2015 Savings System

Each year I make an effort to save a sufficient amount of capital.  I do this through a system I set up using direct deposit of my paycheck and marking funds in various accounts for a specific purpose.   Additionally, I am fairly frugal and don’t spend a lot money (in fact spending a lot of money causes anxiety for me).

However, I have a desire to save a little less in 2015 than in previous years, where I have wanted to save all that I could.

2015 System

Goals are best defined using the SMART framework, as described recently by Dividend Mantra. Feel free to step out and read about that, I will be right here.  I won’t be rehashing those details, because I hesitate to call my approach goal setting, plus he does a great job of explaining the framework. I hesitate because once my system has been set up, it is automatic and the result is also automatic.

I set the system up to run on it’s own, which is very inactive.  In order for it to change, I have to make an active adjustment.  That should not occur because I am setting up the system within my means, even the desire to spend more will be within my means (see below).

By the end of the year, the following will have occurred:

  • 401k Maxed (18000 this year, the IRS raised the limit from 17.5k)
  • Roth IRA Maxed (5500)
  • 600 per paycheck will be deposited in brokerage accounts for future investments
  • Remaining funds deposited into spending account, to do as I wish
    • This can include anything. Spending/Saving/Donations

Life could throw me a curve ball, which may require me to reduce some of the contributions above.  This has a chance of occurring (especially with the house), but I have an emergency fund that I think is sufficient to cover most things.

Reducing Spending Anxiety

It is hard for me to pay my credit card bills on each pay day (I charge as much as I can to my cards and pay them off as much as possible at each paycheck).  It doesn’t matter if I have spent more or less than I was supposed to, the act of parting with my earned money always hurts.

For a long time, I always worried about making purchases.  This was until I made the decision to “allow” myself an account to do whatever I wanted with. This account is all the spending (bills, food, etc) that I do.  This has reduced my anxiety because these funds aren’t for saving.  If I end up saving a little extra, I am pretty pleased by it.  In fact, many of my Loyal3 purchases last year were from funds I didn’t spend in this account.

A fun little side effect of this system, is that it allows me to figure out what I spent last year without much hassle:

26 * bi-weekly deposit – cash in account + credit card balance

*Edited after posting: I realize I am very fortunate to be in this position and hope I do not come off as insensitive.

Desire to spend more?

I am not feeling as frugal as I have in the past.  Partly due to the house purchase and my desire to make some improvements to it. I don’t really have anything in particular that I want to spend money on, I just feel like I want the penny pinching stress to go away for a bit.   How will I spend more while remaining within my means?

There really isn’t any secret to doing this, but when you make more money you can spend more (if you choose).  I am going to have a busy year at work and will make a little extra cash as a result.  This cash will be part of the “Remaining Funds” bullet above.  Of course, if a miracle happens and work is normal this year (which would be great), the extra funds won’t appear, but I won’t be over extended either.  Pretty straight forward.

Conclusion

That is how the system is going to be running this year.  The only potential change is if I choose to save more and then I would modify the amount going into the various brokerage accounts.  Otherwise, I expect this to remain in place until the end of the year.

 

2014 Year in Review and onward

Howdy all!  Well the year is coming to a close, with the final trading day of the year under way.  I have had a good year, here’s a recap.

Income Progress

This year I ended up slightly over 4k in dividends, which was a large increase over 2300 from 2013 and 1000 from 2012.  I am hoping to end 2015 with 6k forward dividends and over 5200 in income.

Dividend raises happened in all of the stocks in my portfolio.  The average dividend increase was 7.7% based on weight.  This is right around the target of 8%, so I am happy with my asset allocation.  I will probably look to add to positions that average 6-8 with a decent yield in the next year.

Blogging Lessons

I have had the blog for almost a year starting in February.  I have enjoyed it, but have found that it isn’t necessarily for me.  Or maybe it is just tracking my portfolio through a blog that isn’t appealing for me.  The posts where I wrote about something other than a stock was more enjoyable than the buy or monthly updates.  So maybe a blog with rambling thoughts and poor grammar is something for me =)

I have enjoyed interacting with like minded people and appreciate all the commentary provided by others.

