2018 Dividend Income Report

DGI for the DIY: 2018 Dividend Income Progress Report

Hello everyone, I hope the new year is treating you well. My apologies on the long absence from the blog, it’s been way too long since I’ve written an update on the portfolio. This is the first post made on the site since September, so it feels great to get back in the saddle once again.

I keep hoping that I’ll find more time for writing on investments and my portfolio, but it’s becoming apparent that more limited time is my new reality. With a full-time job and three young kiddos at home, I’m finding that it’s not just the busyness of life that keeps increasing, but also the exhaustion at the end of the day from keeping up with it all. Maybe it has something to do with turning 40 in the fall; but those midnight writing sessions just don’t come as easy as they used to!

Back from deployment.
She’s Home!

I’m certainly not going to complain though, as I feel beyond blessed with life. My wife returned safely from her deployment in November, and our kids are all happy and healthy. We’ve enjoyed visiting family and friends over the holidays, and have gotten a few “snow days” from school in recent weeks that allowed for even more time with the kids.

I do intend to be a bit more active on the site, but my blog posts might switch a bit from the monthly portfolio updates type to more a general look at what I’m seeing in the market. I’m thinking those may be a bit easier to do as quick write-ups on, and may be more useful to readers as well.

I continue to write on Seeking Alpha as well. So if you aren’t following me there already, please do, so you can get notifications on when new content is published.

Dividend Growth Portfolio Goals

If you are new to this site and reading about this portfolio, it is an IRA that was set up with my former employer. I converted the account from mutual funds to dividend growth stocks in early 2013, and began writing about its progress on Seeking Alpha shortly after.

Along the way I established some guidelines and goals for the portfolio that help me stay on track with my progress.

  1. Buy companies that consistently show positive growth in earnings and translate those earnings into increasing dividend payouts to shareholders.
  2. Focus on companies that are investment grade, with S&P credit ratings of BBB or higher.
  3. Maintain a diversified portfolio spread across multiple industries.
  4. Reinvest all dividends back into the companies that pay them.
  5. Consider for sale any company that cuts or freezes its dividend.

By following these guidelines, my goal is to produce 10%+ annual income growth that will eventually fund a portion of my future retirement. I think this is a reasonable expectation, as it requires less than 7% organic growth to go along with the 3.2% yield that is reinvested.

Here is a table showing how that dividend income will grow over time, and how the portfolio is doing in comparison since I implemented the 10% income growth goal:

DGI For The DIY - Dividend Scorecard
Dividend Income Scorecard

With income growth of 14.6% in 2018, I am ahead of the pace after the first year. There’s also been plenty of additional dividend increases in recent months, which puts me on a good track to beat the $2,420 goal for 2019.

Next up, we will take a look at what stocks contributed to the income growth in the portfolio during the last year.

Dividend Income Progress

2018 was another successful year for the portfolio, with dividend income increasing by 14.6%. This income growth came from three sources:

  • Trades made in the portfolio.
  • Reinvestment of dividends into additional shares.
  • Increased (organic) dividend payouts from the companies owned.

These factors had varying effects on each of the stocks I own. In the table below, you can see the year-over-year income growth for each position, and what was the driving force behind that growth.

Chart of 2018 Dividend Growth
Chart of 2018 Dividend Growth
2018 Dividend Income Growth

The “notes” column on the right shows where the income growth came from. For reference: O = organic dividend growth, R = dividend reinvestment, P = purchase, S = sale.

I really enjoy looking at this chart, as it is the basis for the dividend growth investing strategy. I’ve highlighted the increases in green that exceeded my 10% income growth goal, while yellow represents those that provided 8-10% income growth, and red indicates those that provides less than 8% income growth.

Overall, the portfolio is more than meeting my expectations, as many of those in the green are far exceeding my goals, and the ones in the yellow are close. Most of those in the yellow are utilities, consumer staples, REITs, or telecom stocks, which generally provide higher yields and see a bit slower growth than other sectors.

Some of the red stocks are showing slow growth right now, but that is generally the result of companies making acquisitions, which makes deleveraging a higher priority than dividend growth. This was the case with Abbot Labs $ABT, Becton Dickinson $BDX, CVS Health $CVS, General Mills $GIS, and AT&T $T, who all made large acquisitions in recent months and years.

Becton Dickinson, CVS Health, General Mills, and AT&T have all stated in conference calls and company presentations that bringing down debt loads will be a focus, and dividend growth will either be frozen or slowed dramatically until those efforts are finished.

Abbot Labs has already returned to growth however, as it announced a 14.3% dividend increase in December, and will likely continue to produce double-digit income growth going forward.

Dividend Increase Announcements

The table above looks at my dividend history, buts it’s also exciting to look at what is coming down the pipeline for future growth. I track all dividend increases for the portfolio in a spreadsheet, and there have been some fantastic increases announced since my last update.

