The Slowly But Surely Dividend Growth Portfolio Quarter 1 Review

Includes: AAPL, BNS, K, KO, MCD, RDS.A, RDS.B, T, WMT
by: Christopher Price

In July 2015, I started a dividend growth portfolio to provide passive income for my golden years, which are a couple of decades in the future.

Capital is added periodically as cash flow provides the opportunity.

The Slowly but Surely portfolio has outperformed the overall market and provides growing dividend income through capital allocation and dividend increases.

Last year, as I closed in on the big 4-oh, I decided that it was time to start getting serious about retirement savings. I've had the good fortune to have a couple of jobs that have provided traditional pensions, but I've been employed for less than 10 years in these positions. Thinking about Social Security in the future, while I believe it will still be around in some form, still has me worried because of the political rhetoric that is common in our country. I had been reading about the dividend growth model of investing for a few months, and decided that the growing income that these dividends tend to provide could be a great way to supplement my income as I go forward toward retirement.

Under current tax laws, qualified dividend income is tax-free as long as the person who is earning the dividends is in the 10 or 15 percent tax bracket. With deductions and credits, this fits my situation (and I could work any additional income to get additional deductions through deferred traditional IRA contributions, additional HSA contributions, and the like).

One of the things that I've noticed about most of the dividend growth portfolios that are tracked through Seeking Alpha and other media is their relatively large size. Many of the portfolios are well into the six-, or even seven-, figure range. While this provides a great goal for individual investors to strive toward, it does not provide a hands-on view of how a portfolio can be built from scratch with relatively small capital deployments over time.

I plan to review my dividend growth portfolio on a regular basis to test my hypothesis that dividend growth investing can provide a solid income replacement level over time with relatively small purchases. My cash flow is somewhat uneven over the course of the year, so there are some months that I will have quite a bit more to deploy toward my account. Other months might only see a $25 or $50 investment. My estimation is that I will be able to invest between $50 and $500 in most months -- at least initially. If all goes according to plan, my dividend income will grow over time, and I will be able to reinvest that additional capital in the companies that provide my returns or in other high-quality companies. The slow nature of capital deployment leads to the name of the Slowly, but Surely portfolio. I hope that showing the growth of my dividend income over time will help smaller would-be investors to get started on their own wealth-building strategies.

My goal is to diversify through small purchases with low- or even no-cost brokerages so that I can spread my risk around with quality companies that regularly growth their dividends (or at least keep them steady) with minimal fees. All of the companies that I have purchased to this point have solid dividend histories. The shortest record of paying a dividend belongs to Apple (NASDAQ:AAPL), which started paying dividends only in 2012; however, with the massive amount of cash that this tech giant brings in, I believe that Apple is a dividend champ in the making. Other companies that I've purchased have four, or in the case Coca-Cola (NYSE:KO), five, decades of dividend growth history. Without further ado, my dividend growth portfolio at the end of March looked like this:

Quarter 1 Stock Returns and Dividend Income

As noted from the chart above, I am invested in eight total companies. Over about eight months, I've invested just under $2,800 and showed a capital gain of $197.66, or ~7.1 percent over this period of time, which is better than my last update. Additionally, this gain included dividend income and partial reinvestment of $29.81 for the first quarter, which exceeded my income of $20.91 for the last five months of 2015. On an annualized basis, my estimated dividend income is $124.18. If I looked at the average American's earning potential on an hourly basis after taxes are deducted (because under current tax laws, I pay no tax on dividend income), I'd come upon a number right around $20 an hour. This might not seem like much, but it means that my estimated dividend income will now pay for about six hours of freedom.

My goal is to slowly, but surely add capital and dividend income over time. I figure that I have about two decades left to replace much of my actual working income with passive income to mix with my pension and Social Security income to provide for a decent retirement. If you want to keep up with my progress in this journey, be sure to hit the follow button to get the additional updates that I plan to post in the future.

Disclosure: I am/we are long AAPL, KO, RDS.B, K, MCD, WMT, T, BNS. 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 licensed financial professional. The information given herein is intended for educational and informational purposes only. Please make sure to discuss your options with a professional before investing in securities, as they can decline and lead to losses up to and including all invested capital.