Going forward

Well, I am not sure where things are going from here. I have about a month left before I need to re-up the website, so I have some time to think.  However, I am leaning towards stopping for several reasons:

  1. I work on the computer all day long and have been spending too much time on it at home
  2. Working long hours for the foreseeable future (ties into 1 and 3)
  3. I want to spend more time outside (even in the winter)
  4. I want to learn new physical skills (home maintenance/repair, electrical plumbing)
    1. As an aside, my Grandpa knew how to fix most things around the house.
  5. Side- hustle as a Math/Computer Science Tutor/Personal Trainer
    1. I think I want to be a Teacher once my Software Career is over, this will be a good step.

I think the biggest reason of all is that I am fairly tired of focusing so much on finances.

Financial Independence?

Many bloggers I read are building towards this state.  A state where they can do what they want all the time and live through passive income.  There is nothing wrong with this, that is where my Grandpa ended up upon retirement.  Living off dividends, but he had quite the full life prior to that even while working.  He traveled all over the word repeatedly and did what he wanted.  He was also a Professor, so maybe he had the best of both worlds (work + lots of vacation)

I would love to be at this state, but I don’t know when I will want to be there. Practically, it won’t be for a while because I don’t have enough passive income.  Supposing I was able to at this moment, I don’t think I would do it.

Next year budgeting

I plan on capping my savings for the next year, increasing my budget and spending (or saving) money as I go. I am not going to set any sort of goal with regards to saving. Savings will be purely automated into my brokerage accounts, which I will still spend some time monitoring and investing(on no fixed schedule, I was investing monthly).

Thanks!

Thanks for reading, I appreciate the comments and reading.  Take care!

December Sale

Winter break now!  Work has wrapped up for the year and now I am about to head home to visit my family.  I hope you all have a safe and Happy Holidays!

As I had eluded to in my November Highlights,  I have contemplating selling several of my investments.   I haven’t done enough analysis to make decisions on all of the positions I listed, with the exception of one.

My sale

I decided to sell ARCP over the last few weeks.  I have watched the drama unfolding and have decided that the investment is not worth the risk associated with it.  I made several mistakes while researching and buying this investment:

  1. I projected the success of O onto ARCP’s future
  2. Reached for yield

O has an impressive track records.  They have raised the dividend for several decades through boom and bust.  As I researched ARCP, I felt like I could be getting into an “O” type investment at the early stages where the initial dividend increases would be higher than they will be when the company reaches O’s maturity level.  I feel like the triple net lease REIT space is great for investments, but ARCP proved too opaque for my research.  Truth be told, of all the positions in my portfolio, ARCP has bothered me the most, even on the day I bought it for the first of two times.  That in and of itself should probably have told me not to bother with it, but I did.

If you have an reservations with your research, do more research.

In the end this will be a tax loss and a lesson learned for me.  I sold the position on Thursday at 8:28 per share.  I will loose about 162 dollars of income and I am pushed back below my previous milestone, but the proceeds from the sale will be reinvested and should add an additional 50 dollars to my income.  A temporary set back of 110 dollars or so.  I received around 200 dollars in dividends from this investment, for a total loss of 400.

Sailing down memory lane

Ahh reaching for yield, I’ve committed this sin before.  Years ago I bought an investment called Paragon Shipping (PRGN). Shipping was in a golden age in early 2007.  Spot prices were high and shipyards were stuffed with orders! Unicorns and rainbows were around every corner, the DOW was almost at 14k.  Paragon was adding capacity to its fleet and the fleet was locked into long term leases at high rates!  What could go wrong?

PRGN had something like a 8% dividend.  Not crazy, but once the market crashed, the Baltic Dry Index went from over 10k to 1k in less than year.  PRGN crashed and so I bought more and more and reinvested dividends.  Dividends of 20%! When all was said and done, I lost somewhere in the neighborhood of 5k (and some of it in a ROTH account).  The total loss was probably 80-90% of invested capital.  Easily my worst “investment” of all time.

Ironically, I was researching on how to become a dividend investor at the time.  This was the first time O came on my radar, but it’s yield at the time was to “low”.  Sigh… I supposed one of the first mistakes a dividend investor makes is focusing on yield over ensuring that dividend is safe and sustainable over decades.  Put O and PRGN on the same chart and see how that turned out.

