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Investing your hard earned money into a dividend stock portfolio is one of the most sustainable income streams you can build. As long as you invest in the top dividend paying companies … your income stream will likely grow year after year … with very little work on your part.
How cool is that? You no longer have to trade time for income. Instead you invest your current income so that it creates more income and you can spend time on important things in life.
Now I will point out that building a portfolio of dividend stocks is not a quick source of income. It takes time and capital and even a little patience to weather the ups and downs of the stock market. But the sooner you get started, the more time you will have to watch your portfolio grow and compound every year.
After slowly building our portfolio over the past 9+ years, we earned just under $2,000 last year in dividend income. This year we are projected to earn about $2,400 … which is a 20% increase. Some of that increase was from reinvested dividends and company dividend increases. However, most of the jump was from new money invested into the market.
So the more money we can invest now, the greater our dividend income will be years down the road. That is why we set a goal to increase our future dividend income up to $3,000 by the end of 2017. By doing so, it would all but guarantee earning $3,000 in dividend income in 2018.
Note – Our total dividend income will not reach $3,000 by the end of 2017. We will likely earn close to $2,400 … or at least that is our goal. Our forward 12 month dividend income is what we are trying to increase.
So in order to reach this goal, we are focused on investing a good portion of our income each month. Here is a recap of our May results of growing our dividend income.
Grow Our Annual Dividend Income – $3,000
We have a goal (set back in October/November 2016) to grow our forward annual dividend income to $3,000 by the end of 2017.
At the time we decided on this new goal, our estimated annual dividend income was $2,100.
So in 14 months, we need to increase our future dividend income estimates by approximately $900. That may not seem like a lot, but it will take a lot of capital to reach this goal.
Based on an aggressive yield on cost (YOC) of 4.50%, increasing our dividend income by $900 would require $20,000 in new investments over that time.
That averages out to about $1,430 in new investments per month – which is a little over 26% of our income.
These figures assume several things.
First, we are assuming the $2,100 in future annual dividend income is safe. This means that companies that we own will not make any dividend cuts.
Second, these calculations also assume that a combination of new investments, dividend reinvestment, and dividend increases will help us maintain a 4.50% yield.
New investments is where the majority of our increases will come from.
May 2017 New Investments
Instead of tracking our savings each month, we will track the investments we are making. I never (ever) want to let our savings sit idle and would rather our dollars be working for us to generate more income.
Tracking our investments will give a snapshot of how close we are to raising future annual dividend income to $3,000 by the end of 2017.
After a busy April, this past month has slowed down a bit. During May, we invested new money into 3 different stocks (compared to 8 last month)
Note – All stocks bought in May did not have any commissions or fee’s charged as we used our zero cost broker and third party transfer agent – Robinhood and Amstock.
The following list shows stocks we purchased in May. Even though we invested in only 3 stocks, it was the third highest monthly investment total for 2017.
- $50.00 in Cincinnati Financial (CINF) – $1.42 annual income
- $633.16 in Cisco Systems (CSCO) – $22.04 annual income
- $549.47 in Realty Income Corp. (O) – $25.26 annual income
Note – We did not sell any stock during May.
After calculating our new purchases, we invested $1,232.63 in new money in May. This has increased our net forward annual dividend income by $48.72.
The yield on cost for these new investments is 3.95%.
Note – Yield on cost for new investments is usually low as they have not had time to compound. On the other hand, stocks that have had time to grow will have much higher returns – like our 10+% yield on one of our stocks.
During May, we invested ($197.37) less than our monthly goal ($1,232.63 – $1,430.00). After falling behind for the past several months, we were able to catch up during April by investing our tax refund. We kept the momentum up in May and almost hit our target set back last fall.
Here is a recap of the monthly totals since we set our goal (November 2016) to reach $3,000 in future dividend income by the end of 2017 –
- November 2016 – $1,091.31 invested ($28.34 future annual income)
- December 2016 – $1,969.28 invested ($70.62 future annual income)
- January 2017 – $600.42 invested ($26.31 future annual income)
- February 2017 – $647.76 invested ($26.06 future annual income)
- March 2017 – $988.23 invested ($27.70 future annual income)
- April 2017 – $4,862.18 invested ($144.60 future annual income)
- May 2017 – $1,232.63 invested ($48.72 future annual income)
Total new investments = $11,391.81
Total Future Annual Income Increase = $372.35
Average Yield on Cost (new investments) = 3.27%
Note – We are now $1,381.81 ahead of our investment goals.
Updated Annual Dividend Income Estimates
When we set our original goal back in November (2016), our estimated annual dividend income was $2,100. So … we will need to increase this amount by $900.
At the start of May, our estimated annual dividend income was $2,560.85 (after April and a few May investments). The goal by the end of 2017 is to push this number up to $3,000.
Our updated annual dividend income estimates as of the end of May rose to $2,583.65. That is a $22.80 increase since last reporting.
Note – Our April update came a couple weeks into May and included several new investments in the total.
May 2017 – Forward Annual Dividend Income Est. = $2,583.65
Most of the increase was a result of the new investments we made in May. The remainder of the increase came from reinvested dividends, and several company dividend increases.
Remember … dividend income will grow from 3 different sources
- Reinvested Dividends
- Dividend Increases
- New Investments
On average, we need to try and increase our future dividend income by $64.29 each month. In 7 months, we have increased our future dividend income by $483.65. We are now ahead by $33.62.
Now that we have caught up on our investments in April and May, we still need to focus on increasing our monthly savings. We have spent most of 2017 behind schedule and only caught up because of investing our tax refund in April.
The good news is that all of the investments in May were from new money … so our savings strategy is starting to work.
We need to continue focusing on keeping our savings rate (aka investing rate) above 20% of our income. If we are able to achieve this, then we should be able to hit $3,000 in future dividend income by the end of 2017.
It all comes down to deciding what is more important and what we want to afford. We will need to make some sacrifices to our current lifestyle, but I believe that is worth accelerating our future dividend income.
Do you invest 20% of your income? Are you looking for opportunities to cut expenses or increase your income in order to invest more? What strategies are you using to invest more of your income?
Full Disclosure – At the time of this writing, we owned shares in the following stocks noted in this post – CINF, CSCO, and O. The material above is not a recommendation to buy. Please do your own research on a company before deciding to invest.