long on all the stocks mentioned in this article.

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, the job became too stressful and Joe retired from his engineering career to become a stay-at-home dad/blogger at 38. Today, he blogs about financial independence, early retirement, investing, and living a frugal lifestyle.

Passive income is the key to early retirement. This year, Joe is increasing his investment in real estate with CrowdStreet. He can invest in projects across the U.S. and diversify his real estate portfolio. There are many interesting projects available so sign up and check them out.

Joe also 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 DIY investors analyze their portfolio and plan for retirement.

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{ 31 comments… add one }
  • RB52 September 13, 2014, 6:14 pm

    Nice work with the US News article. that’s what directed me here.

    Not too shabby with INTC recently huh? Had pretty big position in it too, but triggered limit order sold out at 32.
    I got some seller’s remorse on INTC but can’t complain about the profit.

    • retirebyforty September 15, 2014, 10:11 am

      I’m pretty happy about the profit so I’m not complaining. It was pretty surprising to see INTC shot up like that. I really don’t think it will last.

  • [email protected] September 28, 2013, 1:59 am

    I usually invest for growth although one of my favorite stocks I own is Banco Santander (SAN) which yielded 12.5% at my purchase price. (6.84)

  • Jack @ Enwealthen September 27, 2013, 4:41 pm

    Thanks for the additional dividend data sources. I’ve been using primarily dripinvesting.org and they have some great info, but it’s hard to know where to start.

    Cost based dividends sounds interesting, but I consider the cost to be the cost of doing business. I’m mainly interested in the cash flow as a percentage of the current value. Over a long enough timeline, if you’re just looking at cost, you start getting distortions from inflation.

  • krantcents September 27, 2013, 4:30 pm

    Although I have 2 stocks and a few mutual funds that have dividends, I prefer to invest for growth. I would rather give up current income for growth and enjoy the rewards later.

  • SuperChief September 27, 2013, 3:05 pm

    Measuring your income against cost seems misguided to me. Aside from captial gains/tax planning purposes, cost is irrelevant to your objectives in investing for dividends. Dividend yield should be measured versus the current market price of the stock, because this represents your opportunity cost.

    For example stock ABC has a 2.5% yield. You have owned for a long time and thus your yield on cost is 10%. Meanwhile, stock XYZ is yielding 4% and is a very similar company with a similar risk/return profile.

    Economically you would be better off selling ABC and buying XYZ. So who cares that you have a 10% yield on cost? It’s great if you want to look at your portfolio and feel warm and fuzzy, but here’s a better suggestion: sell ABC, buy XYZ, make some warm cider, go stand in front of the mirror and give yourself a hug.

    • Erich September 30, 2013, 9:16 am

      ABC yield on cost 10%, so let’s say you paid $100 and now are paid $10/year dividends per share to hold shares in this company. The shares are now worth $300.

      You suggest selling ABC to buy XYZ (same type of company and risk/return profile) for $100 a share (3 shares), to get $12 a year in dividends at 4% yield?

      With a snapshot view of the current moment, that seems like a better buy. But why not own both companies and improve diversification instead of selling ABC when they’ve been so solid and (presumably) had great dividend growth? If they are similar, and have the same risk profile, you can’t know which one may become dominant or develop a larger moat in the future.

      This is why dividend growth is a critical decision factor too. If ABC has 10% dividend growth for 10years+, and XYZ has 5% dividend growth, ABC is most likely better to hold. I would still consider buying some XYZ anyways, but I would’nt sell ABC unless it was consistently giving less dividend growth. It would just take a couple years for ABC to overtake XYZ in this growth scenario, and would be a far better hold for 20+ years.

  • Pretired Nick September 27, 2013, 3:03 pm

    I like your cost-based dividend term. It’s very similar to how I look at real estate investing. I examine my down payment and then look at what the yearly profit would be. Once I convert that to a percentage, it’s very similar to a stock yield, which allows me to compare investment against investment.
    Do you still like buying individual stocks over a fund? That’s the thing I’m most torn about.

