Updated September 1, 2020
Big News of the Month
Dividends rolling in topped $1000 cash in August in my reinvestment kitty.
That meant I could go shopping. I used the money to double my position in General Dynamics (GD). The high-quality defense company was still selling at a nice discount despite its price-per-share having gained 11% since I first bought it in May.
Change in August: I reinvested dividends to buy 7 shares of General Dynamics, doubling the size of the position that I started in May (highlighted in yellow below).
The total value of the portfolio went up 4% in August.
- Reinvested dividends to buy 7 shares of General Dynamics, doubling the size of the position.
- Collected $389 in dividend payments from 8 companies.
Primary Goal: Reliable, Growing Dividends Each Year
This chart illustrates how the portfolio has generated dividends since its inception. I am projecting that 2020’s dividends will increase by 12% over 2019’s total.
The DGP’s dividend stream goes up for three reasons:
- Dividend increases. The companies in the portfolio announce regular raises – 22 so far 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. It’s like a little company whose product is a dividend stream that grows.
I manufacture that product 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 from within the portfolio. I have not invested a dime of new capital since I started the portfolio in 2008.
The absence of new outside money makes the DGP a clean and clear case study of the power of dividend growth investing. No performance statistics are skewed by new outside money coming in.
In 2019, the portfolio received $4287 in total dividends, which was a new record high, 10.7% more than 2018.
My estimate for 2020 is to generate $4783, which would be 12% more than last year.
Because of the Covid recession, there is a caveat to dividend expectations. Depending on the course of the recession and government responses to it, some companies may be forced to cut dividends in order to remain financially sound.
None of the companies currently in the portfolio have announced cuts, so my projection for 2020’s total dividends stands for now.
I am holding off making estimates for 2021, given the unique circumstances. When the economic situation begins to clarify, I will make estimates for 2021.
Transactions in August
I received $389 from nine companies. This matched expectations for the month.
Accumulating dividends topped $1000 in mid-August, which triggered reinvestment. I used the money to double the size of my General Dynamics position, buying 7 more shares.
Dividends Expected in September
September is a big month for dividends, with $558 expected from 14 of the portfolio’s 26 companies.
Dividends Expected in Rest of 2020
Per the calculator at E-Trade, I expect $1750 to come in over the rest of the year.
Added to the $3033 that has already been received, that brings the 2020 full year projection to $4783, which would be 12% more than last year’s actual total.
However, as explained above, the recession that we are in may force one or more of the portfolio’s companies to announce dividend cuts before the year is out. We will just need to see what happens as the year unfolds.
Simply Safe Dividends rates the portfolio’s dividends as mostly safe, meaning they score 61 or higher on SSD’s dividend safety scale. The weakest links are Hasbro, Altria, and Enbridge, all of which have scores in the 50s.
Dividends Expected in Next 12 Months
Based on information known now, $4767 dividend dollars are expected to be received over the next year. This chart shows that broken down by month.
(Source: Simply Safe Dividends)
Once again, because of the Covid recession, it is hard to know whether that annual total will hold up. We will just have to wait and see.
Dividend Increases in 2020
One increase was announced for the portfolio in August, bringing the 2020 total to 22 increases vs. no cuts. Lowe’s ended its short dividend freeze by announcing a 9.1% increase.
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.
With Lowe’s off the frozen list, just one company remains: Hasbro. I have the company under watch, but I have no plans to sell it at this time. Hasbro has announced its last dividend of the year, payable in November, at the same rate it has paid since its last increase in February 2019.
The following table summarizes the DGP’s dividend increases for 2020. The single August increase is highlighted in yellow.
The DGP’s Yield
There are two ways to calculate the portfolio’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
$4767 / $46,783
This is up 0.1% since last month, and it is a new record high for this portfolio.
What it means is that I am now collecting back more than 10% of my original investment 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
$4767 / $141,402
That is down 0.1% from last month, due to the portfolio’s rise in value during the month.
During 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.
What is more meaningful is that the income measured in dollars grows steadily. That’s what My Favorite Chart (shown earlier) illustrates. That chart doesn’t show dividends as a percentage yield; it shows them as dollars, which is what we are all interested in.
For comparison to this portfolio’s 3.4% yield, the S&P 500’s current yield is half that: 1.7%. The benchmark 10-year Treasury (fixed income) is 0.7%. [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 reach $1000.
In August, I reinvested $1074 in accumulated dividends to buy 7 shares of General Dynamics. That doubled my stake in the company, and it added $31 to my annual income. For a complete discussion of this reinvestment, see this article.
That is the fourth dividend reinvestment of the year. Here are the earlier ones:
- 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 new position in General Dynamics (see this article).
The kitty fell back near zero after August’s purchase, and it is now building back up toward the next $1000 purchase in a couple of months.
Secondary Goal: Total Returns
For its lifetime, the total value of the DGP has grown +202% from its inception in June 2008. It started at $46,783. It is now worth $141,402. That is its highest month-end level ever.
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 +220% to a total value of $149,706. [Source] The SPY investment would be yielding half of the DGP’s current yield.
Announcement: New Dividend Growth E-book for 2021
I am writing my first new e-book about dividend growth investing since 2014.
Its title will be Top 30 Dividend Growth Stocks for 2021: A Sensible Guide to Dividend Growth Investing.
My colleagues at Daily Trade Alert helped me create a website for the new e-book. It includes descriptions of the book, background information on dividend growth investing, a countdown clock, and the opportunity to sign up for monthly progress reports. Each report also contains handy links to all my articles for the prior month.
Please click on this link for more information: Top 30 Dividend Growth Stocks for 2021: A Sensible Guide to Dividend Growth Investing. Publication will be in December.
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