Monday, July 6, 2015

Dividend Goals

One of the many benefits of a dividend growth portfolio is that it is relatively predictable. Looking at the dividend schedule, and other money I expect to invest, I came up with dividend income goals for the next 15 years.  The danger of a goal is to become blindsided and just chase yields. But with the screener and discipline in place, I only invest in good quality businesses.

Let's look at the goals and how I plan to get there.

I have to admit. I kind of pulled the goals out of thin air. I started in 2014 with that seemed achievable at the time. Then I put in 5, 10, and 15 year goals. Nice round numbers not really based on reality. I just thought that it would be nice in 15 years it would be great to have 25k in annual dividend income. Then I worked backwards to set 5 and 10 year milestones, and averaged out the goals for the years in between. The first 5 years I need to grow my annual dividend income by 1050. The next 5 by 1600 and the last 5 years by 1800. I like setting stretch goals.

It's not entirely made up of course, as then I could have just put 1 million dollars as the goal, and that's no use. I looked at how much income I receive now, how much extra money I can put in today, and what other financial events I have planned in the next few years.

Dividend Income

Most companies pay dividends around the same time each year. Raise dividends around the same time each year. And using the 3 or 5-year average dividend growth rate, you can quite reliably plot out where your portfolio will be in 1, 5, 10 years.
I've done that for my portfolio, using the average dividend growth of the past 5 years.

This means that if I don't put any new money in, don't re-invest my income, and all companies keep to their same payout and increase schedule, I will see solid growth in my dividend income.

Fresh Money

One of my rules is that I don't let money sit idle. In addition to the dividend income, I put fresh money into my brokerage account automatically, each money. This is 500 dollars that I was able to save by refinancing my mortgage last year, and my annual raise from work. In other words, I didn't really have to give up anything to put this extra money aside.

More Fresh Money

So now I have two predictable income streams. Looking ahead, I have a car loan and a credit card, both 0%, both planned to pay off late 2016. That will free up significant cash flow for investments. I expect the annual raise at work to continue as it is at a quite conservative pace and the company I work for is doing well.  On the flip side I drive a 14-year-old car, that I will probably need to replace within the next 2 years. I hope to drive it until the other car loan is paid off. I will try to get another 0% financing deal and put the remaining money in the portfolio.

Goals Help

The goals I set really help focus on investing. It helps not letting money sit idle. It helps balance yield with dividend growth. Nothing is nicer than seeing income increase on its own, without having to put in fresh money. When I reached my goal last year, it felt great. This year, thanks to my company's stock jumping, I got an unexpected influx of money. I'm in the middle of putting that to work. Since my company didn't pay dividends, I get not only my gains, but the full value of my company stock to add to my portfolio. I expect that this will put me way ahead of my goal for the year. If I reach my goal early, I will continue the disciplined investments each month, so that I will be in a good starting position next year.

No comments:

Post a Comment