To help myself focus on dividend growth, I started tracking the dividends that I'm receiving from my dividend growth stocks. It's helpful to determine how much the dividend was raised from the previous year, and even better to look at the average dividend growth rate of a company for the past few years. This strategy helps give me a new perspective on the dividend growth rate. If a company's dividend slows in growth or the growth remains stagnant, it'll be easy to tell from the table.
First, I'm going to create a table of stocks commonly found in a typical dividend growth portfolio. This table tracks the dividends I'm receiving each month and how much dividends I'm receiving from each stock.
For simplicity, say, we owned 100 shares of each of these stocks on January 1st, 2009. The stocks include Coca Cola (NYSE:KO), Johnson and Johnson (NYSE:JNJ), Chevron (NYSE:CVX), Aflac (NYSE:AFL), Intel (NASDAQ:INTC), McDonald's (NYSE:MCD), Walmart (NYSE:WMT), and Dover (NYSE:DOV).
~ Dividends Received in 2009 ~
Using a spreadsheet to create this table, I can easily see how much dividends I received from a company each year, and what's the total dividends I received for the portfolio for that year. In 2009, I would have received $1125 worth of dividends!
I created similar tables for the subsequent years between 2010 and 2012. However, there's an additional column of dividend growth rate (DGR) from the previous year.
DGR of Coca Cola from 2009 - 2010
= (Dividends received in 2010 - Dividends received in 2009) / Dividends received in 2009
= (88 - 82) / 82
~ Dividends Received in 2010 ~
Dividend Growth at the Stock Level
Looking at the DGR column in the 2010 table, we can easily scan to determine which companies have the slowest growth rates. Then, I can determine whether it still fits my criteria. One of my criteria maybe that my stocks have to grow their dividends every year by at least 6%. If that's the case, then I would have eliminated Aflac and Dover from my portfolio in 2010.
If you have many stocks in your portfolio, spreadsheet programs also conveniently allow you to sort the table data by a specific column. Then, you can sort the DGR column by ascending order to single out the lowest growth companies at the top.
Dividend Growth at the Portfolio Level
In a different perspective, notice there is a portfolio dividend growth rate. I might set a criterion that my DGR of my portfolio must be at least 6%. From 2009 - 2010, this portfolio's DGR is 7.91%. Interestingly, the portfolio DGR of 2010 - 2011 and 2011 - 2012 are both ~10.9%. All are above the rate of inflation and above my criterion of a minimum of 6%.
~ Dividends Received in 2011 ~
Notice in 2011 and 2012 that Aflac and Dover recovers in their dividend growth. So maybe my original criterion was too strict. The set of rules to buy, keep, or sell a stock from a portfolio is not set in stone, and I encourage you to continue tweaking it according to what makes sense for you, your temperament, and lifestyle.
~ Dividends Received in 2012 ~
Viewing Data in Graphs
Now, table data is useful to refer to, to create aggregate data such as the total dividends received from the portfolio, and to calculate the portfolio dividend growth rate from the data. However, sometimes looking at table data graphically can yield different perspectives.
Below, I've created a bar graph of the dividends I would have received each month in 2012 from this portfolio (data used highlighted in light blue in the above table).
If I were living off of my dividends, I need to know when I'm getting paid. Notice that most of the dividends come in on February, May, August, and November. I better have had saved enough money for the other months!
Further, I created a summary table of all dividends received for this portfolio for the years 2009 to 2012.
This summary table allows me to create a graph that shows the portfolio dividend growth comparison.
With one glance of this graph, one could tell immediately whether the portfolio's dividend growth is slowing or not. Holding high quality blue chip dividend growth companies having a long track record of increasing dividends in your portfolio, it is unlikely the growth will remain stagnant.
Last but not least, using the same summary data as the graph above, I've created a different graph that shows the total dividends received for this portfolio between 2009 to 2012.
The 2012 dividends received (red bar) may seem to have similar height as the yellow bar (dividends received in 2011), but try comparing the red bar and blue bar.
This last graph serves as a reminder that dividend growth investing is a slow but steady process which paves the way for financial independence. That after many years of dollar-cost averaging into a position that one day it'll generate enough income for my cost of living.
Disclosure: I am long CVX, INTC, KO, MCD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.