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My wife and I are currently on pace to earn ,500 in dividend income this year (2017) … which is about $100 more than we previously projected.
We think next year (2018), this income stream will likely grow to about $3,000 in dividend income … or at least that is the goal we have set. So you may be wondering … how are we going to increase this income stream by $500 by next year?
There are 3 ways that we can (and will) grow our dividend income next year … and many years to come. The first method for growing dividends takes almost no effort. As long as you invest in top dividend paying company’s with a strong history of dividend increases … your income stream will likely grow.
While there are no guarantee’s … we recently estimated our income grows by about 6% each year (actually 6.10%) just from company dividend increases. If we earn $2,500 in dividend income this year, we will get a bump of $150 … just from company dividend increases.
The remainder of our growth ($350) will need to come from 2 different sources. The next easiest opportunity to grow dividend income is to simply reinvest all of those dividends we earn back into more stock. So if we take our $2,500 of income and reinvest it … we will get another bump. For example, if that $2,500 was invested in a stock with a 3.0% yield … that is another $75 of future dividend income!
The final method for growing our dividends will come from new investments. For the past several years, we have been investing $10,000+ of new money into our taxable brokerage accounts. A $10,000 investment in a stock yielding 3.0% would earn us another $300 of future income.
This source for dividend growth is the biggest bang for the “buck” right now. Every new dollar we invest in dividend stocks generates future income for our family. 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 $2,500 as mentioned earlier … 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 October 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.
October 2017 New Investments
Instead of tracking our savings each month, we will track the investments we are making. I don’t usually like to let our savings sit idle and would rather our dollars be working for us to generate more income. However, recently we have cut back a little on new taxable investments and are focusing a little more on our pretax accounts.
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. At this point in the year … I can tell that we will not hit our goal set 12 months ago.
During October, we invested new money into 4 different stocks.
Note – All stocks bought in October did not have any commissions or fee’s charged as we used our zero cost broker and third party transfer agents – Robinhood, Amstock, and Computershare.
The following list shows stocks we purchased in October and the amount of future dividend income it will produce. In total, we invested money into 4 different stocks.
- $50.00 in Cincinnati Financial (CINF) – $1.32 annual income
- $152.56 in Hormel (HRL) – $3.40 annual income
- $20.77 in Kroger (KR) – $0.50 annual income
- $50.00 in Exxon Mobil (XOM) – $1.88 annual income
This was our first ever investment in Hormel (HRL) … as we purchased 5 shares in our Robinhood account. I like to add a couple shares here and there in stocks like Hormel and Kroger (KR) from our Robinhood accounts. As we get dividends coming in from other stocks in our account, we can use those funds to pick up 1 or 2 shares with no commissions in KR and HRL.
We also restarted our monthly investments of $50 in Exxon Mobil (XOM) through our Computershare account. This is the company’s Direct Stock Purchase Plan (DSPP) and there are no fee’s associated with these investments.
Finally, we have been investing $50 per month for a while now in Cincinnati Financial through their DSPP … which is administered by Amstock. As our position grows in this company, it is getting close to turning these investments off and putting our dollars into a different company.
Note – We did not sell any stock during October.
After calculating our new purchases, we invested $273.33 in new money in October. This has increased our net forward annual dividend income by $7.10.
The yield on cost for these new investments is 2.60%.
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 October, we invested ($1,156.67) less than our monthly goal ($273.33 – $1,430.00).
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)
- June 2017 – $1,448.59 invested ($49.84 future annual income)
- July 2017 – $694.02 invested ($27.62 future annual income)
- August 2017 – $350.76 invested ($17.59 future annual income)
- September 2017 – $428.22 invested ($14.58 future annual income)
- October 2017 – $273.33 invested ($7.10 future annual income)
Total new investments = $14,586.73
Total Future Annual Income Increase = $489.08
Average Yield on Cost (new investments) = 3.35%
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 October, our estimated annual dividend income was $2,749.27. The goal by the end of 2017 is to push this number up to $3,000.
Our updated annual dividend income estimates at of the end of October rose to $2,787.75. That is a $38.48 increase since last reporting.
October 2017 – Forward Annual Dividend Income Est. = $2,787.75
Some of the increase was a result of the new investments we made in October and dividends that were reinvested. But over 80% of the increase actually came from company dividend increases and dividend reinvestment. That is the awesome power of dividend investing!
- Reinvested Dividends
- Dividend Increases
- New Investments
On average, we need to try and increase our future dividend income by $64.29 each month. In 12 months, we have increased our future dividend income by $687.75, or $57.31 per month so we are starting to get way behind.
October was the 3rd month in a row that we have slipped on new investments. Recently, we have been spending a lot of time focusing on some of our pretax investments. In fact, we will begin to start disclosing our pretax dividend income in a future post.
When it comes to our taxable dividend income portfolio, all is not lost however. We still managed to invest over $200 into new shares and increased our future income. Even though it wasn’t a huge amount, we still grew our future income and that is really what counts. And even better, we got some huge company annual dividend increases … which is awesome!
We still have 2 months left this year to make up some ground … although it will be difficult for sure.
We need to continue focusing on keeping our savings rate (aka investing rate) above 25% of our income.
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?