Tax Refund Portfolio Update #2

Tax Refund Portfolio

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

Earlier this year, my wife I decided that we wanted to invest $5,000 of our tax refund into dividend stocks. Over the past several years, we have used our tax refund to help invest in our kids 529 college savings plans. As the years have passed since starting up these plans, our priorities have changed.

Instead of investing in college savings plans, we have decided to focus on building our dividend stock portfolio.

My wife and I have a goal to earn $1,500 in dividend income this year. In order to reach this goal, we need to increase our investments into the Money Sprout Index and investing our tax return will help.

In order to show the growth of this $5,000 investment, we have started to track our – Tax Refund Portfolio. Each month, we will give a detailed update on the status of the $5,000 investment. From the value of the overall portfolio to the cash balance and dividends coming in – it will all be covered.

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

We originally estimated that by investing an additional $5,000 in quality dividend paying stocks, we could increase our annual income by $218.50. This increase was estimated based on our average yield on cost for companies found in the Money Sprout Index (4.37%).

As you will see below, our future 12 month dividend income is actually higher than originally estimated. Of course, these are just projections of future income – not guaranteed results. We are assuming that the companies we have invested in are not going to lower or cut their dividend from the current yield. There is actually a very good chance they all will increase their annual dividend over the next 12 months which means more growth for the Money Sprout Index!

Tracking Our $5,000 Investment

My wife and I plan to track our $5,000 investment (from our tax return) here each month to show the power of investing in dividend stocks. Any shares that are bought or sold with these funds will be tracked and highlighted. The is to show the progress over time of how $5K can grow if invested properly in quality dividend stocks.

Here are all of the purchases we have made to date with our $5,000 investment –

  • BHP Billiton Ltd. (BHP) – 16 shares @ $44.76 = $716.18
  • Caterpillar Inc. (CAT) – 12 shares @ $86.82 = $1,041.84
  • Emerson Electric (EMR) – 9 shares @ $58.94 = $530.46
  • Realty Income Corp (O) – 31 shares @ $46.19 = $1,431.93
  • Omega Healthcare Investors (OHI) – 35 shares @ $35.96 = $1,258.70
  • Cash Balance – $20.89

Note – While some of these purchases were made during the prior month, almost 70% of the investments were made over the past 4 weeks.

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

  • BHP – $696.48 (16 shares @ $43.53) – down 2.75%
  • CAT – $1,058.04 (12 shares @ $88.17) – up 1.55%
  • EMR – $541.26 (9 shares @ $60.14) – up 2.04%
  • O – $1,413.29 (31 shares @ $45.59) – down 1.30%
  • OHI – $1,258.70 (35 shares @ $36.08) – up 0.33%
  • Cash Balance – $20.89

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 income investor, I am not too concerned about the actual value of my stocks based on the current price per share. I am more focused on the income and future dividend growth potential of these stocks. The cheaper the stocks become, the more I can buy them on discount!

Starting Balance – $5,000.00
Updated Balance – $4,992.76

Increase/Decrease = -0.14%

As you can tell from the numbers above, our holdings have decreased by a fraction of a percent the past couple of months. We are down just under $7 and should make that up as soon as dividends start rolling in. To date, we have not collected any dividend payments on shares we own in the tax refund portfolio.

When we first posted our balance last month, we had gained .5% from our investments. The total value of the tax refund portfolio at the time was $5,025.88. Compared to a month ago, our total loss was in value was actually -.65%.

Increase in Future Dividend Income

The real metric that I want to share is the increase in future dividend income from our tax refund investments. The whole reason for investing in high quality dividend 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 5 companies listed above, we have increased our 12 month forward dividend income by $236.17! The breakdown of stocks is shown below –

  • BHP – $39.68 (16 shares @ $2.48)
  • CAT – $33.60 (12 shares @ $2.80)
  • EMR – $16.92 (9 shares @ $1.88)
  • O – $70.37 (31 shares @ $2.27)
  • OHI – $75.60 (35 shares @ $2.16)

12 Month Future Dividend Income = $236.17

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 4.72%! I will take that rate of return any day compared to the 0.75% we are earning in our emergency fund.

YOC = $236.17 / $5,000.00 = 4.72%

Final Thoughts

All of our purchases for the tax refund portfolio have been made through our zero commission brokerage Robinhood. Therefore, we are saving money on each investment as my wife and I are not paying any commission or fees when we buy these stocks.

We plan to provide an update on our tax refund portfolio each month to show the progress it is making. Our plan is to continue investing tax refunds that we get each year into the Money Sprout Index. These monthly updates will show how using something as simple as a tax return to invest in dividend stocks can really pay off 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 – BHP, CAT, 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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