Updated May 1, 2020
Big News of the Month
The DGP received announcements of three dividend increases in April, bringing the total to 17 for the year.
There have been no cuts. That’s a reflection of the quality of companies in the portfolio, generally defensive positions, and, frankly, some luck. We are almost certainly in a recession, and many companies are announcing dividend cuts and suspensions.
So far the DGP has avoided cuts (one dividend appears to be frozen), but thinking probabilistically, it seems likely that by the end of the year, one or more companies in the portfolio will have cut or suspended its dividend.
There were no portfolio changes in April.
- Collected $236 in dividend payments from 5 companies.
- Three more dividend increases were announced, bringing the total to 17 for the year. There have been no cuts.
- Yield on cost reached my long-time goal of 10%. This is a major milestone for the DGP. With the possibility of dividend cuts, however, YOC may fall back later in the year, so no celebration is in order.
- Current yield fell back from 4.0% to 3.7%. This was the result of a 9.1% increase in the portfolio’s total value and does not reflect any declines in dividends.
Primary Goal: Pay Reliable, Growing Dividends Each Year
This illustrates how the portfolio has generated reliable, growing dividends since its inception.
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. Seventeen raises have already been declared for 2020.
- 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 rate of dividend generation.
- Portfolio management. I occasionally make swaps that result in dividend growth.
I run the DGP as an investment business. The sign over the front door might as well read, “Dividend Growth, Inc.” The company’s “product” is literally a growing dividend stream.
I manufacture that product by selecting, buying, and owning companies that regularly raise their dividends; collecting dividends from them; and reinvesting those dividends to buy more shares.
All growth in the DGP – in dividends and market value alike – is generated from within the portfolio. I have not added a dime of new money to the portfolio since I started it in 2008.
The DGP is a cash-generating machine. My job is to keep it running smoothly, by selecting excellent companies, reinvesting dividends to get more shares, and occasionally trimming or replacing a stock.
The absence of new outside money makes the DGP a straightforward case study for the power of dividend growth investing. The dividend increases announced by the companies grow the dividend stream, and reinvesting the dividends makes it grow even faster.
In 2019, the portfolio received $4287 in total dividends, which was a new record high, 10.7% more than 2018.
My estimate as of now for 2020 is to generate $4762, which would be 11% more than 2019’s total.
For the first time since the DGP’s early years, I need to add a caveat to dividend expectations. Because the coronavirus has all but halted large segments of the economy, I believe that we are in a recession. In a recession, some companies are forced to cut dividends. I expect that will happen to one or more companies in the DGP.
None of my companies has announced cuts yet, so my projection for 2020’s total dividends stands for now.
Transactions in April
Collected dividends: I received $236 from 5 companies. This matched expectations. April is a seasonally slow month for dividends in the DGP. The pace picks up again in May.
Dividend reinvestments: There were no reinvested dividends in April. The next reinvestment will probably come in mid-May.
Dividends Expected in May
All of the following dividends have been declared. They total $382 from eight companies.
Dividends Expected in Rest of 2020
The calculator at E-Trade shows that $3287 is expected to come in during the rest of this year, based on information known at this time.
Added to the $1475 that has already been received, that makes the 2020 projection for dividends $4762, which would be 11% more than last year’s total.
The caveat about possible dividend cuts must be repeated here. I believe that we are in a recession, and I expect one or more companies in the DGP to announce dividend cuts or freezes as the year goes on. In a recession, companies must preserve cash, and lowering their dividend payout is one way to do that.
Dividends Expected in Next 12 Months
Based on information known now, $4699 dividend dollars are expected in the next 12 months. That is the annual dividend run rate of the DGP at the moment.
Because of the coronavirus and apparent recession, it is hard to know whether that annual total will hold up. Some companies may be forced to cut their dividends. We will just have to wait and see.
Dividend Increases in 2020
So far in 2020, 17 increases have been announced by the portfolio’s 25 companies, including three in April. There have been no cuts or suspensions announced so far.
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.
Hasbro bypassed its typical increase announcement for May, 2020, meaning that its dividend is frozen. I have this stock under watch, with no plans to sell it.
Hasbro has stated a long-term commitment to pay a dividend, but not to raise it. The company has a 16-year streak of increasing its dividend each year. This slide is from their earnings presentation on April 29, 2020.
In the following table, the three increases announced in April are highlighted in yellow.
What Does the DGP Yield?
There are two answers to this question, depending on what yield you are looking for.
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
$4699 / $46,783
Achieving 10% yield on cost has been a longstanding goal for the DGP. I was going to throw a party, but with the possibility that the recession may force some companies to cut their dividends, I’m holding off on the party for now. Any significant cuts later in the year could take YOC back below 10% again.
The DGP’s yield on cost shows that I am now collecting dividends at a rate equal to 10% of the original dollar investment annually 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.
Current yield 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
$4699 / $127,339
That is down 0.3% from last month. The decline is entirely due to the market turnaround in April, which caused the portfolio’s total value to rise 9.1% during the month. The decline does not reflect a decrease in the dividend-income rate.
