Dividend Growth Vs. Dividend Income

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Includes: ADX, DGRO, DGRW, DHS, DIVC, DLN, DTD, DVY, DVYL, FDL, FVD, JTD, NOBL, PFM, RDVY, REGL, SCHD, SDOG, SDY, SDYL, VIG
by: Dividend Earner

Are you unsure about how much you should focus on Dividend Income vs. Dividend Growth? It’s really unusual to find a stock that will offer both. It’s usually one or the other.

When I took control of my portfolio and moved away from mutual funds in 2009, I was focused on capital preservation and dividend income. As I learned more about dividend investing through reading and research, I realized within the following year that dividend growth like the dividend aristocrats was much better over time as I would get compound growth from the annual dividend increase. Not long after, I also stumbled on the 10/10 dividend rule where the stock must have 10 years of dividend increases along with a 10% dividend growth average.

Reality of Dividend Investing

While I have quickly highlighted my progress in terms of strategy and learnings, I wanted to share my results with you so far. Dividend growth has reduced my monthly dividend income and I saw it being reduced as I modified my portfolio but it was for the better as my portfolio also has more stock appreciation.

As it happens, my portfolio is split between 4 different accounts so I can show the performance by account which happens to have a strategy of its own in some ways. The performance presented is my rate of return (ROR) since inception. You get to see the annual performance of the account since 2009.

Non-Registered Account – 7.05% ROR

This account mostly has had banks for the longest time. It is now merged with all my Computershare and Can Stock holdings, which includes telecom, energy and utilities. It’s all the boring companies part of the TSX60 and the Dividend Aristocrats. This account is trending up though after merging it with Computershare. It pretty much would represent the TSX60 in some ways if there were one index to compare it with.

Computershare – 13.22% ROR

This is one of the first account I set up and what’s left in it has a 13.22%. Time was very generous to this account but I never really invested large amounts.

RRSP – 17.50% ROR

This is the account where the magic happens. This is also the account where I have the most money and it’s all in US currency. I bought many large US companies and time and patience has rewarded me with most of them. The US economy is bigger than the Canadian economy and stock market. There are also many investment opportunities that do not exist here, which I took advantage with Johnson & Johnson (NYSE:JNJ), Kimberly-Clark (NYSE:KMB) and Microsoft (NASDAQ:MSFT) to name a few.

RESP – 4.22% ROR

As I am nearing withdrawal in not so long, this account is about capital preservation and dividend income. It generates a large amount of dividend from my portfolio but it doesn’t quite grow like the others. That’s what investing for income is.

Portfolio ROR of 11.56% Annually

The entire portfolio has an ROR of 11.56%. Please understand that it went through strategy adjustments, and I started in 2009 when the stock market was on sale and it definitely isn’t now. The results are from 6 years of investing. I am very happy with my results and it re-enforces the fact that I should invest more and not rush to pay my mortgage with a 2.25%.

What I really want everyone to get out of the data is that focusing on dividend income in the accumulation phase of your life will leave money on the table. You want dividend growth when you are accumulating and then you can switch to dividend income in your retirement days or a mix of both. The RESP account clearly highlights the lackluster performance of dividend income and you can also be at risk of stocks dropping in price.

Compound growth with dividend growth and time are powerful together!

Disclosure: View author's holdings here.