Updated February 1, 2020
Big News of the Month
The DGP’s yield on cost rose to 10.7% in January.
I made two trims and three purchases, which – combined with a new dividend increase – raised the yield on cost 0.3% to a new all-time high.
Changes in January: Trimmed Johnson & Johnson and Microsoft (both marked in red). Added to Lockheed Martin and Verizon, and opened new position in UGI (all marked in green).
Total positions rose by one to 28 stocks.
- Collected $301 in dividends from six companies. January is a slow month for dividends in this portfolio. The pace picks up in February and March.
- Through a combination of portfolio trims, new buys, and a dividend increase, the yield on cost jumped from 10.4% to 10.7%, which is a new high.
- One stock (Alliant Energy) increased its dividend.
- AT&T and Chevron froze their dividends.
Primary Goal: Generate Reliable, Growing Dividends Each Year
This chart shows the DGP’s dividends by year since inception. My early-year projection for this year is that 2021’s dividend total will rise 8% above 2020’s actual total. 2020’s total, in turn, was an increase of 11% over 2019.
With the Covid-19 recession showing no sign of ending soon, there is certainly no guarantee of the year’s dividend total, nor that that the portfolio will survive 2021 with no cuts as it did in 2020. Currently, three positions have frozen dividends, but none has cut its dividend.
There are three reasons that the DGP’s dividend stream goes up, producing the rising green bars in the graph:
- Dividend increases. The companies in the portfolio announce regular raises. I benefited from 30 raises in 2020. Coming into January, three companies had already announced increases for 2021, and another (Alliant Energy) announced one in January.
- Dividend reinvestments. I collect the dividends and buy new shares each month. For long-time followers, reinvesting monthly is a procedural adjustment. In the portfolio’s first 12+ years, I collected dividends and reinvested them when they reached $1000. Investing monthly will mean more frequent investments at smaller average amounts, plus less down-time for money sitting in cash.
- Portfolio management. I occasionally make trims and purchases that result in dividend growth. I made such swaps in January (details later).
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 returns are inflated or skewed by the addition of new capital. All growth is organic, generated from within the portfolio itself.
Transactions in January
Stocks bought or sold: I trimmed two stocks (Johnson & Johnson and Microsoft), added shares to two existing positions (Lockheed Martin and Verizon), and began a new position in UGI. The money spent included January’s dividend reinvestment.
For complete details on these transactions, see I Just Sold Some JNJ and MSFT and Bought These 3 Stocks.
Dividends collected: I received $300 from six companies, matching expectations.
Dividends Expected in February
January had only six companies paying dividends. The pace will pick up in February, with $426 coming in from nine companies.
Dividends Expected in Next 12 Months
This display from Simply Safe Dividends shows that the DGP is generating dividends at the rate of $5025 per year.
You can see the DGP’s monthly “seasonality” in this graph. Monthly payouts go from small to medium to large in each quarter, then the pattern repeats itself. The monthly variance simply reflects the payment schedules of the particular stocks I own. I have never aimed to equalize monthly payments in selecting stocks.
Dividend Increases in 2021
Four companies have announced increases for 2021 (Alliant Energy, Amgen, Enbridge, and Realty Income). AT&T has announced that it will not increase its dividend, and Chevron bypassed its usual increase, holding its dividend even. Hasbro’s dividend was frozen previously, so three of the portfolio’s 28 companies are frozen.
I am OK with AT&T and Chevron, because of their high yields and Chevron’s recent history of stretching out its increases.
Hasbro’s 17-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. My expectation is that it will do just that, if for no other reason than to keep its streak alive.
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 was 25-27 through those years. There are 28 stocks now.
In the Increase Tracker below, new information for this month is highlighted in yellow. Frozen dividends are shaded orange.
There are two ways to calculate the DGP’s yield.
Yield on cost: This 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
$5025 / $46,783
= 10.7% yield on cost
This is up 0.3% since last month, and 10.7% is the highest yield (compared to the original investment) in the portfolio’s history.
What it means is that I am now collecting 10.7% of my original investment each year in cash dividends.
That kind of income-generating power was the inspiration for the portfolio in 2008.
The dividend income has surpassed my goal of 10% yield on cost, and I have not replaced that with another goal. Since this portfolio is a demonstration of DG investing, I intend to just watch for awhile and see how it rises from here.
Current yield: Also known as projected or indicated yield, this 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
$5025 / $143,604
= 3.5% current yield
That is up 0.2% from last month due to an increase in the numerator and decrease in the denominator.
In its 12+ year 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, because the income measured in dollars grows steadily, as illustrated by My Favorite Chart shown earlier.
For comparison to this portfolio’s 3.5% yield, the S&P 500’s current yield is less than half that: 1.6%. The benchmark 10-year Treasury (fixed income) is 1.1%. (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 monthly.
Last year, when I was collecting dividends up to $1000 before reinvesting them, I made five reinvestments. This year there will be 12. The average monthly reinvestment this year will be around $420.
The cash kitty now stands at $188. It will be close to $430 in the middle of the month when I make my February reinvestment.
Secondary Goal: Total Returns
For its lifetime, the total value of the DGP has grown +207% from its inception in June 2008. It started at $46,783. It is now worth $143,604.
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 +242% to a total value of $159,998. (Source) The SPY investment would be yielding less than half of the DGP’s current yield (1.6% vs. 3.5%).
Buy the Top Dividend Growth Book
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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