During its history, the DGP’s current yield has ranged from 3.3% to 4.2%. It’s right in the middle of that range now. 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’s what My Favorite Chart (displayed earlier) illustrates. That chart doesn’t show dividends as a percentage yield; it shows dividends as dollars received, which is what we are all interested in.
For comparison to this portfolio’s 3.7% yield, the S&P 500’s current yield is 2.1%. The benchmark 10-year Treasury (fixed income) has plunged to 0.64%. [Source]
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 collect the dividends in cash, then reinvest them when they accumulate to $1000.
I have made two dividend reinvestments in 2020:
- In January, I added to the portfolio’s stake in Texas Instruments by adding 8 new shares (see this article).
- In March, I did it again, adding 9 more shares of Texas Instruments (see this article).
The kitty now has $629, and it is building toward the next $1000 reinvestment. The $1000 hurdle should be reached in mid-May.
Secondary Goal: Total Returns
The market roller coaster that began with significant daily drops after the S&P 500 hit its all-time high on February 19 reversed in April. The DGP was whisked down and back up by the macro market moves, just like most other portfolios.
Overall, the DGP is down 8% from the start of the year. But that is a short-term statistic, which I generally ignore while I focus on long-term income growth.
For its lifetime, the total value of the DGP has grown +172% from its inception in June 2008. It started at $46,783. It is now worth $127,339.
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 +165% to a total value of $123,975. [Source]
And that SPY investment would be yielding only 2.1% compared to the DGP’s 3.7%.
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
I Just Bought General Dynamics (GD) Stock For My Dividend Growth Portfolio – May 21
I Just Bought More Shares Of Texas Instruments (TXN) Stock– March 13
I Just Bought Enbridge (ENB) and Texas Instruments (TXN) for My Dividend Growth Portfolio – And Kicked Ventas (VTR)– January 20
Dave Van Knapp’s Dividend Growth Portfolio – 2019 Review and 2020 Preview– January 7
I Just Bought Enbridge (ENB) and 3M (MMM) Stock After Selling Boeing (BA)– December 20
I Just Bought Shares of 3M (MMM) Stock for my Dividend Growth Portfolio– October 18
I Just Bought 3M (MMM) Stock For My Dividend Growth Portfolio (DGP)– August 6
I Just Bought More Verizon (VZ) Stock– May 21
I Just Bought Shares of Altria (MO) and Dominion (D) For My Dividend Growth Portfolio (DGP)– May 20
I’m Seriously Considering Dominion (D) Stock as a New Position in My Dividend Growth Portfolio– May 8
These 3 Popular Dividend Growth Stocks Appear Way Overvalued Right Now– April 27
I Just Bought More Verizon (VZ) for My Dividend Growth Portfolio– February 20
Dividend Growth Portfolio – 2018 Review and 2019 Preview– January 7
I Just Bought Texas Instruments (TXN) For My Dividend Growth Portfolio– November 21
I Just Bought Procter & Gamble (PG) for My Dividend Growth Portfolio– August 17
Re-Introducing My Dividend Growth Portfolio– May 12
I Just Bought Shares of Atria (MO)- An Iconic, High-Yield Dividend Growth Stock– May 17
I Just Bought Verizon (VZ) for My Dividend Growth Portfolio– March 12
I Just Sold HCP (HCP) and Omega Healthcare Investors (OHI)– March 8
I Just Bought Amgen (AMGN) For My Dividend Growth Portfolio– February 26
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
I Just Bought Another 18 Shares of Qualcomm (QCOM)– May 18
I Just Bought 18 Shares of Qualcomm (QCOM) for My Dividend Growth Portfolio– February 21
I Just Bought Another $1,000 Worth of Cisco (CSCO)– November 3
I Just Bought Boeing (BA) For My Dividend Stock Portfolio– August 10
I Just Bought 45 Shares of Southern Company (SO)– May 6
I Just Bought 47 Shares of Ventas (VTR)– April 14
I Just Bought 60 Shares of Cisco (CSCO)– February 16
I Just Sold My Shares of Kinder Morgan (KMI)– December 14
I Just Bought Another 30 Shares of AT&T (T) – November 23
My Dividend Growth Portfolio Delivers a 7%-Plus Yield on Cost Already – October 17
I Just Reinvested $1,000 in Philip Morris International (PM) – August 27
I Just Bought Another 24 Shares of Coca-Cola (KO) – May 26
Why I Decided to Hold All 19 Stocks in My Dividend Growth Portfolio – April 15
Why I Sold Some Johnson & Johnson (JNJ) and Pepsi (PEP) – January 24
I Just Bought Another 30 Shares of AT&T (T) – January 14
This Portfolio Generates Dividend Income That Rises 15% Per Year – November 10
I Just Bought More Shares Of Procter & Gamble (PG) – October 1
I Just Sold Lorillard (LO) and Bought HCP Inc. (HCP) – July 16
This Real-Money Portfolio is a Cash Machine – July 10
I Just Bought Ventas (VTR) for My Real-Money Portfolio – May 28
I Just Sold Darden Restaurants (DRI) – April 11
Why I Sold All of My Shares of Intel (INTC) – March 31
An Introduction to My Real-Money Dividend Growth Portfolio – March 15