DateTickerPrevious RateNew Rate% IncreaseLink
9/18/2018MSFT$0.4200$0.46009.52%LINK
9/18/2018O$0.2200$0.22050.23%LINK
9/20/2018MCD$1.0100$1.160014.85%LINK
9/27/2018LMT$2.0000$2.200010.00%LINK
10/11/2018THO$0.3700$0.39005.41%LINK
10/17/2018V$0.2100$0.250019.05%LINK
10/25/2018WSO$1.4500$1.600010.34%LINK
11/2/2018ABBV$0.9600$1.070011.46%LINK
11/15/2018NKE$0.2000$0.220010.00%LINK
11/18/2018BDX$0.7500$0.77002.67%LINK
11/19/2018HRL$0.1875$0.210012.00%LINK
11/27/2018MKC$0.5200$0.57009.62%LINK
12/4/2018MA$0.2500$0.330032.00%LINK
12/7/2018WEC$0.5525$0.59006.79%LINK
12/7/2018AMGN$1.3200$1.45009.85%LINK
12/7/2018O$0.2205$0.22100.23%LINK
12/14/2018T$0.5000$0.51002.00%LINK
12/14/2018D$0.8350$0.91759.88%LINK
12/14/2018ABT$0.2800$0.320014.29%LINK
1/10/2019STAG$0.1183$0.11920.70%LINK
1/16/2019O$0.2210$0.22552.04%LINK
1/22/2019WFC$0.4300$0.45004.65%LINK
1/23/2019NSC$0.8000$0.86007.50%LINK
1/30/2019CVX$1.1200$1.19006.25%LINK
1/31/2019PII$0.6000$0.61001.67%LINK
2/4/2019GILD$0.5700$0.630010.53%LINK
2/4/2019CHD$0.2175$0.22754.60%LINK
2/5/2019MMM$1.3600$1.44005.88%LINK
2/7/2019UNP$0.8000$0.880010.00%LINK

There have been some nice increases in the portfolio, with fifteen of the announcements being over nine percent. No surprise that the biggest increases came from Visa $V and Mastercard $MA, which announced increases of 19.05% and 32.00%. The two payment companies have long track records of strong growth, and although they don’t pay much for yield, their high growth has been a welcome addition to the portfolio.

Not all is good however, as several companies announced smaller increases. AT&T’s 2% increase was expected, but I was surprised that Church & Dwight $CHD raised by just 4.6%, Polaris only raised by 1.67%, and STAG Industrial by just 0.70%.

I’m generally hesitant to read too much into a single announcement, and in the case of Church & Dwight, I think this small increase will be a one-time deal. However, this is the fourth small increase in a row for Polaris, and similar for STAG. They are two companies that are now on watch, and may be up for sale in the future.

There will always be ebbs and flows in a portfolio, especially when it has exposure to cyclical companies, so I tend to give a long leash to under-performers in the hopes they will turn things around. I don’t see either STAG or Polaris as being in any sort of danger of a dividend cut, but I also think it may be another year or two before higher dividend growth returns. As such, I need to decide if it is worth the wait for that day to come.

Other Writing Projects

While I haven’t posted any updates on my website since September, that doesn’t mean I’ve been completely dark. I managed to write three articles for Seeking Alpha during that time, the first of which is one of my proudest works.

I’ve been covering the utility sector since 2015, but had never really dug into what makes the sector such a good place to find quality long-term income investments. I’ve always had an interest in doing some more in-depth research into the sector, and that interest was given a little nudge when a representative from Miller/Howard Investments made contact and asked me to collaborate on a new article covering regulated utilities.

In November I finished up my work, and published “Regulated Utilities: The Market’s Legal ‘Monopoly’” on Seeking Alpha. This article goes into the history behind regulated utilities and provides links to articles, court cases, and industry publications to give more information on the sector.

The article was well received by readers, and has generated over 110 comments to date. It also turned out to be a fun project, in which I learned some new things about utilities, and made me even more excited about owning stocks in the sector.

The two other articles I published were quarterly updates to this portfolio. I have been writing monthly income updates here and quarterly portfolio updates on Seeking Alpha for the last couple years. While I’ve fallen behind on the monthly pieces, I have managed to keep up with the quarterly reports.

Here are links if you are interested:

DGI For The DIY: Q3 2018 Portfolio Update

DGI For The DIY: 2018 Portfolio Review

Closing Thoughts

2018 will go down as one to remember for me. It included the first deployment of my wife since we’ve been together, my 40th birthday, and many fun adventures and milestones with our children.

My portfolio has also performed well, even though it too went through some turmoil with a volatile stock market. However, my focus remains on the income that portfolio produces, and in that respect, it is more than meeting my expectations.

I hope this update finds you well. Happy Investing!

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