The Fear or Missing out or FOMO

Why did I hold onto PRGN for so long?  Even though hindsight is 20/20, it does appear that things were bad enough that I should have considered getting out of PRGN (or never getting in).  The main driver in holding onto the stock (and adding to it), was the fear that once I sold, it would go up and all the money I lost would have been recovered. If I sold, I was locking in losses and loosing money, but if I bought more now, my gains would be even better (and it would have to go up less to be in the black!).   Or that is probably how my thought process went.  I was pretty good about telling myself the recovery was right around the corner!

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” – Warren Buffet

Right?  I was definitely being greedy, but I was also being an idiot.  At the time, I don’t think I had enough knowledge about both PRGN and the shipping industry in general to be making those purchases. I also had bad timing, but I’ve had good timing too, so that evens out.  I like this quote from Warren Buffet, but I think there is a caveat of knowing what your doing, which I did not at the time.

Why would I sell an investment?

Over the last few months, I have been pondering whether or not I should sell some of my slower growing dividend growth stocks.  This would put companies like T (~2.1%), VZ (3.4%) and SYY(3.4%) into that bucket.   I will be examining over the next few weeks and will hopefully put a coherent post together about why I would choose to sell one of those positions.

A small purchase

I hadn’t expected to make a purchase this month, as I am saving up funds for my ROTH come January 2nd. However, I have accumulated enough funds in my Loyal3 account (52 to be exact) and decided to buy some MCD with it.  That will execute on Monday ( I put it in to late on Friday).

Conclusion

No one wants to make mistakes, but if you can learn from them, then they aren’t all bad.  I would rather make this mistake with a small investment now, than make a large investment in the future and have my income setback much future.

Take ar!

Disclaimer: Long MCD, O, T, VZ, SYY

November Highlights

Well, I have had a busy December.  After returning home from Thanksgiving, I have managed to work everyday!  Not the most exciting thing, but I should be able to leave work earlier and get a good long winter break.  Needless to say, I haven’t had much time to do any research, blogging or blog reading.

I was fairly active investing this last month.  I added substantially to my oil positions and to UL.

Black Friday Blowout

Recent Buys

Raises

Emerson Electric (EMR) and Intel raised dividends (~9 and ~6) respectively.  I was happy that INTC raised the dividend and since management tries to peg the payout ratio to 40%, I think that means they see brighter prospects  ahead.

Dividend Income

I began November with 12 month expected dividends of ~4557 and finished with ~4884.  A substantial rise due to the large investment I made on Black Friday. I passed another milestone and I am very close to meeting my goal of 5k by the end of the year.

For the month of November I totaled 285.82 in dividends.  This was a slight increase of about 3 dollars from August and a 77% increase from last November (161.24).

I should be on track to earn over 4k in dividends by the end of the year.

December Purchases

My December action will probably be limited.  I like to fund my Roth account right at the beginning of the year, so I am collecting funds and will probably not a normal purchase before the year is out. I may however make a purchase with my reserve cash if a great opportunity arises.  I would like to put an additional 400 to work in UL, but that may be put on hold as well.  We shall see.

Portfolio Shrinkage

I have about 44 positions in my account and with multiple spin-offs coming in, I may need to look at trimming some of my weaker positions and adding those funds to other companies I own.  A few candidates that I may trim include ARCP, T, VZ, SYY. With the exception of ARCP, the others are in my Roth account and wouldn’t be taxed.  That comes into play a little bit, but if the investment doesn’t fit, it needs to go.  I am negative at the moment with ARCP, so there will be a little tax harvesting there.

Basically, these are companies that do not have a high dividend growth potential and I could replace them with suitable candidates of similar yield (without reaching for it).  Some potential investments include the Oil Blue Chips I own, KMI, VOD or any others that have a solid change of raising the dividend by 8% or more over the next 5 years.

Once I am on vacation, I will do a scrub and see what I can improve upon!

Conclusion

Another solid month all around.  I am pleased with my progress and overall have identified a few areas of improvement and I hope to be able to start executing them by the end of the week.

Take care all!

Disclaimer:  Long all stocks mentioned.

 

Black Friday Oil Blowout!

