Should One Calculate Projected Forward 12 Month Dividends?

I saw a post by a blogger named Write2Reality who wrote about calculating/projecting his forward 12 month dividends that got me thinking whether this is useful data for most.  Despite not agreeing with W2R I would recommend checking out his blog; an engaging blogger with great content (a rarity today).

Is Calculating a Projected Forward 12 Month Dividend Useful?

Unlike when I took a look at history of my dividend income, my gut reaction is that projecting a portfolio’s forward dividend is not useful for those still in the accumulation phase, as opposed to those actually living off their dividends.  Why? If you are still building your dividend portfolio then there is no real good way to use the data.

The number clearly won’t include your future additions and dividend reinvestments, as such, the moment you hit enter on the sum cell it is already wrong.  While it may not be useful but if it isn’t detrimental who cares, right?  Well if you are a less than disciplined investor it may even cause you to make terrible decisions to build forward yield.  If you are continuously updating the number, you may go for yield when that wouldn’t help.  It is similar to a CEO caring about today’s numbers at the expense of long term growth.

One may argue by knowing what you are expected to have in terms of income it is a good way to determine whether you are utilizing capital in the most efficient way possible.  For example if my forward 12 month dividend is calculated at $200 a month, maybe I could re-characterize the value into another class.  I believe that we are back to caring about today’s numbers at the expense of yield on cost in the future.

My bias is obviously based on where I currently am in my investing life.  If I were to live off of or need in anyway the dividends then my view would change pretty quickly.

 

Do you calculate your forward 12 month dividends? What am I missing?

8 Responses to Should One Calculate Projected Forward 12 Month Dividends?

  1. MJTM,
    I calculate the number because it represents how much money I would make from dividends/PI if I stopped working today. While I don’t plan to stop working today, I could lose my job. Ultimately this number will equal my total expenses which is when I reach financial independence. That’s the allure of the number. Your point is valid though, if the FI date is way in the future, why calculate it? It changes constantly.

    I second your recommendation to check out the Write Your Own Reality Blog.
    -RBD

    • “I calculate the number because it represents how much money I would make from dividends/PI if I stopped working today. ”
      – Yeah, I am so far away from FI that it wouldn’t matter. I am not saying I shouldn’t be optimizing like MMM or some of the others out there, I am just not. For example my monthly mortgage, taxes and insurance is about $3K – it’ll take a LONG time before the dividends catch up and that is just the house.

      W2R is a great blog.

  2. I appreciate the kind words and am glad I was able to spur some thought and a post Evan!

    When it comes to the forward 12-month dividends, I am actually in the same boat as you when it comes to my personal goal setting. My goals are based on the actual dividends received in a year, a function of my existing portfolio, capital additions, and reinvestments.

    However, when writing the post, I wanted to address a calculation common to those in the dividend growth community. One positive that you see as a negative is that the forward 12-month dividend number provides is the immediate response to each purchase or reinvestment, giving an investor a boost to stay the course and keep investing. While chasing yield is a concern, I don’t think it is unique to this particular calculation, and instead is a battle for all DG investors.

    • “One positive that you see as a negative is that the forward 12-month dividend number provides is the immediate response to each purchase or reinvestment, giving an investor a boost to stay the course and keep investing.”
      – I guess it would depend on the individual, but since I share most things on here I would be quick to try and pump that number up lol!

  3. Hi Evan,

    While I set goals each year for the total amount of dividends actually received, I do track projected annual dividends since it gives me a good idea of how I’m doing and progressing toward that goal and how I should adjust my goals in the future. Plus, like w2r mentioned above, it shows me what the results of this investing activity is creating. Picking up 30 shares of Coca-Cola isn’t only upping my brokerage account balance but also buying me an annual income stream of $36 that should raise by 6-9% per year. I like to see the result of each purchase and how it will help me toward my goal of achieving financial independence.

    I definitely see the point you’re making about potentially focusing too much on building that forward annual number up and chasing yield. Especially since I started blogging and sharing my goals/projected annual dividends, I’ve been tempted at times to just start buying only Kinder Morgan and AT&T each month to raise that number but I know this isn’t a good strategy and I need to diversify with some lower yielding, higher dividend growth names like KO, MCD, etc as well. As long as you can realize this and stay disciplined in your approach I think calculating projected dividends can be a good exercise as one part of charting your progress.

    Thanks for a good and thought provoking post.

    Best wishes,
    SFZ

    • SFZ,

      But yield is one of the last things you should be buying into (still a factor but one of the last). Buffett has said multiple times “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price” – modifying that a bit isn’t it far better to buy a wonderful company at a fair price than a fair company with a wonderful dividend?

      If so, then the metric is useless since you *know* that you are using dividend yield (and by default for many of us dividend history) as part of your metrics so there is a base. As such who cares if you are buying a 3%er, 4%er etc.

  4. Evan,

    Thank you for sharing your views about tracking the 12 month dividend forecast. As you mentioned, each investor is at different stages and may use the metric differently. I figured I would share with you why I find the forward annual dividend income a useful metric. For me, I find use the number as a goal and strive to reach a projected annual dividend income level. I think benchmarking is important for investors in both the accumulation and maturing stages so a person can measure their progress and assess whether or not additional capital may need to be deployed. And while you are right, the current number will not include future additions, I set realistic and challenging goals of where I would like my annual income to be at the end of a calender year.

    Again, thank you for sharing your opinion. I enjoy reading your other posts.

    Bert, one of the Dividend Diplomats

    • I see you have a new blog, good luck with it! If you need help always feel free to reach out.

      “For me, I find use the number as a goal and strive to reach a projected annual dividend income level.”
      – This is fine if you aren’t the type of person that will sacrifice quality for current results. For example if you are looking to pump that number up to make yourself feel better or brag all you have to do is buy garbage high yield dividend stocks that are unsustainable.

      “I think benchmarking is important for investors in both the accumulation and maturing stages so a person can measure their progress and assess whether or not additional capital may need to be deployed.”
      – I have to call B.S. on this one. Additional capital in almost all cases for people at our age (I am only 33) should be deployed. Where else is it going? Only a few things you can do with money – debt repayment, save, invest and spend.

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