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One of the most sustainable side income streams that one can build is investing in a portfolio of dividend stocks. My wife and I have been building our portfolio for almost 10 years now and are set to earn over ,400 in dividend income in 2017.
The first couple years of building our portfolio were very slow. We invested a couple thousand dollars here and there the first couple of years. Recently, we have been investing $10,000 or more a year and have really started to see our dividend income take off.
For example, last year we earned just under $2,000 in dividends (2016). Our earnings this year will be at least 20% higher! And we expect to earn even more (around $3,000) in 2018.
All of this growth comes from 3 different sources. The first (and one of the easiest) source is to simply sign up for dividend reinvestment or DRiP on our stocks. So, all of that $2,400 we earn in dividend income this year will eventually be reinvested into new shares of stock.
Next, these great companies we are investing in give us a raise like we are one of their employees. The great thing is that we don’t have to work a 9 to 5 shift to get these raises. We really don’t have to do much to be honest. And the raises are usually around 5% to 7% every single year on average!
The last 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 $2,400 … 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 September 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.
September 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 investments because of the very bullish market.
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.
During September, we invested new money into 4 different stocks.
Note – All stocks bought in September 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 September and the amount of future dividend income it will produce. In total, we invested money into 4 different stocks.
- $127.36 in Archer Daniels Midland (ADM) – $3.84 annual income
- $50.00 in Cincinnati Financial (CINF) – $1.32 annual income
- $63.54 in Kroger (KR) – $1.50 annual income
- $187.32 in Altria (MO) – $7.92 annual income
Note – We did not sell any stock during September.
After calculating our new purchases, we invested $428.22 in new money in September. This has increased our net forward annual dividend income by $14.58.
The yield on cost for these new investments is 3.40%.
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 September, we invested ($1,001.78) less than our monthly goal ($428.22 – $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)
Total new investments = $14,313.40
Total Future Annual Income Increase = $481.98
Average Yield on Cost (new investments) = 3.37%
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 September, our estimated annual dividend income was $2,705.56. 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 September rose to $2,749.27. That is a $43.71 increase since last reporting.
September 2017 – Forward Annual Dividend Income Est. = $2,749.27
Some of the increase was a result of the new investments we made in September and dividends that were reinvested. Over half of the increase actually came from 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 11 months, we have increased our future dividend income by $649.27. We are now behind on our goals by ($57.92) with only 3 months to catch-up.
Unfortunately, September was another down month for investing new money. We haven’t been doing a good job of saving more and we have been a bit cautious of investing too much money right now with a very bullish stock market.
All is not lost however. We still managed to invest over $400 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 3 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. If we are able to achieve this, then we could come close to hitting $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?