Update On My Goal To Give My Daughter $600,000 In Dividend Stocks On Her 18th Birthday

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Includes: CVX, JNJ, ORI, PFE, PG, T
by: Dividend Retirement

Summary

After 19 months, the portfolio shows a 12.86% return.

Time in the market is more important than timing the market.

Next contribution will come in October 2016.

I wrote an article in September 2015 (read it here), about three weeks before my daughter had her first birthday. In it, I outlined my goal to give her a high school graduation present of an investment portfolio worth roughly $600,000 that would provide her with an income of $25,000 a year. As some fellow commentators noted in the comments of that article, I was slightly off on how I did the original calculation (and they were correct), and they argued that my $600,000 estimate assumed too high of a rate of return. This was certainly a fair critique and I appreciated the feedback. So, how has the portfolio performed since its inception in October 2014?

As noted in the last article, my wife and I have decided that we can contribute $10,000 a year to our daughter's account. Dividends will be reinvested commission free via a Scottrade FRIP, and we will pay all tax obligations associated with the account until she is 18. Additionally, the plan envisions for new contributions and dividends to be reinvested once yearly. So far, that has been done on October 15. This is because the account was opened on October 15, 2014 (Year 0), and we contributed another $10,000 and invested that on October 15, 2015 (Year 1). In other exciting news, we now have a brand new baby boy and are planning to begin the same program for him as well.

I purchased her six stocks to begin her portfolio and have not made any other trades except to add $10,000 in October 2015. The holdings are: Chevron (NYSE:CVX), AT&T (NYSE:T), Pfizer (NYSE:PFE), Old Republic (NYSE:ORI), Johnson & Johnson (NYSE:JNJ), and Proctor & Gamble (NYSE:PG). I split each purchase evenly so that roughly $1,666 worth of each stock was purchased at the start. I chose these stocks to get a diversified exposure to various sectors and because these are reliable, dividend powerhouses that I would argue are able to cover and raise their dividends going forward regardless of economic headwinds we might face in the short term. This October when we make our next contribution I will evaluate if it makes sense to add additional positions or continue with these original six.

The chart below shows the portfolio as it stands at market close on March 31, 2016.

Current Portfolio:

Ticker

Shares

Cost

Value

Total Gain/Loss

Total Div Paid*

Total Return

CVX

33

$3,239.85

$3,148.20

-$91.65

$134.82

1.33%

PFE

109

$3,309.77

$3,230.76

-$79.01

$128.12

1.48%

T

99

$3,303.50

$3,877.83

$574.33

$187.16

23.05%

ORI

222

$3,325.08

$4,060.38

$735.30

$172.68

27.31%

JNJ

34

$3,274.71

$3,678.80

$404.09

$100.30

15.40%

PG

42

$3,292.38

$3,457.02

$164.64

$107.94

8.28%

Total:

$19,745.29

$21,452.99

$1,707.70

$831.02

12.86%

Cash:

$1085.73**

Click to enlarge

*Note that because I purchase additional shares in October of each year, the dividend payments for Q4 are much higher with the additional shares.

**Includes the $831.02 in dividends received and $254.71 that was held in cash after investments were made

As seen in the above chart, after accounting for collected dividends, the total return for this boring portfolio consisting of boring, dividend powerhouses is slightly below 13%, over a 19 month period. Compare that to an S&P 500 return, adjusting for inflation and reinvesting dividends, over roughly the same time period of 7% and a Dow Jones Industrial Average total return of 7.5%. (This is a link to the calculator that I used for this calculation). While the calculator gives returns at close of market on March 16, 2016 and I compare that to this portfolio at close on March 31, 2016, you can see that this portfolio has easily beaten the market averages over the last 19 months.

Final Thoughts:
As I said in the original article, there is no time like the present to get started investing. In this case, you have 18 years to let money grow and compound before it is needed (I don't even plan to tell my daughter this portfolio exists for several years). Even big name, mega cap stocks can produce strong returns over time, as evidenced by AT&T returning 23% over this 19 month timeframe.

You don't have to perfectly time your entry point or monitor your account on a daily basis. I purchased these stocks and then walked away, checking in on them every two months or so. Yes, oil fell off a cliff and Chevron's return has been lackluster over this timeframe, but so what? If they maintain the dividend, which I expect they will, I will keep holding it and it will give me more time to accumulate shares for her.

As the saying goes, time in the market is more important than timing the market. I believe this portfolio is off to a good start and I will continue to contribute and allow it to grow for the next 18 years.

Disclosure: I am/we are long CVX, ORI, JNJ, PG, PFE, T.

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.

Additional disclosure: I am not a financial professional, this is my opinion only and is not investment advice. Be sure to do your own due diligence.