Dividend Income Goal
Goals should be realistic and measurable. There should be a set defined target followed by some steps to achieve the goal. This is the second in a series about setting goals and this one focuses on investment dividend growth. My goal is 9% growth for 2023. Read on if you want to understand how I came to that target and how I believe it can be achieved.
For anyone to set a dividend growth goal it is generally helpful to look at recent history to see what might be possible. I looked at two aspects of our investments to come to my target of 9% dividend growth over 2022’s results. The first part was a comparison of the dividend growth from 2021 to 2022 and the EAI (Estimated Annual Income) for the next twelve months from Fidelity’s website for our positions using the positions “Dividend” view. The second part was an analysis of our holdings in a more granular fashion.
What Makes the Goal Work?
First of all, the EAI for 2023 with no changes to our portfolio could be about 7%. Therefore, in theory, even if I did nothing, we should continue to see at least 7% more in dividend income this new year. In addition, several of our top ten investments have a history of dividend growth. AVGO, for example, has a five-year dividend growth rate of 28.57%. PFE’s is 5.70%. ABBV’s is a healthy 17.26%. Even MAIN, a BDC (business development company), is capable of 3% growth.
There are, however, some problems with my assumption. First of all, it assumes that all of the positions will continue to pay at least the same amount this year as last. That may not be true of some of our positions, like the ones I mentioned, but not of others. I have a couple related to the shipping industry that may take a hit.
Another problem is that we cannot know what might happen to the nation’s economy in the next twelve months. A big recession or even a depression could dramatically reduce our dividend income. However, even if that is the case, we don’t need the dividends to pay the bills so there is no reason to be alarmed. In addition, it is never possible to set goals knowing with certainty anything about the future. We just don’t know the future. But uncertainty is never an excuse to ignore setting goals.
Adjusting the Portfolio of Investments
Each year I make changes to our holdings. Over time I have reduced the number of individual stocks to concentrate more of our assets in ETFs like VYM, SCHD, and DGRO. However, we still have 102 unique stock positions. The ETFs in our portfolio are currently contributing almost $18K in annual income. VYM has a 6.25% five-year dividend growth rate, and DGRO is over 10% in the same time period. Adding to these ETFs is a simple way to grow our dividends. If you are an ETF investor, you can also set reasonable goals for dividend growth.
Of our 102 positions, thirty-one contribute less than $7,500 of our total dividend income, but they have a market value of about $192K. I could, therefore, eliminate some of them and reinvest the proceeds in some of our better core dividend positions. I won’t rush to do this, but it is now on my list of things to change in the next couple of years. Portfolio simplification is the long-term goal.
We also have 23 unique positions that currently pay no dividends. This includes investments like AMD, AMZN, CCRN, FLGT, PRPH, SAVA, and TITN. Many of these are more speculative in nature and can also be used for options trading income. These holdings can also be sold and the proceeds could be used to buy dividend growth investments, further increasing the potential for achieving my 9% goal.
More Fuel for More Dividends
Although our goal is to be even more generous in our giving in 2023, it is possible to use some of the dividend income to buy more shares of existing dividend growth investments like DGRO and VYM. This is a snowball effect. So that likelihood starts to make my 9% goal seem almost too easy. However, it is better to revisit the goal six months from now and adjust it up, rather than seeing it fall short and having to adjust it down.
The Core Will Not Change
Because I have been building a dividend growth portfolio, most of what we own will not have to be sold or changed. Fifty-one unique positions make up $153K of the anticipated dividend EAI of $162K. It isn’t really much of a stretch to think some minor adjustments could help us reach $165K in 2023 dividend income. That would be a 9% increase.
Does Your Life Pay Dividends?
It is far too easy to be distracted by the accumulation of wealth. To help keep this in check and to guard against greed and fear, it is good to hear once again from King Solomon. There is a general principle in the Proverbs that you should hold what God gives you with an open hand. That means we should be generous. It also means we will trust God for our futures. When God asks us to give him the first part of the harvest, it is really just a way for us to acknowledge that he is worthy of that portion and that he can be trusted to care for me. I don’t need the first portion of anything he gives me if I really have trust in his care for me and our needs.
“Honor the Lord with your wealth and with the firstfruits of all your produce; then your barns will be filled with plenty, and your vats will be bursting with wine.” Proverbs 3:9-10
In a future post I will be talking about another goal for 2023: increasing generosity. But it is more than just a goal. It is a frame of mind.
All scripture passages are from the English Standard Version except as otherwise noted.