Updated January 1, 2020
Highlight of the Month
In 2019, the Dividend Growth Portfolio set new records for annual dividends collected, year-end yield on cost, and highest total value.
In December, I sold out of Boeing and purchased the following:
- 3M (MMM) – added to existing position
- Enbridge (ENB) – new position
See this article for details of those transactions.
- Collected $424 in dividend payments from 13 companies.
- Total dividends collected in 2019 = $4287, which is a new record.
- Yield on cost rose to new record high of 9.7%.
- Current yield stayed the same at 3.3%.
Primary Goal: Pay Reliable, Growing Dividends Each Year
The reason this is my favorite chart is because it illustrates how the portfolio has generated reliable, growing dividends each year.
And there’s every reason to believe that it will continue to do so. The DGP’s dividend stream goes up for three reasons:
- Dividend increases. The companies in the portfolio announce regular raises. Every stock is selected for the probability that it will do that.
- Dividend reinvestments. I collect the dividends and buy new shares when the kitty reaches $1000. The new shares then generate more dividends, increasing the annual run-rate of dividend collection. It’s like a snowball rolling downhill, collecting snow and getting bigger as it rolls.
- Portfolio management. I occasionally make swaps to get higher-yielding shares or shares with more reliable dividend growth. I did that twice in 2019.
I run the DGP as a business – what Benjamin Graham would have called an “investment operation.” The sign over the front door might read, “Dividend Growth Generation.” The business model is to select, buy, and own companies that regularly raise their dividends; collect dividends from them; and reinvest those dividends to buy more shares in companies of the same type.
I have not added a dime of new money to the portfolio since I started it in 2008.
All growth in the DGP – dividends and market value – is generated from within the portfolio.
The DGP is a cash-generating machine. My job is to keep it oiled: Select excellent dividend-growing companies, reinvest the dividends, and occasionally trim or replace one stock with another.
The absence of new outside money makes the DGP a great case study for the power of dividend growth investing. The dividend raises by the companies grow the dividend stream, and reinvesting the dividends makes it grow even faster.
In 2019, the portfolio received $4287, which was a new record high, 10.7% more than 2018.
Transactions in December
Dividends: I received $424 from 13 companies, which matched expectations. Half the companies in the portfolio paid out in December!
Sold Boeing and bought two replacements: In late December, I got fed up with Boeing after they froze their dividend, on top of all the other problems they have been having, so I sold it. I replaced it with Enbridge (ENB), a new position, and additional shares of 3M (MMM). The swaps actually increased my income flow (see this article).
Dividends Expected in January
I expect to receive $338 from 7 companies in January.
Dividends Expected in Next 12 Months
Based on information known now, $4543 dividend dollars are expected in 2020. That is the height of the “2020 Est” bar in My Favorite Chart displayed earlier.
Of course, with dividend-growth stocks, the actual dollars collected in the next 12 months will be more than the forecast. Plus I will add still more dividend dollars each time I reinvest dividends to purchase new shares.
Dividend Increases in 2020
We start the year off with a new dividend-increase calendar, already populated with four dividend increases that were announced before the year even began.
In 2019, 29 increases were paid by the portfolio’s 26 companies, with no cuts. The year before, in 2018, we got 28 increases and no cuts.
Two dividends are frozen:
- Qualcomm (QCOM) failed to increase its dividend in 2019.
- After a miniscule increase in 2019, Ventas (VTR) announced its first dividend for 2020 – which is normally when they declare an increase – and held the payout steady instead of raising it.
I will be keeping an eye on both companies for the next few months. In the DGP, a frozen dividend is a reason to consider selling a stock, so that’s what I will be thinking about.
What Does the DGP Yield?
There are three answers to this question, depending on what yield you are looking for.
(1) Yield on cost (YOC) is the portfolio’s yield based on the original money invested when I started the portfolio in 2008.
Formula for Yield on Cost
Projected 12-months’ dividends / Original cost of portfolio
$4543 / $46,783
The 9.7% YOC is a record high for the DGP. A year ago it was 8.6%. It has moved up more than a percentage point over the past year.
YOC goes up when:
- Companies announce dividend increases.
- I add new shares through dividend reinvestments.
- I make trades that increase the portfolio’s income stream.
The DGP’s yield on cost shows that I am now collecting 9.7% of the original investment annually in cash dividends.
That kind of income power was the inspiration for the portfolio in 2008. My mental goal is to reach 10% YOC. If nothing horrible happens, 10% will be reached in the first half of 2020.
Then I guess I’ll need a new mental goal, which will feel strange after more than 11 years.
(2) Current yield is the portfolio’s yield calculated as a percentage of the current value of the portfolio.
Current yield is the starting yield you would receive if you duplicated the portfolio today, paying today’s prices.
Formula for Current Yield
Projected 12-months’ dividends / Current value of portfolio
$4543 / $138,984
That is unchanged from last month.
It is important to remember that yield is a percentage, while dividend payouts come in dollars.
So the current yield of your portfolio can stay flat, or go down, even though the dollar payouts continue to go up. That happens because of fluctuating market prices. While prices are volatile, dividend payments change slowly and usually only go up. The fluctuating prices cause the current yield to fluctuate too, even though the dividend dollars are increasing.
During its history, the DGP’s current yield has ranged from 3.3% to 4.2%. Over the long haul, variations in current yield within the DGP’s normal range are not very meaningful.
What is important is that the income measured in dollars goes up steadily. That is what My Favorite Chart displayed earlier. It doesn’t show yield; it shows dollars received, which is what I am interested in.
