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Increasing Our Dividend Income

increasing our dividend income

I’ll reinvest the dividend earning until we need them.

2012 has been a great year for the stock market so far. The SP500 is up about 11% and the Dow Jones is up about 8%. I’ve been trying to slowly move our investments toward dividend stocks to increase dividend income for a while now, so I took this opportunity to sell some equity and beef up our dividend portfolio.

This is actually very timely because side income will be harder to come by in the future due to some recent changes at Google. I can probably count on $200/month from online income instead of the previously $1,000/month average. This mean I’ll have to increase my income from the dividend portfolio and diversify the online income model. Keep an eye on the monthly cash flow posts for the latest updates.

Here is our dividend portfolio after the update.



yield %

estimated $































pacific rim


















This update finally met my goal of $500/month dividend income. Some of these are not quite dividend stocks, but I plan to hold them for long time. VPL and DODFX are part of my international diversification plan and they happen to pay dividends. I picked up BAC when it was cheaper and will hold on for now to see if they will increase their dividend payout.

What do you think about my diversification here? I probably need to pick up some utilities to diversify a bit more. I would like more healthcare and insurance too. I don’t have any REIT here because I’m already investing in rental properties.

At this point, we have a few more holdings in non dividend paying investments like Amazon and Berkshire Hathaway. The plan is to slowly move them to the dividend portfolio. When the price is right, I’ll sell these other holdings.

Alternatively, I can add to my P2P lending account at Prosper.com instead of the dividend portfolio. The rate at Prosper.com is much better than 3.55% and it might be a better way to generate income. If I add $10,000 to my $2,000 at Prosper.com then I can generate about $100/month. This is much easier than trying to do it in the dividend portfolio. At 3.55%, I would need to add $34,000 worth of dividend stocks to generate $100/month.

All in all, I’m quite happy with the recent market run up because it gave me the opportunity to move from growth stocks to dividend stocks. I don’t mind holding these for the long term because they are solid companies and even if the market goes down, we’ll still see the dividend checks. What about you? Have you made any major changes to your stock portfolio due to the recent gains? Did you see Financial Samurai’s move? He sold all his stocks to lock in the gain for 2012.

You can see our updated Dividend Portfolio in the 2017 Passive Income post. This post is updated monthly.

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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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{ 57 comments… add one }
  • Jm May 15, 2017, 9:24 am

    How is the dividend portfolio doing now and are you still going strong off of it. I am looking into starting something similar.

    • retirebyforty May 15, 2017, 9:49 am

      It’s doing pretty good. You can see in my 2017 Passive Income post.
      I update this post every month. Our dividend should be over $11,000 in 2017.

      • Jm May 15, 2017, 10:02 am

        Do you think you can accomplish the same goal with high dividend yield ETFs…ie SPHD, SCHD, DVY, etc…?

        • retirebyforty May 15, 2017, 12:13 pm

          Yes, I think we can probably accomplish the same goal with a good ETF. Make sure the cost is low, though. I’ve heard good things about SPYD.

  • ktnga December 10, 2014, 4:08 pm

    Very good website. I think you should consider investing in Realty Income (O) for REIT diversification. They offer monthly dividend and they also keep increasing their dividends every year. The price has also been increasing up gradually.

  • Ryan December 29, 2012, 9:41 am

    Do you do all of your dividend investing through just a standard brokerage account? I’m a little confused on the taxation of dividends.
    If you invest in dividend paying stocks via an IRA, you are subject to an ADDITIONAL 10% penalty(if you are under 50 1/2) on top of your normal taxes on those yields, correct?
    Is that not the case if you purchase the same dividend paying stocks through a different vehicle – like a brokerage account?

    • retirebyforty December 30, 2012, 3:53 pm

      No, my ETF in the IRAs also pay out dividends.
      You are only subject to the additional 10% penalty if you withdraw it early.
      In the Roth IRA, if you meet the IRS’ condition, then you won’t have to pay any tax on the gain at all.
      In the traditional IRA, you will have to pay the regular income tax rate when you withdraw anything. However, those investments in the traditional IRA are all pre taxed – meaning they haven’t been taxed yet.
      Let me know if I can answer anything else.

