My Dividend Stream is Growing but is Still So Unexciting

Unless I receive any additional dividend payments in the next 13 days, my dividend income has increased 50+%! But I am pretty bummed about it.  How could that be possible? The problem is that the whole number is still damn unexciting.  In 2012 my (very distant) perpetual income machine provided $458.18 in dividends for the year while in 2013 that number increased to $760.44.   Enough for 2 dinners at a fancy steak house is not what dreams are made of.

My Current Holdings and Yield on Cost

I have never tried to calculate my yield on cost until this post.  Yield on Cost, as defined by Investopedia is,

The annual dividend rate of a security divided by the average cost basis of the investments. It shows the dividend yield of the original investment. If the number of shares owned by the investor does not change, the yield on cost will increase if the company increases the dividend it pays to shareholders; otherwise it will remain the same.

To calculate yield on cost for a stock, an investor must divide the stock’s annual dividend by the average cost basis per share and multiple the resulting number by 100 (to get a percentage).

So if I bought 10 shares of Stock ABC for $30/share and it had a dividend yield of 3% I could expect $9.00.  Then lets say in 5 years the powers that be decided they liked a 3% yield but the stock had increased to $40 a share I could expect to receive $12.00.  However I still only originally put in my original $30 so instead of a 3% yield I am actually receiving a 4% yield on cost.

As you could imagine the shares that had the greatest unrealized capital gains are likely to have a higher yield on cost.  The reason is simple, your (my) original cost basis never changed other than small incremental dividend reinvestments.

My Actual Yield on Cost

Symbol Description Cost Per Share Current Yield (12-17-13) YOC
AFL AFLAC INC (Margin) (Margin) $38.13 2.23% 3.88%
BDX BECTON DICKINSON CO (Margin) (Margin) $75.51 2.06% 2.91%
BMS BEMIS COMPANY INC (Margin) (Margin) $39.52 2.75% 3.54%
CB CHUBB CORP (Margin) (Margin) $60.28 1.89% 2.92%
CBSH COMMERCE BANCSHARES INC (Margin) (Margin) 35.99 1.92% 2.33%
CTBI COMMUNITY TR BANCORP INC (Margin) (Margin) $33.97 2.94% 3.77%
DVY ISHARES SELECT DIVIDEND ETF (Margin) (Margin) $54.42 3.13% 3.97%
ED CONSOLIDATED EDISON HLDG CO INC (Margin) (Margin) $57.81 4.51% 4.29%
HCP HCP INC COM (Margin) (Margin) $43.93 5.82% 4.73%
IDV ISHARES INTERNATIONAL DIVIDEND ETF (Margin) (Margin) $31.06  No Yield???
JNJ JOHNSON & JOHNSON (Margin) (Margin) $68.22 2.89% 3.87%
KO COCA COLA CO (Margin) (Margin) $41.15 2.85% 2.72%
LEG LEGGETT & PLATT INC (Margin) (Margin) $25.96 4.07% 4.62%
MCY MERCURY GENERAL CORP (Margin) (Margin) $38.14 5.09% 6.50%
MMM 3M COMPANY (Margin) (Margin) $92.17 1.99% 2.73%
NFG NATIONAL FUEL GAS CO (Margin) (Margin) $47.53 2.17% 3.20%
NWN NORTHWEST NAT GAS CO (Margin) (Margin) $45.24 4.3% 4.07%
PG PROCTER & GAMBLE CO (Margin) (Margin) $61.65 2.95% 3.89%
SDY SPDR SER TR S&P DIVID ETF (Margin) (Margin) $52.25 2.43% 3.06%
SON SONOCO PRODS CO (Margin) (Margin) $31.19 3.03% 3.98%
TGT TARGET CORP (Margin) (Margin) $64.55 2.77% 2.66%
VFC V F CORP (Margin) (Margin) $93.92 1.79% 4.47%
WAG WALGREEN COMPANY (Margin) (Margin) $33.15 2.22% 3.74%
WMT WALMART STORES INC (Margin) (Margin) $74.33 2.42% 2.53%

 

I am receiving an average yield on cost of 3.75%.  I shouldn’t be able to complain about that, but I obviously am since the whole number is still so low.

I think this exercise has given me new inspiration that the exercise I do every month with regard to trying to find an equity worth dumping $750 to $1,000 in is the best place for my cash right now (this may change in the future if I buy a B&M business or a rental property).  Since it is currently the best place for cash right now it is my responsibility next year to get spending back under control so I can start putting a multiple of that number into the account every month.

 

*I should mention that the calculations in this post do not include roth IRAs, traditional IRAs or my 401(k).

