Updated December 1, 2020
Big News of the Month
Three items in November qualify as the biggest news for the portfolio:
(1) I bought 3 shares of Lockheed Martin (LMT). The company is new to the portfolio, which now has 27 positions.
(2) The portfolio came through the whole year with no dividend cuts.
(3) The portfolio’s yield on cost (YOC) advanced to 10.4%. That’s a new record high.
I added three shares of Lockheed Martin (LMT), bringing the portfolio to 27 positions.
- Collected $403 in dividends from nine companies.
- Added a new position (Lockheed Martin) by reinvesting dividends.
- The new position’s dividends bumped the DGP’s yield on cost up to 10.4%.
Primary Goal: Generate Reliable, Growing Dividends Each Year
This chart shows the DGP’s dividend generation by year since its inception.
With portfolio changes and dividend announcements completed for 2020, it appears that this year’s income will increase by 11% over 2019’s total.
For 2021, I’m starting out by projecting that dividends will increase by 8% over 2020. Of course, with the Covid-19 recession showing no sign of ending soon, there is certainly no guarantee of next year’s dividend total, nor that that the portfolio will survive 2021 with no dividend cuts as it did in 2020.
There are three reasons that the DGP’s dividend stream goes up:
- Dividend increases. The companies in the portfolio announce regular raises. I benefited from 30 raises in 2020.
- Dividend reinvestments. I collect the dividends and buy new shares when the kitty reaches $1000. The new shares then generate more dividends.
- Portfolio management. I occasionally make swaps that result in dividend growth.
I run the DGP as an investment business. The business is asset management to achieve the client’s goals. The client is me. My principal goal is to receive a reliable dividend stream that grows.
The investment business achieves that goal by selecting, buying, and owning companies that regularly raise their dividends; collecting those dividends; and reinvesting them to buy more shares.
All growth in the DGP – in dividends and market value alike – is generated organically from within the portfolio. I have not added a dime of new capital since I started the portfolio in 2008.
The absence of new outside money makes the DGP a straightforward demonstration of the power of dividend growth investing. No statistics about returns are inflated by the addition of new capital.
In 2019, the portfolio received $4287 in total dividends, which was a new record high, 10.7% more than 2018.
When 2020 ends, the DGP will have generated $4757, or 11% more than last year.
Because of the Covid-19 recession, dividend expectations now come with a Covid caveat. In the course of the recession, some companies may be forced to cut dividends in order to remain financially sound.
Transactions in November
New stock purchased: Using dividends collected from other companies, I bought 3 shares of Lockheed Martin (LMT), which is a new position in the portfolio. The purchase was split into two transactions, as explained in this article: I Just Bought Lockheed Martin (LMT) for My Dividend Growth Portfolio.
Dividends collected: In November, I received $403 from 9 companies. This matched expectations for the month.
Dividends Expected in December
I expect to receive $512 in dividends from 14 companies in December, including the first dividend from Lockheed Martin near the end of the month.
Dividends Expected in Next 12 Months
Per E-Trade’s calculator, based on information known now, $4858 in dividends is expected to be received over the next 12 months.
Once again, because of the Covid-19 recession, it is hard to know how well that annual total will hold up. We will just have to wait and see.
Dividend Increases in 2020
The addition of Lockheed Martin added another 2020 dividend increase to the record, although I bought the stock after the company had announced the increase earlier in the year.
Over the past three years, the number of increases has been 28, 29, and 30, with no cuts. The number of stocks in the portfolio has been 25-27 through those years.
One stock has a frozen dividend: Hasbro. I have the company under watch, but I have no plans to sell it currently. Hasbro’s 16-year streak of higher annual dividends is still intact, because it paid more in 2020 than 2019. It will need to raise its dividend in 2021 to extend the streak.
The following table summarizes the DGP’s dividend increases for 2020.
The DGP’s Yield
There are two ways to calculate the DGP’s yield.
Yield on cost is the portfolio’s yield based on the original money invested when I started the portfolio in 2008. Here’s the formula:
Projected 12-months’ dividends / Original cost of portfolio
$4858 / $46,783
= 10.4% yield on cost
This is up 0.1% since last month, refelcting the addition of Lockheed Martin’s dividends to the stream, and it is the highest level that this portfolio has reached. The portfolio’s income production has surpassed my goal of 10% yield on cost.
What it means is that I am now collecting more than 10% of my original investment back each year in cash dividends.
That kind of income-generating power was the inspiration for the portfolio in 2008.
Current yield is the portfolio’s yield calculated as a percentage of the current value of the portfolio. It is the yield you would start with if you duplicated the portfolio today.
Here is the formula for current yield:
Projected 12-months’ dividends / Current value of portfolio
$4858 / $142,820
= 3.4% current yield
That is down 0.2% from last month, entirely due to the portfolio’s 6% increase in total value during November.
In its history, the DGP’s current yield has ranged from 3.3% to 4.2%. Over the long haul, those variations are not significant. Mostly they reflect prices going up and down.
They don’t reflect dividend dollars going up and down. The income measured in dollars grows steadily, as illustrated by My Favorite Chart shown earlier.
For comparison to this portfolio’s 3.4% yield, the S&P 500’s current yield is half that: 1.6%. The benchmark 10-year Treasury (fixed income) is 0.8%. [Source]
As described in DGI Lesson 10, dividends can be reinvested either by dripping them or letting them accumulate in cash for larger “bulk” purchases.
I use the second method. I collect the dividends in cash, then reinvest them when they accumulate to $1000.
I made five such reinvestments this year.
- In January, I added to the portfolio’s stake in Texas Instruments by adding 8 new shares (see this article).
- In March, I added 9 more shares of Texas Instruments (see this article).
- In May, I opened a 7-share position in General Dynamics (see this article).
- In August, I doubled my stake in General Dynamics (see this article).
- In November, I opened a 3-share position in Lockheed Martin (see this article).
The cash kitty now stands at $171. It will take 2-3 months to build back up to $1000 for the next reinvestment.
Secondary Goal: Total Returns
For its lifetime, the total value of the DGP has grown +205% from its inception in June 2008. It started at $46,783. It is now worth $142,820.
For comparison, if the DGP’s original money had been invested in the S&P 500 index via the ETF called SPY, with dividends reinvested, it would have increased +233% to a total value of $155,787. [Source] The SPY investment would be yielding half of the DGP’s current yield (1.6% vs. 3.4%).
Coming This Month: New Dividend Growth E-book for 2021
The new book will contain not only 30 great dividend growth stocks (completely analyzed), but also a comprehensive investment manual to guide beginners and experienced investors alike.
Please click on this link for more information about the book and to receive a free booklet that explains compounding. By signing up, you will receive a notification as soon as the book is released. You incur no obligation by signing up.
Background: What is the Dividend Growth Portfolio?
- To see the Business Plan for this portfolio, click here.
- To learn more about the origins of the portfolio, click here.
- To see a list of all the articles about the DGP, see the section below.
Remember, the DGP is not presented as best or a model. Rather, its purpose is to provide a live demonstration of what you can accomplish with dividend growth investing, and what it is like to run a real stock portfolio. I show what I do and explain why I do it.
–Dave Van Knapp
Dividend Growth Portfolio Article Archive