  • sin camisa December 20, 2012, 7:49 pm

    Joe; what parameters are you using at Prosper? I got hit badly when I started there back in 2007; but still have not recovered. Are you lending to C and above? Thank you

    • retirebyforty December 21, 2012, 9:08 am

      I’m only lending to Home improvement projects in all grades. I heard that many investors are still trying to recover from the recession. That’s why I said the default rate will go way up with an economic stumble. I think the economy will be OK for the next few years though.

      • sin camisa December 21, 2012, 5:24 pm

        Thank you Joe. I put only $1K and I was 8% under in no time. It was brutal. Now I started the recovery; but I am still under my $1K. I just opened an account with Lending Club. I hope I do better. Sitting on cash getting 0.5% is not cutting it.

        • retirebyforty December 21, 2012, 10:03 pm

          Did you lend out in $25 increments? It’s more work, but it’s better to diversify your investments. I’ll try Lending Club next year as well.

          • sin camisa December 22, 2012, 8:44 am

            I did loans of $50 each. I just opened a $5K account on Lending Club, and plan to add $4K to the Prosper account. For the last 18 months I programmed Prosper to do only AA loans automatically, and I haven’t had a default since. Of course, the returns are down. I need to put more time into it. I also need to work on a dividend portfolio. Do you use any website in particular for your research? Thank you.

          • retirebyforty December 24, 2012, 11:36 am

            That’s pretty good. My default rates are pretty high at nearly 5% so far, but we’ll see how it works out in the long run.
            I like the dividend guy blog.

  • Vip November 7, 2012, 5:02 pm

    New to investing. Have about 5 grand to invest and would like to know what to put it in. I already started a roth IRA and maxed it out. No 401k option currently available at work. I would like to be able to invest in the stock market but not sure where to begin. Not even sure if 5 grand will be a good start on a portfolio. Any suggestions?

  • brendan October 10, 2012, 12:17 pm

    enjoyed the article. just curious if you have thoughts or planned for the possibility of the dividend tax increasing with the expiration of the bush tax cuts

    • retirebyforty October 10, 2012, 4:59 pm

      Not at this point. Our income will drop quite a bit in 2013 so our tax rate should be much lower than previous years.

  • Thomas June 9, 2012, 7:37 am

    On the Divident investing, do you guy just buy and hold, or do you sometimes try to close out one position after the divident is paid, so you can open another position that has an upcoming dividend?

    Other then a good dividend payment, what do you look for in a dividend stock.

    Doesn’t do much good to get a high dividend if the stock drops twice the price of the dividend.

    • Bernie June 9, 2012, 8:10 am

      If you have done the research and are happy to invest in a particular dividend stock you should be in for the long term. Stock prices go up and down over time. You should not concern yourself with drops in price if the fundamentals of your stock remain sound. As for your last last comment, this would only not do you much good if you sold when prices were low. If there is nothing inherently wrong with your stock other than a drop in price you should have patience and let it ride.

  • Amsoil Discount May 28, 2012, 6:58 pm

    Google put out a recent algorithm change that is dramatically thwarting people’s SEO efforts. For example, let’s say you found a nice niche term that’s searched a lot and have no competition? Google knows about this niche and if they catch you making a web page to capitalize on the niche, they simply throttle your traffic down. It’s terrible. Google traffic to myself and many other people I know has gone down dramatically. They are going to bankrupt a lot of people from the changes they made. Lots of people spent a fortune in time. I would not mind spending money on Google Adwords, but the money you spend often comes back fruitless. A friend of mine has doubled his Adwords budget and isn’t making a dime from it. People are clicking but no traffic ever converts to sales. There are too many click-happy webmasters ruining it for everyone. What they need to do is have a flat fee for maybe $50-100/mo. and give you unlimited traffic. I have lots of Google Adsense pages and my income has dropped dramatically on it. I used to make almost $100-120/mo. with Google Adsense. This month I’ve only made a whopping $16 bucks. It’s horrible. My traffic and passive income are tanking hard. I bought a beautiful new car 8 months ago and now I will have to get rid of it. I’m almost $10k upside down. I need to get a car that has 1/2 the payments and have no idea how I can do this without it being a repo. I can’t do anything to damage my credit.