10 Responses to My Dividend Stream is Growing but is Still So Unexciting

  1. It’s a pain when you’re early in the accumulation phase as it almost seems like it’s not really worth it. The benefits of DGI won’t really show up until years down the road when you realize that you’re getting 10% or 20% YOC. The key, especially early, is to make sure that you are investing as much as you’re comfortable with. Luckily with my current job and low expenses I can throw down $4,000+ per month. Not sure what brokerage you use but have you looked at Sharebuilder? It could be better to invest smaller amounts on a weekly/monthly basis across several stocks rather than one lump sum into one stock. Just a thought. I’ve been trying to decide whether I want to go with Scottrade or Sharebuilder for my 2nd brokerage account. Scottrade has the FRIP but Sharebuilder has better ways to DCA.

    • $4k a month! WOW that is freaking impressive. My expenses are just way too high for that. It is frustrating because it isn’t my income that prevents the $4k its the expenses.

      Currently I am using Fidelity so at $8 bucks a trade it isn’t that big of a deal. I used to use (and love) sharebuilder but my employer forced me to change (http://www.myjourneytomillions.com/articles/i-am-being-forced-leave-my-favorite-online-discount-brokers/).

      “? It could be better to invest smaller amounts on a weekly/monthly basis across several stocks rather than one lump sum into one stock.” – this is how I used to do it when I first started the portfolio. This is how I ended up with like 1.2 shares of VFC lol.

      What is the FRIP? Free dividend reinvestment? b/c fidelity has that as well.

  2. Hi Evan,

    First I wanted to point out that MMM just announced a 35% dividend raise, I hope that raises your spirits! Consistent monthly cash infusions is the secret sauce to making this investing thing work, I’ll be interested to see what you buy. Time is the other key ingredient.

    FRIP is Scottrades’s Flexible ReInvestment Plan. It’s quite different than DRIP. With FRIP, dividends pool and you get to pick which stocks/ETFs it purchases (whole shares only). Say you get $200 in dividends from KO, WMT, and LEG in a month. You could then direct say 50% of it to TGT and 50% towards PG. It’s commission free just like DRIP and you can change the companies/%s whenever you want. With DRIP you only get more shares of the company that paid it and really have no say over when then purchase takes place. One downside of FRIP is that dividend reinvestment discounts do not apply. BNS, for example, offers a 2% DRIP discount. Also since it buys whole shares only it could be frustrating for beginners.

    IDV definitely pays dividends, it yields around 4.5% right now.

    Take Care!

    • FRIP sounds like a cool option. If it is popular it is likely to move to other brokers in due time.

      The IDV thing is weird it didn’t have a yield on google finance or morningstar? Can’t find anything about it halting dividends, although on the iShare site it seems like it hasn’t paid since March?

  3. patience isn’t a virtue that most of us enjoy.
    it might help to develop a compound interest table and run it out about 30 years. That would mirror your investing lifetime. You’ll see that the vast amount of your ultimate holdings are earned in the latter few years of the interval, and that most of it is earned by the money you invested first, that has the longest time to compound. You’ll continue to contribute over the years, and each subsequent contribution has a little less time to compound before the time you need to draw on it. That’s the key to starting early; little acorns grow into great big oaks. Perhaps the small beginnings won’t seem so trivial when you remind yourself how compounding actually works!

    • Patience is NOT a strong suit of mine! Notwithstanding, I think there is a combination of both compounding and adding new funds that I have to focus on for the next couple years. My current income stream will still be shitty despite growth without the addition of more and more funds. Additional money will eventually be eclipsed by growth but I am pretty sure that is a decade or so away.

      Think I need to print out: little acorns grow into great big oaks
      http://widgets.bestmoodle.net/images/provpost/acorns.jpg

  4. The YOC for JNJ and PG is nothing to be disappointed about, although I know what you mean. It’s harder to project the YOC 30 years out when it’s going to be something your damn pleased with. Blue chips aren’t the most exciting, but they tend to get the job done. And that mighty oaks/little acorns is my favorite proverb. You’re def headed in the right direction, bro.

  5. Evan,
    If dividend investing is your goal and given your age, why wouldn’t you shoot for something that is a bit higher than the current 7 year treasury note?
    Seriously, take a little more risk, and research some of the 6-9% or more stocks. Your dividend investing may like it a lot better. I wouldn’t suggesting putting 75% of your dividend portfolio, but perhaps 25%-35% of your current portfolio into the higher rate dividend stocks would be in your best interest.

    I need to start posting net worth updates on my own blog so that I’m accountable to myself and so that other folks can feel free to bust my chops for some of the bad choices I can and do make. :-)

    Much more luck in 2014 for you and your family!

    • Why go for the higher dividend rate? That extra 2 or 3% will become nothing when the stock cuts the dividend and people bail. If anything it would make more sense to take that same 25% that you are talking about and use it invest in growth stocks that don’t pay dividends. But then I would have no idea where to start the elimination.

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