Did I Achieve My Dividend Income Goal?
Goals should be realistic and measurable. There should be a set defined target followed by some steps to achieve the goal. My 2023 goal was for 9% growth for 2023. I wrote about this in January of 2023. Now it is time to evaluate the success of the work I did.
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.
Easy Income Strategy
Bear in mind that I want to reach this goal with almost no effort. This is what I call “Easy Income.” In other words, as a dividend growth investor, I want to select investments that reward me even if I don’t make any changes to our investments. That isn’t to say that I did not buy and sell investments. Rather, if I did buy or sell, it was always with the primary goal in mind. The vast majority of our holdings did not materially change in 2023. Part of the consistency was to keep 98% of our investments in stocks and in ETFs like VYM and SCHD. (Note: At the moment our total cash is about 5%, but this is in preparation for some other 2024 goals for a future post.)
Always remember inflation. Inflation will make every dollar worth less, year after year. Therefore, an investment strategy should take that erosion into account. If inflation was 3% and our income grew by 9%, then our income had more buying power in 2023 than it did in 2022.
The Last Thirteen Years
As you can see from the following illustration, our 2023 dividends grew to almost $165K. This was a 9.1% increase over 2022, and slightly less than the previous year’s increase of 9.4%. On average, we have realized an annual growth rate of 12.3%. In other words, it is as if my boss walked into my office and handed me a twelve percent raise each year. While I did have some nice salary increases during my career in Information Technology, I never saw anything like this. That is one of the reasons I decided to use the dividend growth model.
For those who like graphs more than charts, here is the view of the dividend growth over that same time period. Note the dividend growth in 2019-2020 when Covid-19 was making a mess in the stock market. By staying the course, the benefits were sweet.
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 a large number of unique stock positions. You don’t have to do what I do to achieve this same type of success. In other words, you don’t have to buy individual stocks. However, it is true that a good portion of my success is related to holdings that grow their dividends better than average.
For example, ABBV has a five-year dividend growth rate of 10.52%. AVGO has a growth rate of 19.25%. GAIN has a growth rate of 9.97%. VYM, in contrast, has a growth rate of 5.59% and SCHD clocks in at 13.05%. The blend of these and other positions resulted in the 9% income increase.
We also have positions that currently pay no dividends. This includes investments like AMD, 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 dividend growth goal for 2024.
More Fuel for More Dividends
Although our goal is to be even more generous in our giving in 2024, 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. Therefore, the goal I set for 2024 may not be as aggressive, as I will probably do less dividend reinvestment.
ROTH IRA Tax Free Dividend Income
The other piece of this puzzle is that the $165K in dividends included dividends from my ROTH IRA and Cindie’s ROTH IRA. The total 2023 non-taxable dividend income in those two accounts was $53,193. Those dollars have more buying power than the $111,805 in dividends in taxable accounts and our traditional IRA accounts.
Does Your Life Pay Dividends?
It is far too easy to be distracted by or satisfied with the accumulation of wealth. It is good to hear from the Proverbs of 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. The reality is that he takes care of sparrows, so I have fewer worries knowing he understands and meets our needs in ways that only he can and does.
“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 the 2024 dividend growth goal.
All scripture passages are from the English Standard Version except as otherwise noted.
Know Your Flocks & Herds 