Dividend Income Update - Q1 2016 - Retire by 40 (2024)

I started investing in the stock market when I began working full time in 1996. First, I contributed to my 401k. After a few years, I was able to fully max out my 401k contribution and kept that up until now. Currently, my retirement funds are all invested in low cost Vanguard funds. I also started investing in my taxable brokerage account since the beginning. I started off small and invested in “growth” stocks. By growth, I mean whatever my friends were talking about. I had some winners and losers, but didn’t make any big wins like Apple and Google. In 2010, I decided to retire by 40 and started converting my taxable account into a dividend portfolio. This time I focused on buying solid big companies with a track record of dividend growth. My goal is for dividend income to cover about 25% of our cost of living after Mrs. RB40 retires. The rest of our monthly expense will be covered by a combination of business income, rental income, interest income, and side hustles.

Here is the recap of our dividend income so far.

• 2012: $6,791
• 2013: $8,036
• 2014: $8,759
• 2015: $10,695
• 2016: projected $10,925

The stock market was a wild ride in Q1 2016. The S&P 500 index dropped 10% by mid February and then made a quick recovery. By the end of Q1, we were at about the same point where we started the year. Our dividend portfolio did relatively well so far in 2016. One of our stocks had a big stumble and cut their dividend, but the rest seems to be doing okay. Let’s take a closer look.

Dividend Income Q1 2016

In Q1 2016, our dividend income was$2,827. That’s an 18% improvement from Q1 2015, not too shabby. The great thing about a dividend growth portfolio is that our dividend income should increase over time. This is due to three factors.

1. Reinvested Dividend– I reinvest our dividend income in new stocks. I don’t DRIP because it complicates the tax when you sell. Although, now that the broker keeps track of everything, it should be pretty easy. In 2015, I reinvested our dividend in Phillip Morris, Omega Healthcare Investors, and Caterpillar.
2. Dividend Growth– Most of the companies in our portfolio should increase their dividend payout every year. More details below.
3. New Investment– We try to add new money to our dividend portfolio whenever we can. In Q1 2016, I purchased 100 shares of Kinder Morgan Inc. The price was beaten down to under $12 and I purchased right at the bottom. I’m looking to buy more stocks at a bargain price this year.

Of course, it’s not all good news. The world economy is going through a challenging time and setbacks are inevitable. KMI had a pretty bad year in 2015 and they cut dividends by 75%. That’s a big deal to dividend investors. The stock also dropped from a high of $45 to a low of $12. Kinder Morgan is a midstream pipeline company and the weakened crude and natural gas prices hit them very hard. I think they are still a good company and they should recover eventually. That’s why I purchased 100 shares earlier this year to average down my cost basis.

Dividend Growth

Here are the companies that increased their dividend in 2015 so far. Most of them are just one or two cents increase, but that’s still better than nothing. Actually, if you look at the percentage, the increases are pretty good. Quite a few of the increases handily beat inflation.

*Ford paid out $1 Billion in special dividends in January 2016. They had a good year in 2015.

Dividend Portfolio Performance

Our dividend portfolio did quite well in Q1 2016. We gained 5% via price appreciation and 1% via dividend. This compares favorably to our benchmark – VIG, Vanguard Dividend Appreciation ETF.VIG is up 4.5% plus 0.5% dividend. We’re a full percentage point ahead and I am very happy with that.

2016 Dividend Target

My dividend income target for 2016 is $11,500. That’s about $900 increase from 2015. At this point, we are a bit behind the pace. My spreadsheet indicates that we’ll receive $11,266 in dividends this year. I’m not too worried because the other companies should increase their dividend payout later this year. Also, I am hoarding cash at the moment. I still think we will see a bigger stock market decline this year and I want to be ready to buy more shares. Anyway, we should be able to meet my dividend income target this year.

You can see my 2016 dividend portfolio here.

Dividend Coverage Ratio

As I mentioned in the beginning, my goal for our dividend income is to cover 25% of our expenses. For Q1 2016, our dividend income covers 22% of our expenses. This is improving slowly and I think we’ll get there by 2020.

Do you invest in the stock market? How did you do in Q1?

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Image credit: flickrby CIMMYT