Happy Thanksgiving everyone!  I hope you had a great time with your friends/family or whatever ritual you follow for the holidays! My ritual involves spending a week with my family and using the computer as little as possible.

After a relatively peaceful week, I turned my attention to the OPEC meeting that was occurring over the last few days.  I was waiting to see what the decision was regarding whether or not they were going to cut production.  There is quite the oil glut on the markets right now.   I didn’t really expect any cut because of the pressure that Saudi Arabia wants to put on the US drillers in Texas and North Dakota.   Plus, the other OPEC members that want a cut in production Saudi (the biggest producer) doesn’t like.  So, what happened?  As expected, the production of oil didn’t change and the price of WTI crude fell.

Sure enough, there was plenty of blood in the streets.

Black Friday Purchases

Company Shares Income!
BBL 25 62
BP 25 60
COP 20 58.4
CVX 10 42.80
XOM 11 30.36

I added to all of my oil positions besides KMI.  I was somewhat disappointed that it didn’t take as big a hit as the other companies, but there is plenty of time.  I used funds that have been left over from purchasing my house.  I could have bought more, however I plan on using that cash to buy on dips and for any house emergencies that occur.  I will slowly deploy all that capital as the cash in my house fund grows from my paychecks.

Additionally, my biweekly purchase of $200 occurred in my Loyal3 account on Wednesday.  I purchased 4.08 shares of Unilever.  This added approximately 6.6 to my income.

Over the last week I added $260.15 to my 12 month forward income, which now stands at $4884.15.

Conclusion

Was today the best day to buy oil stocks?  Could macro factors make a better price tomorrow? Yes and Yes, but there is no time like the present.    The price of oil does affect how profitable these companies are, but all of the companies I bought have been around when oil prices were low.  I do not expect the price of oil to destroy or adversely hinder any of the above.  Today was a great buying opportunity and I took advantage of it.

Did anyone increase ownership stake in an oil companies?

Disclaimer: BBL, BP, COP, CVX, KMI, UL, XOM

Recent Buys

The market and my activity have been rather quiet during the month so far.  Loyal 3 recently announced that they will no longer accept credit cards, this news is less than a week old and spread like wildfire.  I am sure you have probably read about it somewhere else!  Not to worry though.  They remain cost free at the moment and you are able to transfer money to and from a checking account to them.

I have continued to invest 100 per week into the account and will try to do so for the remainder of the year.   I have focused my buys for the month on two stocks UL and MAT.  I have added 150 (including this weeks) to those positions.  These new investments will add around 14 to my dividend income for the year.

A new company joins the family!

I have been looking to add additional diversification to my portfolio for a while.  My current portfolio has a significant amount of Consumer Cyclical/Defensive and Energy.  These make up the largest by both sector and dividends.  I have been doing research (when able) on trying to find some good companies in the Basic Materials and Financial sectors.  My allocation was further skewed by the steep drop in oil companies and my subsequent additional share pickups of (BP, CVX and XOM), while being only slightly offset by a purchase of AFL.

Sector Breakdown

Dividends by Sector

After doing my research and finding another company that sold of sharply recently, I decided to pull the trigger and add a half size position of BBL.  I bought 30 shares at about 54 and that will add ~74 dollars to my 12 month dividend income.   BBL adds the diversification that I need in a variety of Basic Materials and geography.  They are planning on spinning off some of their mine assets, but I like the business with or without those assets.  This will make a great addition to my portfolio and will join APD in the Basic Materials sector.

After these purchases my income is now at $4650.10 for the next twelve months.  I am continuing to march steadily upward.

Conclusion

The market is providing some good chances to deploy capital and in a few days I will have enough to potentially make another purchase by the end of the month.  All is rather quiet right now and I am trying to decide what my next addition will be.  A few compelling opportunities right now are EMR (recent raise of 9.3%),  BBL and BP.  I have also been looking at T. Row Price and like what I see there.  A very solid company with a long dividend history.

Disclaimer: Long EMR, BBL, BP, UL, MAT, AFL

SNAP! An unsexy business I never thought about…

One of the nice things about visiting blogs and investing sites like SeekingAlpha/Motley Fool/Morningstar, is being exposed to things you wouldn’t think about.  There are a lot of industries out there and it actually takes time to figure out what the boring ones are.  Not because we don’t realize what sounds boring, but because we (at least I) don’t regularly think about boring industries and these positions are not something that pop into our heads when we think about dividend producing stocks.  What company do you think about when I say dividends?  ATT? MCD? KO? or maybe PG?

