Tax Refund Portfolio Update #1

Tax Refund Portfolio

We may earn money or products from the companies mentioned in this post.

Several weeks ago I discussed how my wife and I were planning to invest $5,000 of last years tax return into dividend stocks. In past years, we have simply used these funds to invest in our kids 529 college savings plans. As these college savings plans continue to grow, we have switched focus to building our dividend income portfolio.

For those that may not know, we have set a goal to earn $1,500 in dividend income this year and have even bigger goals for the future. We are tracking all of our dividend income in what we call the Money Sprout Index. This index includes over 25+ different dividend paying stocks that has been growing for over the past 5 years.

For the purposes of tracking this $5,000, we are going to refer to it as the Tax Refund Portfolio. These results will also be included in our overall Money Sprout Index reports that are updated at the beginning of every month.

$200+ Increase in Annual Dividend Income

In my original article, I estimated that investing an additional $5,000 in quality dividend paying stocks would bump our income up by $218.50. This increase was estimated based on our average yield on cost for companies found in the Money Sprout Index (4.37%).

Just to be clear, this increase in income will not be realized during the calendar year. Instead we will see a $200+ increase in our 12 month forward dividend income. Then as that $5,000 settles in our portfolio and starts working, it will actually bring in more than $200 per year based on compounding interest.

Tracking Our $5,000 Investment

I plan to track our $5,000 investment here as a test case to show the power of investing in dividend stocks. Any share that is bought or sold with these funds will be tracked. The intent is to show the progress over time of how $5K can grow if invested in quality dividend stocks.

Here are the purchases made so far –

  • Emerson Electric (EMR) – 9 shares @ $58.94 = $530.46
  • Realty Income Corp (O) – 10 shares @ $46.52 = $465.20
  • Omega Healthcare Investors (OHI) – 15 shares @ $35.76 = $536.45
  • Cash Balance – $3,467.89

At the time of this writing, the value of each of my stocks purchased from these funds was worth –

  • EMR – $541.98 (9 shares @ $60.22)
  • O – $476.10 (10 shares @ $47.61)
  • OHI – $540.00 (15 shares @ $36.00
  • Cash Balance – $3,467.89

Note – Keep in mind the value of these stocks is at a point in time from the past and is already outdated.

As a dividend investor, I am not all that concerned about the actual value of my stocks based on the current price per share. I am more concerned about the dividend yield and future growth potential of these stocks since I am building a income portfolio of stocks.

Starting Balance – $5,000.00
Updated Balance – $5,025.88

Increase/Decrease = +0.5%

As you can tell from the numbers above, my holdings have increased by less than a percent in the past couple weeks. Again, I am not all that concerned with these numbers. Just as long as the value of the stocks doesn’t take a drastic drop.

Increase in Future Dividend Income

The real metric that I want to share is the increase in future dividend income. The whole reason for investing in these stocks is not to buy and sell. It is to buy, collect tons of dividends, and reinvest to earn even more dividend income.

By purchasing the 3 companies listed above, I have increased our 12 month forward dividend income by $72.02! The breakdown of stocks is shown below –

  • EMR – $16.92 (9 shares @ $1.88)
  • O – $22.70 (10 shares @ $2.27)
  • OHI – $32.40 (15 shares @ $2.16)

Note – It is important to point out that these calculations are no guarantee of future income. The numbers are estimated on the current dividend yield of each company.

Based on our projected dividend income, our yield on cost for these investments is a whopping 4.70%!

YOC = $72.02 / $1,532.11 = 4.70%

If we earned 4.70% on our entire $5,000 investment, we could have the potential to increase our 12 month forward dividend income by $235.04!

Final Thoughts

Throughout these updates, I will include any dividends received from the companies listed above. Since we have purchased these shares through our zero commission brokerage Robinhood, there is no DRiP available. Therefore, any dividends received will be included back in our cash balance.

As of the time of this writing, there were no dividends received yet since purchasing these stocks.

I plan to provide an update on my tax refund portfolio each month to show the progress it is making. Assuming we invest next years tax refund, that will be added to these results as well. I want to show how using something as simple as a tax return to invest in dividend stocks can grow overtime.

What do you think about our results so far? Do you invest your refund or windfalls of money that you may receive throughout the year?

Full Disclosure – At the time of this writing, I owned shares in the following stocks noted in this post – EMR, O, and OHI. The material above is not a recommendation to buy. Please do your own research on a company before deciding to invest.

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