Our Growing Dividend IncomeI love our dividend stock portfolio! Dividend income is my favorite form of income because it is very passive. I don’t have to do much and the dividends will keep rolling in AND grow. I used to like rental properties as well, but they are too much work for me now. These days, I don’t have time or to be a DIY landlord anymore. That’s why I invest in Real Estate Crowdfunding. I can benefit from real estate, but I don’t have to fix the toilet. However, real estate crowdfunding is relatively new. I trust dividend stock more so most of our money is invested there. My target is to have enough dividend income to pay for about half of our retirement expenses. The rest, we’ll cover with other means.

*If you’re a new to stock investing, here is a helpful post – How to Start Investing in Dividend Stocks.

Early retirement with passive income

One of the safer ways to fund early retirement is to pay for your living expenses with passive income. Once your passive income surpasses your cost of living, you’re set. I keep track of this with the FI ratio*. This way, your capital won’t dwindle much over the years. You won’t have to worry about how long your retirement will last. However, this is more difficult than the 4% SWR. That rule requires prospective retirees to accumulate at least 25x their annual expense.

*FI ratio = passive income / expense

Anyway, it can take a long time to build your passive income. I’ve been at this for many years and our FI ratio is hovering around 100%. That’s good, but I want to have a little margin. Here is a chart of our passive income since 2016.

passive income vs annual expenses

Increasing dividend income

Dividend income is a big part of our passive income streams. Our dividend portfolio is in a taxable brokerage account so it is easily accessible. The bad thing about this is we have to pay taxes on our dividend income. However, it’s not all bad. Some years we had less earned income and we were in the bottom 2 tax income brackets. That was great because you don’t have to pay tax on dividend income at that point. We made too much money over the last few years so we had to pay 10% to 15% dividend income tax. (It was 10% in 2018 and 15% in 2019.)

I’m not too worried about taxes at this point. Once Mrs. RB40 retires, we should be in the bottom two tax brackets and our dividend income will be tax-free.

We’ve been working on our dividend income since 2012. That was when I retired from my engineering career. You can see it increasing steadily since then. Before 2012, we didn’t have much dividend income. I was focusing on growth before that.

dividend growth portfolio

Our dividend growth portfolio

Our dividend growth portfolio is pretty stable from year to year. I only sell a stock if the future looks really bleak. Most of the stocks in our dividend portfolio are solid big companies. Most of these companies increase their dividend every year so our dividend income should keep growing in the years to come. Here is our dividend growth portfolio.

The first column is the company stock symbol.

The second column is the price from 12/31/2019. I usually don’t pay much attention to the price fluctuation in this portfolio. As long as the companies keep paying and growing their dividend payout, I’m pretty satisfied.

The 3rd column is dividend income. For 2020, we should receive about $15,680 from our dividend portfolio. However, it should be a bit higher. Most of the companies here increase their dividend payout every year. If a company stops increasing the dividend, it’s a sign for me to dig deeper to see if it’s time to sell.

The last column is the dividend yield. 3.14% isn’t bad for dividend stocks. However, this is too low for many investors. It’s barely beating inflation (2%.) However, this is the dividend based on the current price. I purchased most of these dividend stocks at a lower price point. Our dividend on cost is 4.82%. That’s much better and it should keep improving.

2020 adjustments

I’m mostly happy with our dividend portfolio, but I need to make some adjustments this year.

The red color code in the first column indicates the stocks that I want to sell.

MO and UVV – These are tobacco companies. They are great earners, but I don’t like them anymore. Their products kill their consumers. As I get older, how we invest is becoming more important so I want to get out of this sector. I’ll probably sell these stocks this year or soon after.

The yellow color code isn’t a problem. It just shows these are REIT companies. They invest in real estate. The payout is usually higher than other dividend companies, but it isn’t as stable.

Lastly, 2 companies didn’t grow their dividend last year – DE (Deere) and GIS (General Mills.) I color code them red in the last column. I need to dig a bit further to see if it makes sense to sell these. GIS looks like it’s in a bit of trouble. Brand names are less important than price now so maybe it’s time to let GIS go. As for DE, I’m not sure. It still looks like a good long term investment so I’ll probably keep it a bit longer.

Okay, that’s all for today. I’ll update this post once per year. You can see how we’re doing in 2020 at my dividend passive income page. I update that page every month.

Recommendations

For new investors, I highly recommend Firstrade. Firstrade is a great discount brokerage that I used for many years. Their fees were recently lowered so investors pay $0 commission per trade. That’s right. You pay nothing to trade stocks and mutual funds! Wow, that’s a great deal for new investors. Check them out, Firstrade is a great online brokerage.

Here is something cool for the younger generations. You can trade with an app. With Robinhood, you can make unlimited commission-free trades in stocks, funds, and options. You can even trade fractional shares (rolling out this year.) Use my link to join Robinhood and we’ll both get a share of stocks like Apple, Ford, or Facebook for free. Robinhood is legit. I used them for several years and haven’t had any problems yet.

Image credit: Christian Bisbo Johnsen

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