The Slowly, But Surely Dividend Income Portfolio - November 2016 Update

| About: Omega Healthcare (OHI)
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Summary

In the summer of 2015, I decided to embark upon a dividend income portfolio.

My estimated dividend income, while still small, has grown exponentially over the past year.

Dividend income is a solid reinforcement and can be used to replace income earned from work over the long haul.

Another month has come, and it has gone. November 2016 is now in the books. The end of an old month is always a good time to look back over the month that was and view how our portfolios are doing. I started my dividend income portfolio back in July 2015, with a look toward the future. My goal is to build a growing and diverse stream of dividend income that is able to replace a growing portion of working income. While still working and trying to maximize overall income, I will be reinvesting dividends to compound the passive income portion of my total income over time.

I received my first dividend back in August 2015, so I am now nearly a year and a half into the process. My first dividend was a whopping 64 cents. Since that time, I've given my portfolio a name: The Slowly, But Surely Dividend Growth Portfolio. I've chosen this name because I hope to make slow, but sure progress toward my passive income goals. Think in terms of the tortoise who beat the hare who invested only in the "next big thing" and who wound up going broke.

In the month of November, I deployed quite a bit of money. Much of this was from cash that I obtained through a rollover IRA. I also invested about $250 in additional capital into my taxable account during the month. My returns have not been terribly good over the short term. I cashed out many of my taxable investments in October to put toward a debt; therefore, most of my current investments have been purchased in the past three or four months (the time since I opened the rollover IRA). Some of the companies that I've purchased were quite popular and increasing in value when investors were chasing yield. Now, with it looking as though interest rates might rise in the near future, my investments like Omega Healthcare Investments (NYSE:OHI) and Southern Company (NYSE:SO) have dropped in recent weeks, and they have dropped even farther since the election.

I am planning to hold onto these investments. They have been growing their dividend payments in recent years, and they have some nice yields. For example, my OHI holdings currently have a yield on cost of nearly 7.5 percent and my shares of SO have a YOC of just north of 4.5 percent. These companies pay out on a quarterly basis, and my goal is to get to the point where I can make a nice purchase on at least a quarterly basis to better diversify my holdings. I'm currently trying to make purchases in the $500 to $700 range in my tax deferred accounts to keep transaction costs to 1 percent or below. I will be happy should I get enough in dividend income each month to make a new purchase, but that should be quite a way down the road. With the recent run in stock prices, my portfolio returns have improved from a negative return of 5.46 percent to a negative 5.23 percent. I used the lower prices to double down on all three of the current holdings I have in my IRA. My portfolio as of November 30 looked like this:

The Slowly, But Surely Dividend Income Portfolio as of November 30, 2016

With my purchases in the IRA, the total amount that I've invested grew by more than $2,000. I don't anticipate having many months like this for quite some time. I expect more months in the $100 to $500 range. As dividend income grows and I have more to reinvest, I hope to eventually have months where I'm able to invest thousands of dollars.

November was a record month for me in terms of dividend income. I earned $25.31 during the month. This was nearly five times the dividend income that I earned from the same month last year ($5.41). I don't anticipate growing my year-over-year dividend income fivefold for the long haul, but these increases are fun to see and provide me with tangible progress in achieving my goals.

I like to look at my dividend income in terms of the hours of "freedom" that they buy. I estimate that I'd have to replace about $20/hour to live a life that's pretty close to what I live now. I would not have to pay FICA taxes or make retirement contributions at that point. I'd also have lower income taxes--perhaps zero if all of my income was from dividends--to pay at the current rates. Additionally, I would not have a commute on a daily basis even though mine is pretty short at less than five miles round trip. This $20/hour would add up to $41,600 for a year. That would be about $3,500 a month with minimal amounts going to taxes.

My $25.31 of dividend means that I would have been able to take off about an hour and fifteen minutes in the month of November. This brings my annual dividend income for 2016 up to $141.48. The amount in my chart above only reflects income from my current holdings. I also earned dividend income from companies that I no longer own. Given my current holdings, I anticipate that I would earn $252.49 over the next year without adding any additional capital, reinvesting any dividends, or getting any dividend raises from the wonderful companies that I own.

For example, I just got a 25 percent raise in dividend income from Starbucks (NASDAQ:SBUX). While I have a small holding, I always appreciate getting more income, no matter how small. This $252.49 in estimated dividend income would allow me to take off slightly more than an hour a month given my estimate of needing $20/hour. On an annualized basis, I am 0.61 percent of the way toward being financially able to kiss full-time work behind. This is up from 0.32 percent of income that my dividends could have replaced at the end of October. It will take time to build this income up, but I think it will be worth it.

I am tracking my progress on the Slowly, But Surely Dividend Income Portfolio on a monthly basis. I basically have two reasons for this. First, I want to remain motivated, and an increasing dividend income is a great way to measure my progress. Secondly, my portfolio is pretty small, which is fairly unusual for other writers on Seeking Alpha. I hope to be an inspiration for others who might want to get started investing but might be derailed because of frustration that they don't have the hundreds of thousands or millions in holdings that many of the other writers have. I feel that showing a growing portfolio basically from the ground up can provide others with the motivation to at least get started. The journey of a thousand miles begins with the first step, after all.

If you'd like to keep up with my journey, be sure to take a few seconds to hit the follow button. I appreciate your support and your interest in my journey.

Disclosure: I am/we are long MCD, KO, KHC, SBUX, UL, OHI, SO, GE.

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. This article is only for educational/entertainment purposes and should not be construed as a recommendation to buy or sell any securities. As losses up to and including all capital invested can occur, be sure to do due diligence and check with a financial professional before investing in securities.