Updated July 1, 2021
Big News of the Month
$604 in dividends flowed into the account in June.
The portfolio’s dividend stream has quarterly seasonality, and June is one of the big months. Fully 15 of the portfolio’s 29 companies paid dividends in June, plus a few extra bucks came in lieu of shares from a spinoff.
Changes in June:
- One purchase: Added six shares of Merck through my dividend-reinvestment program. The purchase is highlighted in yellow in the table below.
- Microsoft (MSFT) continued its rocket-ship price trajectory, taking it above 8% of the portfolio (which by policy is the maximum size for a position). I will think about trimming it and deploying the money elsewhere at a higher yield. That is highlighted in green.
- New highs: The annual dividend run-rate ($5211) and total value ($160,602) both hit new all-time highs. They are highlighted in pink at the bottom.
What Happened in June
- Collected $604 in dividends from 15 companies, matching expectations.
- One company announced a dividend increase, bringing the total for the year to 20 raises with no cuts.
- Reinvested dividends to add six shares of Merck, the portfolio’s newest position.
- The combination of new shares + the dividend increase resulted in the portfolio’s annual dividend run-rate rising to $5211, which is a new record high.
- Total value of the portfolio also hit new record high of $160,602. The portfolio’s total value has grown by 242% since its inception in 2008.
Primary Goal: Generate Reliable, Growing Dividends Each Year
The chart above 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 $5237, which would be a 10% increase over 2020.
However, I will be selling AT&T in the weeks ahead. When I replace it with other stocks, I expect my total dividend run-rate will fall back a little, as AT&T yields 7%, and I don’t expect to replace it with stocks yielding that much.
Why the Portfolio’s Dividend Stream Grows Each Year
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, 20 increases have been announced, and I expect around 10 more by the end of the year.
- Dividend reinvestments. I collect the dividends and buy new shares each month. That compounds dividend growth. Over the life of the portfolio, more than $39,000 has been recycled back into new purchases. All of the new shares begin to contribute additional dividends after they come on board.
- Portfolio management. I occasionally make trims and replacements that result in dividend growth.
That last point can also work in the other direction (i.e., some changes can cause dividend drops), which will be the case with AT&T when I sell it.
But the way it usually works is this: Earlier this year, I trimmed Johnson & Johnson and Microsoft (because they had grown too large), and I used the money to buy shares in Lockheed Martin, Verizon, and UGI.
The net result was a $125 annual increase in dividends for the portfolio, or almost 3%. That is the sort of transaction that point #3 normally refers to.
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 any 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 June
Stocks sold: None.
Stocks bought: I added six shares of Merck through my dividend-reinvestment program.
Dividends collected: I received $604 from 15 companies. In addition, I got an extra six bucks from Merck’s spinoff of Organon. Merck converted the fractional share I would have received into a one-time dividend. My dividend net total was reduced by Canada’s withholding on the Enbridge dividend.
Dividends Expected in July and Rest of 2021
This calendar from Simply Safe Dividends shows the dividend payments expected in July. They total $266 from seven companies.
July is the first month of the next quarter, and it is the slowest month for dividends in the quarterly cycle.
The varying amounts each month are simply an outcome of the particular payment schedules of the stocks that I own. The variations have no broader significance, and I don’t care that the monthly totals differ.
The next display, from E-Trade, shows the portfolio’s annual dividend run-rate for the next 12 months, which stands at $5211/year.
Dividend Increases in 2021
One of the basic design elements in dividend growth investing is to hold companies that raise their dividends each year.
In the DGP portfolio, 20 companies have announced increases for 2021 so far.
Two dividends are frozen: AT&T and Hasbro. As I mentioned earlier, I intend to liquidate AT&T and replace it with better DG stocks. That will probably take place in July.
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 June is highlighted in yellow. The two frozen dividends are shaded orange. Note that Merck’s increase took place before I first bought it in May.
I calculate the DGP’s yield in two ways.
(1) Current yield is the yield from the portfolio right now, based on its current dividend run-rate and its current value. 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
$5211 / $160,602 =
3.2% current yield
That is unchanged from last month.
In its 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. They primarily 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 1.3%, and the benchmark 10-year Treasury (fixed income) is 1.5%. (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.
(2) 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
$5211 / $46,783 =
11.1% yield on cost
Rounded to one decimal place, this is unchanged since last month, and 11.1% is the highest yield on cost in the portfolio’s history. YOC goes up in step with the dollars in the dividend stream, 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. In contrast, current yield shows where you would start out if you were buying the portfolio right now.
As a scoreboard metric, YOC reflects the impact of every decision I have made – to reinvest, what to buy, when to trim, etc. – since I started the portfolio in 2008.
What 11.1% YOC means is that my portfolio is now sending me – each year – cash dividends at the rate of 11.1% 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 for educational purposes. It’s fun watching the dividends – the overall payback on the original investment – keep rising.
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 $202. It will be around $425 when I make the next reinvestment in the middle of July.
Secondary Goal: Total Returns
For its lifetime, the total value of the DGP has grown +242% from its inception in June 2008. It started at $46,783. It is now worth $160,602.
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 +299% to a total value of $186,430. (Source) The SPY investment would be yielding less than half of the DGP’s current yield (1.3% vs. 3.2%).
All of the DGP’s deficit in total returns compared to SPY has taken place in the past 13 months. A little over a year ago, at the end of April, 2020, my portfolio’s lifetime total return was more than SPY’s.
Since the end of the pandemic crash in February, 2020, tech and tech-enabled growth stocks (such as Amazon), have been on a price rampage. My portfolio, which emphasizes dividends and a value tilt, has not kept up with the massive price rise in those types of stocks. It remains to be seen whether that situation is cyclical or remains permanent.
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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