Updated May 1, 2021
Big News of the Month
The DGP hit several new all-time highs at the end of April.
- Annual income rate = $5135 per year (up 5.2% since end of 2020)
- Yield on cost = 11.0%
- Total value = $159,132 (up almost 9% since end of 2020)
One change in April: Added 6 shares of Verizon via dividend reinvestment (highlighted in yellow below).
- Collected $260 in dividends from six companies.
- Four more companies announced dividend increases, bringing the total for the year to 16 raises with no cuts.
- Increases included +10% from Procter & Gamble, their largest increase in years, and Chevron +3.9%, snapping its brief dividend freeze.
- Reinvested dividends to add 6 shares of Verizon.
- The combination of new shares + dividend increases resulted in the portfolio’s yield on cost rising to 11.0%, which is a new record high for the portfolio.
- Total value of the portfolio also hit new record high of $159,132. The portfolio has grown by +240% since its inception in 2008.
Primary Goal: Generate Reliable, Growing Dividends Each Year
The reason that this is my favorite chart is because it shows the DGP’s steady dividend growth every year. That relentless growth is the portfolio’s main goal.
At current run-rates, 2021’s total dividends will be $5138, which would be an 8.2% increase over 2020.
As the months pass, with more companies declaring increases and more shares being added through dividend reinvestments, I expect that year-end estimate to rise. Right now, I would say that the 2021 increase is likely to top 10% again.
The DGP’s annual speed of dividend growth for the full years 2009-2020 was 10.6% CAGR (compound annual growth rate). That annual growth, of course, handily beat inflation.
Why the Portfolio’s Dividend Stream Grows Each Year
For readers new to dividend growth investing, there are three reasons that the DGP’s dividend stream goes up every year.
- Dividend increases. The companies in the portfolio announce regular raises. I benefited from 30 raises in 2020. So far this year, 16 increases have been announced, and I expect around 13 more by the end of the year.
- Dividend reinvestments. I collect the dividends and buy new shares each month. Over the life of the portfolio, more than $38,000 has been recycled back into new purchases. All of the new shares start to contribute additional dividends to the income stream after they come on board.
- Portfolio management. I occasionally make trims and replacements that result in dividend growth.
The dark green bars on the following chart show how the portfolio’s yield on cost (YOC) has grown each year. The light-green bars represent a future goal of 20% YOC. At the end of 2020, I was more than halfway there.
By the way, the dark green YOC bars, shown in percent, are exactly the same relative height to each other as in the two charts already displayed, which were shown in dollars.
Yield on cost is a percentage expression of dividend dollars, and no matter which way you measure it, they grow at the same rate.
The DGP’s Growth Is Organic, Not Fueled by New Capital
All growth in the DGP – in both dividends and market value – 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 great demonstration of the power of dividend growth investing by itself. No numbers are skewed by new capital coming in.
Transactions in April
Stocks sold: None.
Stocks bought: I added 6 shares of Verizon, bringing my total stake in VZ to 114 shares. The money to buy the shares came from dividends from other companies.
Dividends collected: I received $260 from six companies. April is a light month for dividends in this portfolio. The pace picks up over the next two months. Every DG portfolio displays that kind of dividend “seasonality.”
Dividends Expected in May and Full Year
This handy calendar from Simply Safe Dividends shows the dividend payments expected in May. They total $453 from 11 companies.
May 17 is a big day ($185 from four companies), so I will wait until those payments have been credited to make my dividend reinvestment for May.
The next display, from E-Trade, shows the portfolio’s dividend seasonality over the coming 12 months. Like most stock portfolios, there is a repetitive 3-month pattern in dividends. I personally don’t care that the monthly totals differ from each other.
Dividend Increases in 2021
In the DGP portfolio, 16 companies have announced increases for 2021 so far.
Two dividends are frozen: AT&T and Hasbro. I am OK with AT&T’s freeze, because of its high yield.