  • The Passive Income Earner September 27, 2013, 2:33 pm

    The yield on cost is just another data set to look at. Dividend growth is really much more powerful. I look for 10% growth annually where I can. That’s why dividend aristocrats are a good filter as you know they increased dividends for at least 25 years. Then you just need to find the growth rate of the dividends.

    With respect to the terms, it is often referred as Yield on Cost and Dividend Yield as opposed to Dividend %. When comparing with Bonds, you need to take into account the tax savings of your Dividends for a fair comparison since bonds are usually taxed as income (in Canada anyways).

  • EL @ MoneyWatch101 September 27, 2013, 8:58 am

    Yes some companies automatically calculate return on costs or what you paid for the stock. When you buy a stock the price matters because your yield will be greater if the price is cheaper, and the company continues to perform / increase dividends. But if you want to increase the dividend income, you just have to buy more shares and not be too bogged down with the yield.

  • davidmichael September 27, 2013, 8:43 am

    Joe, thanks for your review and comments. I wish I had purchased dividend paying stocks when I was in the middle of my career. I think your two suggestions are right on…especially, hold on for the long term. It would be interesting to compare P2P lending programs with dividend stock investing and probable long term results.

    • retirebyforty September 27, 2013, 3:38 pm

      I like dividend investing more for the long term. I just don’t trust P2P lending as much. Good blue chip companies are a much better bet than small time borrowers, right?

  • Justin @ Root of Good September 27, 2013, 8:19 am

    That Vanguard Dividend Appreciation ETF (VIG) is more my style! Buy, sit back and sip some coffee, and let the dividends roll in and increase year over year. I’m not quite sold on the dividend focus as an overall investment strategy, but there is a huge peace of mind you can buy with a dividend strategy. Now that I’m living off investment income, it is WAY easier to contemplate spending my dividends than it is to eat into my principal and sell my precious little shares of ETF’s to fund living expenses or luxuries.

    • retirebyforty September 27, 2013, 3:37 pm

      I’ll keep trying a few more years to see if I can trounce VIG. 🙂

  • Kurt @ Money Counselor September 27, 2013, 8:03 am

    My individual stock holdings are exclusively dividend stocks–I like income! And I really like “effortlessly,” so we’re in synch. I own stocks now with a dividend yield in excess of 7%, based on what I paid for the stock. I’ve also had one notable failure–GE–that slashed its dividend during the meltdown, so I’m not getting such a great yield on that one today. Probably should have sold it, but I’m stubborn (stupid?).

    • retirebyforty September 27, 2013, 3:36 pm

      7% is great! I’m pretty stubborn too. I never know when to sell a stock. The problem is what the heck do I with the proceed. I usually just buy another stock…

  • Shane @ Beating Broke September 27, 2013, 7:06 am

    That’s an interesting way to look at dividends, for sure. Although, I don’t think there’s a way to look at dividends or whatever that will make my position in RSH look good… 😉

    Another interesting thing I like to look at from time to time, which is easiest if you keep track of the dividend payouts and hold long term, is to compare cost to overall dividend payout over the position. The longer you hold them, the more likely it is that you’ve been paid enough in dividends to actually be a negative net cost on the stock.

    • retirebyforty September 27, 2013, 3:35 pm

      Oh well, you win some, you lose some. 🙂
      Total dividend payout sounds great too. I don’t keep track of it though. The brokerage have that info. Thanks for the idea.

  • SMB September 27, 2013, 5:33 am

    Have you read Get Rich with Dividends? I read it last year when I wanted to get into dividend investing and I found it really helpful. I only compare the dividends to what I initially paid in, even though I’m reinvesting all dividends. The book also taught me to be happy when stocks go down. If you’re in it for the long run, the lower the stock price the more your reinvested dividend is going to buy. I also only buy dividend aristocrats, champions and contenders. There’s lots of great information out there on how much companies have raised their dividends and for how long – you just have to google. My dividend portfolio is miniscule compared to yours (only about $1,000), but I’m 26 and it’s only a small part of my retirement savings. I just hope one day I can put enough in that it’ll be a reliable source of passive income for me.