So I was reading some posts on SeekingAlpha and came across the article, Dividend Challengers (And Near-Challengers): 57 Increases Expected By New Year’s Day.

Snap-On (SNA)

Heard of this company before?  You may have seen their trucks leaving an auto repair shop like Firestone or Midas.  The truck is one of their mobile selling units and brings the tools to the location where they are needed.  This approach was pioneered by SNA.  SNA has been viewed for a long time as the vehicle repair tools company.  However, SNA, provides tools for aviation, aerospace, military, mining, power and others.  Additionally, they operate in 130 countries around the world, including; US, UK, Brazil, Russia and China.   They operate in 4 business segments:

  • Commercial and Industrial Group
  • Snap-on Tools Group
  • Repair Systems and Information Group
  • Financial Services

What about the dividend?

SNA has paid (and never lowered) a dividend since 1939.  They have raised it since 2009 and should be raising it again shortly for the 4th quarter payout.  Here is how dividends have looked since 2009:

Year Dividend ($) Raise (%)
2009 1.20
2010 1.22 1.6
2011 1.30 8.3
2012 1.40 7.7
2013 1.58 12.9
2014 1.32

With a current yield of 1.33%.

Not bad!  This is a Compound Annual Growth Rate (CAGR) of 7.12%.  While I like to see a longer dividend growth streak, if a company meets my other criteria then I am willing to lower the number of consecutive years.  SNA has a much longer history of paying dividends, but never lowering them, which I believe would qualify them for my portfolio.

Does SNA have what I’m looking for?*

When initially looking into a stock, I look at a few metrics to help me determine whether future research is warranted or should I just throw the stock away?

Payout Ratio < 60 %?  Yes, 26.7 for the TTM.  In fact it has remained below 40 since 2010.

Cashflow Payout Ratio < 60%? Yes, At the end of 2013, Cash Flow Per share was 5.45 and dividends paid was 1.58, which is about 29%.

Stagnant/Falling share count? Yes. Shares have remained between 58-59 million for the last decade.  They have repurchased shares each year for the last four years.

Growing Revenue? Yes. Revenue has grown from 2.4 billion (2004) to 3.057 billion (2013), with TTM revenue of 3.2 billion.  Revenue reached a low point in 2009 with 2.36 billion (~ 40 million less than 2004).

Debt Manageable?  Yes.  InterestCoverage Ratio is 12.  Total debt is approximately 1 billion and they have issued very little debt over the last 4 years (< 20 million per year).  In fact, they have payed back more than they issued in 3 of the last 4 years.

 Future Review Warranted

I like what I see.  They have payed dividends for a very long time (57 years), but have not raised it when the company couldn’t afford to do it.  This is a big plus in my book, the dividend has never been cut and is one of there selling points in there company report.  Their main market is very large (fixing cars) and is not going around anytime soon.

The main concern I have is that the starting dividend yeild is low 1.33% (< 2.5% I like).  This wouldn’t necessarily be an issue if they had higher consistent raises (like an SBUX for example), but that is not the case.  However, I will keep look into this company some more and may be a good candidate to add to on a pull back.

*Data provided by Morninstar

Have you found an interesting boring dividend growth company?

Disclaimer: T, MCD, KO, PG

October Portfolio Highlights

What a crazy month.  We had the market going up and down like crazy.  A few of my companies missed some of the expected Quartely EPS numbers.  Notably, KO, MCD and ARCP has to restate earnings for several quarters.  I did my best to take advantage of some of this craziness and was very busy with my dividend purchases.  Aside from ARCP (which has a legitimate problem), I take Q-EPS numbers with a grain of salt.  Very few things make or break a business in three months and nothing from MCD or KO report surprised me. These are issues they have been dealing with for a while and how they are handling them (or plan to) over the next few years is what matters.  However, I always love an over reaction that enables me to buy a solid business at a lower price!