For comparison to this portfolio’s 3.3% yield, the S&P 500’s current yield is 1.8%. The benchmark 10-year Treasury (fixed income) is yielding 1.9%. [Source]
(3) Yield in 2019 is the yield that the portfolio actually produced over the past 12 months.
Formula for Last Year’s Yield
Last year’s dividends / Portfolio value at beginning of last year
$4287 / $109,968
I only focus on this at the end of a calendar year. It answers the question, what was the portfolio’s actual yield in 2019?
You don’t know the answer to the question until the year ends, because only then do you know how many dividend dollars you actually received. You divide that amount by the value of the portfolio at the beginning of last year, and that gives you the actual yield of the portfolio for last year.
A year’s actual yield usually exceeds the projected yield at the beginning of the year, because dividends got increased and reinvested during the year. Those increased the actual dollars received to a degree that was not known when the original projection was made.
As described in DGI Lesson 10, dividends can be reinvested either by dripping them or letting them pile up in cash and then making larger targeted purchases.
I use the second method. I reinvest dividends when they accumulate to $1000.
In 2019, I made four reinvestments.
- October: Added to 3M position (see this article)
- August: Bought 3M as new position (see this article)
- May: Added to stake in Verizon (see this article)
- February: Added to stake in Verizon (see this article)
With the cash kitty now at $878, and based on dividends expected this month, I expect to make the DGP’s next reinvestment before the end of January.
Secondary Goal: Total Returns
The dividend growth strategy also leads to good total returns.
The value of the DGP has grown +197% from its inception in June 2008. It started at $46,783. It is now worth $138,984.
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 +192% to a total value of $136,606. [Source]
And that SPY investment would be yielding only 1.8% compared to the DGP’s 3.3%.
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 Articles
Dave Van Knapp’s Dividend Growth Portfolio – 2019 Review and 2020 Preview– January 7, 2020
I Just Bought These Two Stocks (After Selling Boeing)– December 20, 2019
I Just Bought Shares of this World-Class Company for my Dividend Growth Portfolio– October 18, 2019
I Just Bought This Stock For My Dividend Growth Portfolio (DGP)– August 6, 2019
I Just Bought More Verizon (VZ) Stock– May 21, 2019
I Just Bought Shares of Altria (MO) and Dominion (D) For My Dividend Growth Portfolio (DGP)– May 20, 2019
I’m Seriously Considering Dominion (D) Stock as a New Position in My Dividend Growth Portfolio– May 8, 2019
These 3 Popular Dividend Growth Stocks Appear Way Overvalued Right Now– April 27, 2019
I Just Bought More Verizon (VZ) for My Dividend Growth Portfolio– February 20, 2019
Dividend Growth Portfolio – 2018 Review and 2019 Preview– January 7, 2019
I Just Bought Texas Instruments (TXN) For My Dividend Growth Portfolio– November 21, 2018
I Just Bought Procter & Gamble (PG) for My Dividend Growth Portfolio– August 17, 2018
Re-Introducing My Dividend Growth Portfolio– May 12, 2018
I Just Bought Shares of Atria (MO)- An Iconic, High-Yield Dividend Growth Stock– May 17, 2018
I Just Bought Verizon (VZ) for My Dividend Growth Portfolio– March 12, 2018
I Just Sold HCP (HCP) and Omega Healthcare Investors (OHI)– March 8, 2018
I Just Bought Amgen (AMGN) For My Dividend Growth Portfolio– February 26, 2018
I Just Bought Another $1,000 of Cisco (CSCO) for My Dividend Growth Portfolio– December 6, 2017
I Just Bought Realty Income (O) and Smucker (SJM) for My Dividend Growth Portfolio– November 4, 2017
I Just Bought Lowe’s (LOW) for My Dividend Growth Portfolio– August 28, 2017
I Just Bought Another 18 Shares of Qualcomm (QCOM)– May 18, 2017
I Just Bought 18 Shares of Qualcomm (QCOM) for My Dividend Growth Portfolio– February 21, 2017
I Just Bought Another $1,000 Worth of Cisco (CSCO)– November 3, 2016
I Just Bought Boeing (BA) For My Dividend Stock Portfolio– August 10, 2016
I Just Bought 45 Shares of Southern Company (SO)– May 6, 2016
I Just Bought 47 Shares of Ventas (VTR)– April 14, 2016
I Just Bought 60 Shares of Cisco (CSCO)– February 16, 2016
I Just Sold My Shares of Kinder Morgan (KMI)– December 14, 2015
I Just Bought Another 30 Shares of AT&T (T) – November 23, 2015
My Dividend Growth Portfolio Delivers a 7%-Plus Yield on Cost Already – October 17, 2015
I Just Reinvested $1,000 in Philip Morris International (PM) – August 27, 2015
I Just Bought Another 24 Shares of Coca-Cola (KO) – May 26, 2015
Why I Decided to Hold All 19 Stocks in My Dividend Growth Portfolio – April 15, 2015
Why I Sold Some Johnson & Johnson (JNJ) and Pepsi (PEP) – January 24, 2015
I Just Bought Another 30 Shares of AT&T (T) – January 14, 2015
This Portfolio Generates Dividend Income That Rises 15% Per Year – November 10, 2014
I Just Bought More Shares Of Procter & Gamble (PG) – October 1, 2014
I Just Sold Lorillard (LO) and Bought HCP Inc. (HCP) – July 16, 2014
This Real-Money Portfolio is a Cash Machine – July 10, 2014
I Just Bought Ventas (VTR) for My Real-Money Portfolio – May 28, 2014
I Just Sold Darden Restaurants (DRI) – April 11, 2014
Why I Sold All of My Shares of Intel (INTC) – March 31, 2014
An Introduction to My Real-Money Dividend Growth Portfolio – March 15, 2014