Paying My Bills With Dividends - 2017 Q1 Update

Includes: ADM, DIS, DVY, NKE, O, T, TGT, VZ
by: DJ Habig


My goal of full income replacement is decades away.

Turning bills into dividend income goals provides intermediate goals that are easier to visualize.

By reaching a couple of these goals already, I feel more motivated and more accomplished as an investor.

Now that the first quarter of 2017 has ended, I wanted to provide an update on my progress as I build my income stream to one day pay all of my bills from dividends. But for now, I will continue to participate in Dividend Reinvestment Programs (DRIPs). My previous article will be used to check my projections and make any adjustments going forward. I also thought it would be helpful to compare my portfolio to iShares Select Dividend ETF (NYSEARCA:DVY) and detail changes that will affect income during the current quarter.

My 2017 Q1 dividend income totaled $163.49 compared to the 2016 Q4 income of $147.54. This was a gain of $15.95, or 10.8%. On the surface, that's a pretty phenomenal increase, but $10.37 was due to Disney (NYSE:DIS) having one of their biannual payments fall in Q1. That leaves a remaining $5.58 of growth for a more modest 3.8%. This increase is spread across a new purchase of a few shares of Verizon (NYSE:VZ), dividend raises from Archer Daniels Midland (NYSE:ADM) and AT&T (NYSE:T), and reinvested dividends from 2016 Q4 generating their own dividends.

In order to compare my income level to the income DVY would have generated, I simulated converting my entire portfolio to DVY on January 3rd, 2017. This ensured I would've received the dividend in March. For the most accurate comparison, I did factor in transaction fees that I would have incurred to follow through with this. The dividend payment I would have received from DVY totaled $161.89. My income was actually marginally higher, but the point of this exercise for me was to test whether I was at least seeing respectable income based on the capital. I expect these data to flip flop based on the quarter, but as long as I'm within striking distance of this ETF's income and still enjoy managing the portfolio, I plan to continue being my own fund manager.

My goal by the end of 2017 Q3 remains having a total dividend income of $232.14 in order to be generating enough to make my monthly 401k loan payments. I won't actually use the dividends for that, but setting up goals based on my actual expenses helps my resolution. As for 2017 Q2, I expect an increased quarterly dividend through DRIPs and raises, but also through some new purchases. I initiated new positions in Nike (NYSE:NKE) and Realty Income (NYSE:O) and averaged down in my previously existing Target (NYSE:TGT) investment. Across these 3 purchases, I achieved an average yield of 3.19% while also opening positions in two stocks I had been following for a while.

I'm breaking my goal of total income replacement into monthly bills that I can increasingly cover with dividends. My income grew 10.8% from 2016 Q4, fueled in large part by DIS paying dividends in alternating quarters. My end of 2017 Q3 goal of $232.14 is starting to look a bit lofty as I was $68.65 short in Q1. I'd love to get there, but I don't want to be caught reaching for yield just to attain my self-imposed, arbitrary goal. As long as the goal continues to motivate me, it's doing its job. Thanks for reading.

Disclosure: I am/we are long ADM, DIS, NKE, O, TGT, T, VZ.

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.