It was a pretty good month.  I am continuing to look through the wreckage and attempting to find a few additional dividend gems.  The market seems to have responded pretty forcefully to the downturn with a pretty sharp recovery.  However, I can’t worry about that.  There are several positions that I would like to add/increase and will do so as I am able.

Dividends

Last year I received $122.14 in dividends.  This year I increased that by over 100% and ended with $263.63.  My dividends for this month was 5% higher than July.  Slowly but surely heading in the right direction!  I wont be able to get such a large increase going forward (even to next quarter), but I would be very happy if I was able to increase it by 5% per quarter.

You can see my Progress page for additional information.

Dividend Increases

It was a quiet month for dividend raises.

Raises
Company %
AFL 5.4
OHI 1.9 (8.33% YTD)

So far 38 of 43 companies have given me raises this year. BP raised it earlier this year.

New Positions

After the market took a dip, I looked into a variety of the hardest hit companies.  Including KMI, CVX, COP, XOM and BP.  I have had my eye on BP for a while, but didn’t pull the trigger.  It appears that most of the issues relating to there oil spill are being resolved and there earnings are quite robust.  I took the opportunity to add it to my portfolio (with additional large purchases of CVX and XOM).

Added Positions

I bought an additional 1% of CVX, XOM and AFL during the brief downturn.

I have added cash steadily to my Loyal 3 Positions and it has been a pretty solid month.

Additions
Company Shares
AFL 20
BP 25
DPS .3958
K 1.1986
MAT 7.2418
MCD .2739
UL 4.8233
WMT .9817

I have returned my ROTH account to a drip because I don’t accumulate enough cash in there to be doing anything but reinvesting.

Dividend Decreases

None.

Sales

None.

Conclusion

I feel like I did a good job taking advantage of Mr. Markets bi-polar activity this month.  I could have bought a few other companies at good values, but didn’t pull the trigger fast enough.  That is okay, I have plenty of time to make up for it.

After all of this months activity, I raised my 12 month forward dividends to from $4358.9 to 4557.88.  An almost $200 increase, which leaves me less than $300 from my next milestone  Fortunately, most of the positions I added pay out in December, so that will be a nice Christmas present!

How was your month?

Disclaimer: Long all stocks mentioned

Recent buys of the last few weeks

Wow… October is almost coming to a close and I have been busy. I meant to have this out a few days ago, but my parents surprised me by coming out to visit! So my weekend plans changed on a dime. I had a great time and it was worth deviating from my usual routine.  Work has been nuts.

I haven’t been able to comment as much as I would like, but I thank you all for stopping by! I’m still lurking.

Goal almost made!

I had been training for a half marathon and it took place last weekend as well. I ran a very good race and ended up a few seconds short of my goal of under 1:30:00 ( I ran 1:30:01!) How about that. I don’t feel bad about it at all.  I beat my previous Personal Record (PR) by 4:39, which is crazy and I averaged under 7 minute miles for the entire race.  Both are pretty fantastic accomplishments.

Purchases

Mr. Market has been kind during October, I was very active at the beginning of the month.  After a few weeks, I found chose a few other positions to add and initiate.  Here’s how the last few weeks went for me.

Company Shares Income ($)
AFL 20 29.6
BP 25 59
MAT 4.1951 6.38
MCD .2739 .93
UL 3.7062 5.63

For a total of $101.54 to my yearly income. I have had a great month. I am glad that I had some time to do a little research to determine that BP would fit into my portfolio nicely and that I got to add to my AFL stake.

Going forward

I have continued to add to my Loyal3 account with weekly purchases and I do not expect that to stop this week.  I will make another purchase in a few days.  A few potential opportunities have opened up in both KO and MCD, but others still exist with UL and MAT.  I will see what I feel like, maybe even buy a little more than usual. (Loyal3 purchases come out of my budget).

I should have enough funds by the end of the week/early next week for another purchase through both dividends and capital infusions.   I have my eyes on a few companies to add to my portfolio. Foremost on my mind is IBM and WTR.   I have adopted the DGI strategy, but consider myself a seeker of value.  IBM seems to be presenting me an opportunity for with both respects (BP does as well).  Enough for tonight!

Take care!

Did you find an opportunity in the market over the last few weeks?

Disclaimer: Long AFL, BP, MAT, MCD, UL, KO, MCD

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.