    • retirebyforty September 27, 2013, 3:28 pm

      I haven’t heard of Get Rich with Dividends. I’ll put in on my reading list.
      Thanks for the recommendation. I don’t DRIP though. I usually buy new stocks because I’m still diversifying.
      I’m not too familiar with dividend champions and contenders. I’ll check them out too.
      Good luck with your investments!

    • Best Dividend Stocks April 12, 2019, 1:02 pm

      Hey, I also started dividend investing because my dad got me Get Rich with Dividends for my birthday one year. I was thankless as a 21 year old. Now I’m a very grateful 34 year old with a decent dividend portfolio. Heres the link to the book: Get Rich with Dividends.

  • Alan September 27, 2013, 5:06 am

    I have a lot of muni and bank loan closed end funds in my portfolio with dividend yields in the 6.5-7.5% range. Even better, the muni dividends are tax exempt, and I am in a high income tax bracket, so I have an effective taxable yield in the low to mid teens on those.

    • retirebyforty September 27, 2013, 3:27 pm

      That was a great move. I’ll look for that in the future when rate rises to that level again. Maybe in 7-8 years?

      • Alan September 27, 2013, 4:10 pm

        Actually theyre yielding those levels right now with the recent muni meltdown. NY munis arent relevant to you, but check out names like VTN and PNI to get a sense of how high the current yields are right now.

  • Jamie V September 27, 2013, 4:52 am

    In my 401K, I think I’m getting some company stock at a discount. I think. This makes me think I should figure it out for sure, because the quarterly dividends are nice (reinvested of course), and while tiny, they will grow in time (I do not see this large company failing – I know, famous last words, eh?). If I’m getting stock at a discount, like you did, then I guess my current dividend % would be nicer than most, as well? I never thought about that before. Neato, thanks for some food for thought!

    • retirebyforty September 27, 2013, 3:26 pm

      You should check it out and also see the percentage of company stocks to your total portfolio. You don’t want to hold too much company stock. I like to keep it under 10% at the most. Don’t forget Enron.

  • Jane Savers @ Solving The Money Puzzle September 27, 2013, 3:53 am

    Will you be making sell decisions based on the CBD? Or will a stock that pays a consistent dividend regardless of the hills and valleys of market price be a keeper?

    I am a buy and hold person myself so as long as the shares keep paying I will keep them.

    • retirebyforty September 27, 2013, 3:25 pm

      I’m planning to hold most of the stocks in my dividend portfolio for the long term. Selling is always hard for me.

  • moneystepper September 27, 2013, 12:45 am

    Dividata looks great, but unfortunately for me personally only covers US markets.

    Looking at your cost based dividends, especially for former growth stocks that have become dividend stocks is a pretty satisfying thing to do!!

    • Dividend Growth Investor September 27, 2013, 5:51 am

      With dividend investing, you want sustainable dividends that can grow over time out of growing earnings. Growing dividends maintain and increase purchasing power of your dividend income, while paying preferential tax rates. You also don’t want to overpay for those shares.

      I would encourage you to look at company’s annual reports/websites for longer histories of dividend payments.

      I think that yield on cost is a helpful tool, but mostly when you evaluate future yield your dividend growth company can deliver. For example, if I buy $10,000 worth of Coca-Cola today at a 3% yield, it would generate $300 in annual dividend income. If it grows dividends by 10%/year, my yield on cost will be 6% in 7 years or $600/year ( without any dividend reinvestment)

      • retirebyforty September 27, 2013, 3:33 pm

        Thanks for your advice.
        Ah… Yield on cost. That’s the term. I’ll make sure to check dividend growth when I invest in my dividend portfolio.

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