    • retirebyforty May 29, 2012, 5:33 pm

      I am really sick of Google’s updates. We have been hit with the PR downgrade, but at least our traffic are still doing OK.
      Sorry to hear about your Adsense earning. I got banned a while ago and haven’t been able to get it repeal. 🙁

  • SavvyFinancialLatina May 11, 2012, 7:18 pm

    Thanks for the article!!!!

  • Chris May 8, 2012, 10:53 am

    On your “dividend portfolio after the update”, would it be possible to add another column of you purchase price for those stocks. I would be interested to see how your capital gains are doing.

    I’m a self made multimillionaire and retired very young. I did it just as you are outlining in this blog. Keep at it, you’re getting there. The secret: living well below your means, save, invest making sure you have a large “Margin of Safety” and postponing instant gratification.

    • retirebyforty May 8, 2012, 5:26 pm

      I’ll add the purchase price when I do the next update. thanks for the suggestion and encouragement.
      It’s great to hear a success story.

  • Jeff @ Sustainable Life Blog March 27, 2012, 9:14 am

    Congrats on hitting your goal!

  • Bernie March 26, 2012, 10:25 am

    Personally, I prefer individual stocks with a focus on dividend growth. Dividend ETF’s are very poor dividend growers.

  • cashflowmantra March 23, 2012, 6:01 am

    Glad to see you hit your goal for monthly dividend income. I am using individual stocks in my retirement account and am pleased with the diversification and yield. I am making gradual changes to improve the income as well.

  • Robert @ My Multiple Incomes March 18, 2012, 4:35 pm

    I’m a big believer in mortgaged backed REITs right now. I know you have rental properties, but these are a bit different than your standard collect the rent REITs. They pay amazing dividends, and as long as interest rates stay low, you are golden.

  • BusyExecutiveMoneyBlog March 18, 2012, 10:13 am

    This is a great topic. I have steered away from indivdual stocks because I just don’t think I want to put that much risk in a handful of equities. Instead I’m invested in broad index etfs. Mostly at Vanguard.

  • Stock Tips Investment March 17, 2012, 7:44 am

    Congratulations. This is a very good article. I think a well-structured portfolio that allows you to get a monthly income is a good idea … provided you have the capital required Your article mentions that you need about $ 34,000 of capital for an additional $ 100 monthly. That means that if someone wants to retire for example with $ 5,000 a month, would need an accumulated capital of U.S. $ 1.7 Millions. That, regardless of annual inflation. I do not think you can easily earn that capital investments in fixed income.

    • retirebyforty March 18, 2012, 11:02 pm

      Exactly! It’s difficult to earn a lot of money from dividend unless you have a big nest egg. That’s why it should be a part of the retirement plan, but not the only one. We are also counting on rental income and a little bit from social security. We’ll probably work part time too.

  • 101 Centavos March 17, 2012, 4:50 am

    Echoing Frugal Portland — exactly what changes at Google?

    For me, I’d have way more diversification. Looks like the bulk of your portfolio is lumped into a handful of stocks. There are a number of Canadian oil and gas equities, MPLs and trusts, or even US preferred stocks, that offer better returns. One strategy would be to lock in any capital appreciation with part of the position, and use the proceeds to diversify.

    • 101 Centavos March 17, 2012, 4:54 am

      ( hit submit button too soon )

      I meant to add, if you’re comfortable with the allocation, stick with it. It’s your money.

    • retirebyforty March 18, 2012, 11:00 pm

      I’ll PM you.
      This is just my dividend portfolio. Our retirement portfolio is much more diversified than this since they are mostly mutual funds and ETFs. I’ll check your portfolio and see if I can copy some investments.

  • CultOfMoney March 16, 2012, 10:03 pm

    I’ve been looking at the new IRA at prosper as a good way to invest in a high-yield type of asset, but it’s been so hard for me to find loans as it is, the idea of trying to fund another 5-10k in IRAs is a bit daunting. That is the advantage of dividend stocks over prosper, you can put all your money to work at once and in short order.

    • retirebyforty March 16, 2012, 11:35 pm

      I’m having some problem with the loans too. At $25 a pop, it will take months to lend out 10k. I started using quick invest recently and we’ll see how it goes.

  • Tiffany March 16, 2012, 12:56 pm

    Can you elaborate on the changes at Google? I was thinking about getting into niche sites.

