Dividend Growth Future Estimates

I have never really thought about what my 10 year plan looks like.  Considering I make my decisions based on the long term implications, this is rather odd.  It took me over three years to find the right house.  I went through 3 or 4 realtors and even then it took me almost a year to find a house I wanted to buy.  I didn’t want to go to college, but went and focused heavily on my studies.  It was my job after all, I probably spent around 40-50 hours a week studying when I was not in class.  I wanted to do well, so that I could get a good job, which I believed I would need for the next 40 years.

When I started investing, the plan was to get rich.  Which as a plan lacks detail and is lazy, but I got caught up in the market euphoria and dropped the ball for a few years.  Once I began dividend growth investing more than two years ago, I began to plan somewhat.  I created a spreadsheet that mapped out expected dividends over the next 30 years with a yearly cash contribution I felt was sustainable (given the randomness of life).

Until recently I have not sat down and asked myself the question:

Where do you want to go?

To do this day, I honestly can’t answer that.  I don’t know.  I think I would like to have enough side income to take a position that allows me to be outside more.  I say this, but I am rather risk averse and don’t make many changes.   This may be many years away, in the mean time, I created a spreadsheet that helps me map out my expected future income.

The formula…

Lets start with an example, suppose you start with the following parameters:

Parameter Value Notes
Yearly Dividends 1000 Dividends paid in a 12 month period.
Yield 3.5% Average yield of your portfolio.
Dividend Growth 8% Overall dividend growth rate.

Simplifying assumptions I use in the formula:

  • Reinvest all dividends at the end of year at average rate.
  • Forward dividends are adjusted at the end of the year.
  • Additional funds are invested once per year when dividends are, assuming the “Average Portfolio Yield”.

After year one, reinvesting :

Fwd Dividends

= (Current Yearly Dividends + Dividends received * avg. rate)*(1+Dividend growth rate)

= (1000 + 35*.035)*(1+.08)

= (1000 + 1.23)* 1.08

= 1081.33

After one year, your dividends would have gone from$ 1000 to $1081.33.  Similarly, for year two, you would use $1081.33 as your “Current Yearly Dividends” and compute the same formula.

Suppose you are adding $1000 to your investment at the average portfolio yield or 3.5%.  This would add an additional $35 to your income.  This value would be added to what was computed to simulate the investment at the beginning of the next year. Your year two starting 12 month dividends would be $1116.33 after investing an additional $1000 earned in year one.

Do you recognize this formula?  With the exception of adding additional funds, this formula is for annual compounding.

Drawbacks

I made some basic assumptions that simplifies the calculation:

  • It doesn’t take into account reinvesting dividends as soon as your able.
  • It doesn’t take new money added to your account throughout the year.

Both of these issues will affects your overall estimates in a given year.  Suppose you earned $10000 dividends/year and we reinvest quarterly vs once at the end of the year.


For annual compounding, your 12 month forward dividends will be 10350 after one year. If no additional capital, but the dividend income is reinvested.


Quarterly compounding will do the following each quarter. Note, the “12 Month FWD Dividends” column is what your income will be at the end of the quarter.
Quarter Quarterly Dividends 12 month FWD Dividends
Q0 0 10000
Q1 2500 10087.50
Q2 2521.88 10175.76
Q3 2543.95 10264.84
Q4 2566.21 10354.66

At the end, the difference is small ($4.66), however it is something to remember when compounding annually vs quarterly. For my purposes, annual compounding will provide a floor to my dividend income estimates, assuming I am able to make the additional assumptions (extra capital, average growth rate and after yield of 3.5%) reality.

My 10 year growth estimates

Here is the first 10 years of projected dividends of my portfolio assuming 8% growth, 3.5% average yield and 10200 additional yearly deposits.

Expected Year Date Passed Milestone
0 6/1/2012 0
1 1/1/2013 2,100.00
2 4/1/2014 2,497.84
3 9/1/2014 2,942.17
4 2/1/2014 3,438.44
5 6/1/2014 3,992.69
6 6/1/2015 4,822.07
7 6/1/2016 5,748.37
8 6/1/2017 6,782.93
9 6/1/2018 7,938.38
10 6/1/2019 9,228.87
11 6/1/2020 10,670.16
12 6/1/2021 12,279.89
13 6/1/2022 14,077.74
14 6/1/2023 16,085.68
15 6/1/2024 18,328.29

In 10 years from my last milestone (6/1/2014), I want to have $18,328.29 additional yearly income. I think this is achievable, at least for now. I have included a longer version of this chart on my Progress page.

Wrapping up

That is were I hope to be heading.  The market is fairly interesting right now.  There are several quality companies approaching my buy targets and with my recent purchases of XOM and CVX,  I am patiently waiting to add additional shares of other companies I expressed interest in purchasing a week ago.

What do you think? Do my estimates seem crazy or mis-calculated?

Disclaimer: Long CVX, XOM.

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6 Responses to Dividend Growth Future Estimates

  1. That’s a pretty solid goal you have there. Challenging, just because real life doesn’t always cooperate with the mathematical models. Certainly achievable though; heh, this market decline should help out quite a bit, especially if it lasts a while. Wishing you the best!
    DividendDeveloper recently posted…Dividend Stock Analysis – UNHMy Profile

    • ILG says:

      Thanks for stopping by DD!

      Yeah, I am looking forward to the declining market! Recently bough CVX, XOM and now they are at even more attractive prices! A little to quick, but at good prices non-the less.

      Take care!

  2. Any time you can see the power of compounding and consistent investing visualized it helps plot your goals and measure your progress towards them. I know for me, I am incentivized to work harder and invest more so that it happens even quicker. The math is there, and while not a guarantee, there is something to work towards.
    writing2reality recently posted…Introducing the 2014 Dividend CalendarMy Profile

    • ILG says:

      Yep! I agree with you. Trying to get to the next rung in the ladder faster will encourage me to invest more. Reaching each goal for the next 10 years or so will be influenced heavily by how much I can invest.

      Take care!

  3. Allan says:

    Sounds like a great plan and you’re already on the right track. I just recently crossed the 1000$ milestone in forward dividend and would like to reach 18k within 12 years. I’ll have to be very agressive with my saving rate to reach that goal but I love doing that. It’s like playing a never-ending Monopoly game.

    Best regards,
    Allan recently posted…9 Wide Moat Aristocrats That Could Boost Your Dividend Growth!My Profile

    • ILG says:

      Thanks for stopping by Allan! I have to agree with you, it is great waking up and getting a few dollars =)

      18k in twelve years sounds like a pretty good goal. If I follow my timeline, then I should be there in 10 more years! That will be a pretty awesome milestone!

      Take care!