Hasbro will need to raise its dividend in 2021 to extend its 17-year streak of paying out more each year. Its last increase was in 2019. My expectation is that it will do so, as the pandemic’s impact on the company seems to have abated.
Over the past three years, the number of DGP’s increases has been 28, 29, and 30, with no cuts and a small number of freezes.
In the Tracker below, new information recorded in April is highlighted in yellow. The two frozen dividends are shaded orange.
I calculate the DGP’s yield in two ways.
Current yield is the yield from the portfolio right now, based on its current value. It is the yield you would start with if you duplicated the portfolio today, at today’s prices.
Here is the formula for current yield:
Projected 12-months’ dividends / Current value of portfolio
$5135 / $159,132
= 3.2% current yield
That is down 0.1% from last month, primarily due to the portfolio’s 3% increase in total value in March. Current yield goes down when price goes up, and vice-versa.
That 3.2% yield is a new low for the portfolio. In its nearly 13-year history, the DGP’s current yield has ranged between 3.2% and 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, because the dividend dollars grow steadily, as we saw earlier.
For comparison to this portfolio’s 3.2% current yield, the S&P 500’s current yield is less than half that: 1.4%. The benchmark 10-year Treasury (fixed income) is 1.7%. (Source)
The trend of increasing interest rates has received a lot of news coverage, but in the large picture, such rates haven’t actually gotten anywhere yet. The 10-year Treasury rate is the same as it was last month.
Yield on cost (YOC) 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
$5135 / $46,783
= 11.0% yield on cost
This is up 0.1% since last month, and 11.0% is the highest yield on cost in the portfolio’s history. YOC goes up as the dollars in the dividend stream go up, because the denominator in the formula never changes.
YOC is a “scoreboard” metric, meaning that it shows how the game has gone up until now. Whereas current yield shows where you would start out if you were buying the portfolio right now, YOC incorporates everything that has happened since I started the portfolio in 2008.
What YOC means is that my companies are now sending me – each year – dividends at the rate of 11.0% of my original investment.
That kind of income-generating power was the inspiration for the portfolio in 2008.
The dividend income has surpassed my original goal of 10% yield on cost. I had thought that I would stop writing about the DGP when that goal was reached, but Daily Trade Alert and I have decided to keep it going. It’s fun watching the dividends keep rising.
I have not replaced the former 10% goal with any new formal goal, although in an earlier chart, I illustrated the progress toward 20% YOC. Since this portfolio is a demonstration of DG investing, I intend to just let things roll for awhile and watch the action.
I’m hoping that these real-world results are inspirational for younger investors who can think long-term.
As described in DGI Lesson 10, dividends can be reinvested either by dripping them or by letting them accumulate in cash for larger “bulk” purchases.
I use the second method. I collect the dividends in cash, then reinvest them monthly. So far this year, here are the reinvestments:
The cash kitty now stands at $189. It will be around $625 after the big dividend haul on May 17 for my next reinvestment.
Secondary Goal: Total Returns
For its lifetime, the total value of the DGP has grown +240% from its inception in June 2008. It started at $46,783. It is now worth $159,132.
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 +287% to a total value of $181,450. (Source). The SPY investment would be yielding less than half of the DGP’s current yield (1.4% vs. 3.2%).
All of the DGP’s deficit in total returns compared to SPY has taken place since last May. A year ago, at the end of April, 2020, my portfolio’s lifetime total return was 7% more than SPY’s.
Since the end of the pandemic crash in January-February, 2020, tech stocks, plus “tech adjacent” stocks such as Tesla, have been on a price rampage. My portfolio, which emphasizes dividends and a value tilt, has not keep up with the massive price rise in tech stocks.
For a couple of months earlier this year, there was a “rotation” back toward value stocks from growth stocks. The future is unknowable, so whether we are in an extended period when “value beats growth” is unknowable too. We’ll just have to wait and see.
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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