I threw a teaser in my last purchase article by mentioning that there was something else that I wanted to share with the community. Well, back when I was setting my goals for 2016, I pushed myself to achieve at least $3,250 in annual dividend income. You guessed it… my last purchase of Realty income (NYSE:O) pushed me over this mark and my forward dividend income total now sits at $3,265. Now, I'll summarize how I was able to knock this goal out with just under two months to spare in 2016.
Man, it is funny how fast time flies by and how much you are able to accomplish in that short period. At the end of June, my forward dividend income was $2,941, which was over $300 away from my goal. Due to the fact that my wife and I have begun the process of saving for our first home, I thought increasing my forward income by over 10% in 6 months was going to be a long shot. But, there were several factors that allowed me to dig deep and find the funds needed to accomplish my goal. Let me dive into each of them.
Factor #1: Purchases - In the last four months, I have made three large purchases, two of which were yielding over 3%. I added 30 more shares of Target (NYSE:TGT), 40 shares of Realty Income this week, and purchased 50 shares of Cardinal Health (NYSE:CAH). This is a pretty obvious statement, but the fastest way to increase your dividend income is by purchase stock. Duh. What excites me most is the quality of the dividend streams I purchased over this span. Two of the three companies are Dividend Aristocrats (TGT and CAH) and the other O is closing in on the coveted title. Sure, I could have easily reached for the highest yielding stocks with payout ratios well above 100% just to accomplish this goal earlier on in the year. Anyone can do that, and if they do, please tell me how that works out. But I would rather be patient and build my dividend income stream slow and steady and do it the right way.
Factor #2: Increasing my 401k Contribution - As a result of Lanny's three-part tax saving series from earlier in the year, I decided to double my bi-monthly 401k contribution to maximize the pre-tax benefits of my contribution. The mutual fund I invest in, Vanguard Institutional Index Fund Inst (MUTF:VINIX), yields ~2.2% based on my calculations. With the frequency of the contributions, my forward dividend income resulting from 401k contributions has really begun to take off. It isn't quite as fast as Lanny's though, but I'll take it. You don't appreciate how quickly this automated method of investing until you reflect on the growth experienced over an extended period of time. You know when else I am going to appreciate this… when I file my tax return. Can't wait to see the final impact this strategy has on my taxes.
Factor #3: Dividend Re-Investment - Ah, the name of the game here. Additional dividend income resulting from good old fashion dividend re-investment. Over the last four months, I have re-invested the following dividend totals: July - $103, August - $172, September - $380, and October - $148. My portfolio's dividend yield is ~3.5%, meaning the re-invested dividends produced approximately $28 in forward dividend income. Now that may not seem like a lot of dollars; however, remember at the beginning of this article when I mentioned that I needed over $300 to accomplish my goal before the end of the year? Well, the additional dividend income resulting from DRIP covered nearly 10% of this total. Don't tell me that $28 in additional income resulting from good ole fashioned dividend re-investment did not have a major impact on my forward income.
Factor #4: Dividend Increases - The smallest of all the impacts here. Until October, my portfolio was shockingly quiet in terms of announced dividend increases. And the dividend increases that were announced were nothing to write home about. However, a dividend increase is a dividend increase nonetheless. Every little bit helps, so whether my portfolio received a $.01/share boost unexpectedly from Chevron or a double-digit increase from a low yielding dividend stock, I am always excited when a company I own decides to increase their distribution to me. Heck, Lanny's last article summarized it best. Dividend paying stocks will always hit us with surprises and different ways to increase their dividend income. Now, if only I owned a company such as Starbucks (NASDAQ:SBUX), which recently increased their dividend 25%!
Nothing feels better than being able to cross one of your goals off of the list. Especially when you set a stretch goal at the beginning of the year thinking you would be battling till the end of the year to accomplish the goal. But seeing these results reminds me that the impact of what we are doing here is real. These are actual dollars that we are actually earning in a very, very passive manner. Heck, how much effort do we really put into receiving this income once we purchase the stock? I leave my last purchase of Realty Income and the writing of this article motivated to continue pushing myself, Lanny, and hopefully all of you out there to reach for the stars and push yourself to try to increase your dividend income as much as possible (without sacrificing quality, of course). We are laying down an excellent foundation, so let's keep the good times rolling! Financial Freedom… here we come!