  • krantcents March 16, 2012, 12:08 pm

    Dividend stocks used to be for “old ladies and orphans”. It is a good way to provide a steady income. I am starting to shift some of my investments to fixed income too.

    • retirebyforty March 16, 2012, 12:44 pm

      I’m shifting my taxed account to dividend stocks to provide a bit more income during the transition. My retirement account still have quite a bit of growth ETF/stocks.

  • Financial Independence March 16, 2012, 9:47 am

    I am procrastinating somewhat to invest in the stock market. Keep saving the cash.

    Mainly due to the two reasons:
    – Do not want to go into bond, due to high inflation concerns
    – What a coincidence! S&P 500 ended the year of 2011 within 0.01% of where it was at the beginning of the year.

    Just not sure what to do, at the moment. Penny for your thought.

    • retirebyforty March 16, 2012, 12:47 pm

      You can invest in rental real estate if you have a lot of cash. 🙂
      The market ran up quite a bit recently so it’s tough to jump in now. I don’t know, I’m not a professional.
      Who knows what the market will do the rest of the year.

  • Frugal Portland March 16, 2012, 9:46 am

    What changed at Google?

  • Roshawn @ Watson Inc March 16, 2012, 9:27 am

    I use dividend-paying ETFs.

  • Dollar D @ The Dollar Disciple March 16, 2012, 8:21 am

    Congrats on meeting your goal! That’s a shame about your online income. You think those recent changes will have THAT big of an impact?

    • retirebyforty March 16, 2012, 11:10 am

      Thanks! The changes mean I’ll probably reduce direct advertising quite a bit and will have to diversify with affiliate marketing and more.

  • Marina K. Villatoro March 16, 2012, 8:18 am

    I see everyone mainly recommending ETF’s – are there any in particular that stand above others? Or what’s a good resource for it. I’m a huge believer in ETF’s but none of mine are dividend ones – yet.

    • retirebyforty March 16, 2012, 11:23 am

      I go with Vanguard ETF and there are only a few with 4-5% yield. I think corporate bonds and maybe utilities ETF have higher yield.

  • Corey @ Passive Income to Retire March 16, 2012, 7:58 am

    Sounds like a good plan. I look forward to see how you diversify your efforts with the blog income as well.

  • WorkSaveLive March 16, 2012, 7:54 am

    I see that you were part of the hit from Google. Sorry…that’s really annoying.

    I am with Mr./Mrs. 1 Percent on this. What about MFs or ETFs that are bond or dividend based? There are some very good 25/75 portfolios out there that have averaged 5-6% over the past 10 years (okay…well I don’t know of any specifically other than the one I put people in). I’m sure you could find one though.

    • retirebyforty March 16, 2012, 11:08 am

      Yeah, we go docked from 5 down to 3. I guess at least we’re not 0. I’ll check vanguard and see if they have any good ETF. I think their corporate bond ETF yield 5-6%.

  • MoneyCone March 16, 2012, 6:52 am

    If diversification is a concern, why not dividend paying ETFs?

  • I Am 1 Percent March 16, 2012, 5:58 am

    Great post, though I’d be afraid of the risks with individual stocks…ever think about dividend ETFs?

    Also, what changes were made at Google that reduces your ad income? I’m curious to know…

    • Marina K. Villatoro March 16, 2012, 8:16 am

      I’m considering these, do you have any recommendations?

      • I Am 1 Percent March 16, 2012, 9:29 am

        I currently don’t invest in dividend ETFs because divident paying stocks are typically lower growth…that’s why they’re able to distribute profits in the form of dividends rather than reinvest in the company for future growth potential.

        • retirebyforty March 16, 2012, 11:22 am

          I don’t really like dividend ETF because the yield is usually less than 3%. I’ll have to find a trustworthy ETF that yield 4-5%.

      • Six Figure Investor March 17, 2012, 10:49 am

        A few good dividend ETFs are the S&P500 sector funds. XLU, the utilities ETF which has underperformed the market by 16% YTD (!) , has a yield of 4%. If the market performs better, expect XLU to get cheaper. This is the best value right now.
        XLP/SDY are others but I wouldn’t consider them as cheap.

        Big bank debt can still be bought at yields of 7-9%. These are low investment or near investment grade. You don’t want to go too high up the credit chain due to interest rate risk.

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