How to Build a Proven Income Stream – 2018 Dividends

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One of the best sustainable income streams my wife and I have built over the years … is from our dividend stock portfolio. This proven source of recurring income has grown year after year as we have methodically built it up.

Some people may argue we have been fortunate with the bull market over that time … and part of that is true. But we are investing for income … not necessarily for asset appreciation.

Instead of investing in low cost index funds, we have chosen to invest in individual dividend stocks (mostly). Our goal is to build a sustainable income stream that can eventually cover a portion of our spending.

One day in the future, we expect to cover 50% of our spending needs from our dividend income portfolio.

Today I would like to provide a recap of our annual dividend income results for 2018 … which was a record year.

How to Build a Sustainable Income Stream - 2018 Dividend Results

2018 Dividend Income Review

We set a goal in 2018 to earn $6,700 in dividend income from our taxable accounts + our retirement accounts.

Note – 2018 was the first year we started tracking dividend income from our retirement accounts. We have been tracking our dividend income from our taxable accounts since 2008.

Combined we earned an awesome $7,113.74 in dividend income in 2018!

That is over $400 more than our goal and we couldn’t be happier about the growth we saw last year.

As we will detail below, a portion of that total ($3,115.46) came from our taxable accounts (i.e. Robinhood, Computershare, and Fidelity). This is income that we could actually use today to help pay the bills.

The other portion (almost $4,000) was earned in our retirement IRA and roth IRA accounts. While this money won’t be taxed right now, we won’t have access to it for a while.

I won’t get into all the details here today … but we are trying to grow both our retirement and non-retirement accounts. We feel it is important not to have all our assets tied up where we can’t get to them in retirement accounts.

Here is a breakdown of our taxable dividend income from 2018.

2018 Dividend Income – Taxable Accounts

There was really no surprise that we recorded our highest annual dividend income earnings during 2018 in our taxable accounts.

We have continued to grow our dividend income each year by double digit returns and are expecting another great year in 2019.

Based on our investment philosophy, we should never see a decrease in annual dividend income. Even if we never invest another dollar, our dividend income should grow each year … no matter what.

In total, we earned $3,115.46 in dividends in our taxable portfolio last year.

This was an increase of $464.03 since last year (2017). That is an amazing 17.5% annual increase in taxable dividend income.

Speaking of growth, look at our taxable dividend income over the past 11 years –

As you can see, we have steadily grown our dividend income each year since starting out in 2008. We expect to see similar growth in the future as long as we continue to invest new capital into the market.

Now let’s take a look at how the other part of our dividend income stream did in 2018.

2018 Dividend Income – Retirement Accounts

This was the first year (2018) that we started tracking our dividend income in our retirement accounts. We only started investing in dividend stocks in those accounts in late 2017.

It was a great first year and we are really excited about the future potential.

Just like with our taxable dividend stocks … we don’t ever expect a decrease in annual income from our retirement accounts. Even if we never invested another dollar into them.

In total, we earned $3,998.28 in dividends in our retirement accounts last year. All of these funds were reinvested so that we can compound this income stream.

  • 2018 – $3,998.28

I’m looking forward to reviewing these results over the next 5 to 10 years to see how they grow!

Next, let’s take a look at our new investments for 2018.

New 2018 Investments

We started off the year with a goal to invest $12,000 of new money into our dividend income stream.

Most of our new investments go into our taxable accounts … although a small amount of new money is invested into our IRA and Roth IRA accounts.

Overall, we came up short last year and only invested $9,846.72 … which was about $2,000 short of our goal.

I think we were a little high on these investment goals and will likely shoot for $10,000 in new investments in 2019.

One reason why we didn’t hit our investment targets is our tax optimization strategy. In order to pay $0 in federal taxes (based on current tax law), we need to invest more money into a 457 account at my work. So this does take away from some of the investment dollars for our dividend income stream.

Now let’s check out one important metric I like to track for our portfolio – Future Annual Dividend Income.

Total Future Annual Dividend Income

The future annual dividend income calculation takes the number of shares we own for each stock and multiplies it by the current annual dividend for the company.

We run this simple calculation for each individual stock in our portfolio and then the results are summed to get our 12 month forward dividend income.

This gives us a current projection of what we expect to earn (without any new investments or dividend increases) over the next year.

We started the new year (2018) with a future annual dividend income total under $6,000. In 12 months, we grew our future dividend income by almost $1,500 to $7,477.26!

End of 2018 Future Annual Dividend Income = $7,477.26

We are looking forward to pushing past the $8,000 mark sometime in 2019. This should help push our future dividend income projections higher by using the Rule of 72.

Now that we know our future dividend income estimates, let’s take a look at another metric that we recently started tracking – Rule of 72.

Rule of 72 – How Fast Will Our Income Double?

At the beginning of this year (2018), I started publishing the rule of 72 projections for future dividend income in our monthly reports.

Basically, it is a calculation that shows how often your investments will double. This calculation can be used to project dividend income too.

Using the rule of 72, I have calculated (conservatively) that our dividend income will double every 9 years … without doing anything. A less conservative estimate puts it at every 7 years or so … but I like to plan in a buffer.

Based on this, I can calculate out how our dividend income could grow (and double) based on our future annual dividend income number of $7,477.26 … that would be earned on January 1, 2020.

Take a look at how our income could double overtime –

  • 01/01/2020 – Annual Dividend Income = $7,477.26
  • 01/01/2029 – Annual Dividend Income = $14,954.52
  • 01/01/2038 – Annual Dividend Income = $29,909.03
  • 01/01/2047 – Annual Dividend Income = $59,818.07

Our updated figures tell us we should be earning over $59,800 per year in dividend income by January 2047.

Keep in mind, this is more of a fun what-if type of scenario. I believe we have figured conservatively … and our income should grow at a faster rate. And it should be fun to watch this number grow every month when we post results.

It is also important to remember that some of this income is in retirement accounts that can’t be accessed until a certain date, while other assets are in taxable accounts.

Wrapping Up 2018

We finished the year with a portfolio of 38 dividend stocks, 1 ETF, 1 total market index fund, and 1 total market bond fund.

Despite a lot of market volatility … our dividend income stream held up very nicely.

Based on our future annual dividend income projections … we expect to earn at least $7,500 in 2019. However with additional investments and expected company dividend increases … I fully expect to top the $8,000 dividend income total.

Just look at the estimates from our Rule of 72 projections – in about 10 years we should be earning $15,000 per year in dividend income. That would cover 25% of our current spending ($60,000).

Those calculations also are very conservative … which would mean no new money ever invested again. No company dividend increases. It would also assume we keep our spending at it’s current level … which I would expect to drop some in the future.

One final note … conservatively we can estimate that half of our expenses will be covered from this income stream by 2038. That is if we completely walked away from this income source and did nothing to grow it more. That growth would be the results of compounding returns working very hard for us.

How did your 2018 dividend income results turn out?

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