The Slowly, But Surely Dividend Income Portfolio - December 2017 Update

Includes: BNS, JNJ, KMB, KR, O, OHI, SKT, SO, T, VTI
by: Christopher Price

The Slowly, But Surely Dividend Income Portfolio had its inception in July 2017.

Since that time, an IRA rollover and additional capital infusions have seen the portfolio grow.

Passive income from this portfolio has now reached nearly $600 from $0 a little more than two years ago.

2017 is now in the books, and with it comes the final update on my dividend income portfolio for that year. The next update will have 2018 for in the title for the first time.

2017 was a good year for the overall market, and there is quite a bit of optimism that 2018 will be another good year. Of course, we're about nine years into the current bull market, so a bad year and a recession are closer than they was at this time last year. Of course, no one can really predict exactly what event will precipitate a recession.

I post updates every month to keep myself motivated to save some more capital that will eventually buy additional shares of great companies and funds. I also post them to provide motivation for others to get started saving some money.

Everyone, unless they are born into some measure of wealth and have money given to them by mom or dad, start their lives with a net worth of $0. These folks can look at some of the portfolios that get posted to various web resources and easily get frustrated. I know that I did. Those who are a bit longer in the tooth can also get frustrated by wasted years.

Many of the more public portfolios have hundreds of thousands of dollars, if not millions of dollars, in them. This would likely throw off dividend income in the tens of thousands each year. Those who have $500 or $1,000 to invest can easily get frustrated when looking at these massive portfolios.

Therefore, I post a more likely snapshot for these aspiring investors. I started my portfolio with $0, added capital periodically, and then rolled over an old retirement account that was worth around $13,000. I've been buying shares of high-quality companies since 2015 by making purchases mostly in lots between $500 and $1,000.

Once I spend down all of the rollover funds, I'll have to rely on small additional capital infusions and dividend income to make additional purchases. The dividend income that my portfolio should increase over time through a combination of new capital, selective reinvestment of dividend income, and dividend raises from the companies and funds that I own.

The Slowly, But Surely Portfolio as of December 31

December 2017 Slowly, But Surely portfolio My portfolio had a nice run-up in the last few days of December. As far as the capital gain department was concerned, I was down more than $160 at the end of November. Therefore, I saw an nice upswing of more than $300 in the month.

I made a couple of purchases during December. I initiated a small position in Kimberly Clark (KMB), which should add $19.40 to my estimated dividend income. The company was down a bit from its 52-week high. Additionally, it produces consumer goods that people use every day. These goods get consumed, which means that consumers are likely to buy them again.

Furthermore, the dividend payout ratio is fairly attractive, as the company pays out just north of 60 percent of net income in the form of dividends. Finally, the company has increased its dividend for a whopping 45 consecutive years. My hope is that this dividend growth can continue into the future.

I also added 4 shares of Vanguard's Total Stock Market Index ETF (VTI). I hold this fund for diversification. It will likely follow the market as a whole, and I intend to make additional purchases in the fund periodically. The dividend is not huge when looking at the yield, but reinvestment will add additional fractional shares (hopefully these will be whole shares in the future) each and every quarter.

I decided to have my brokerage automatically reinvest my dividends in VTI. This DRIP should add to my dividend income during most quarters. It will also add to the number of shares that I hold so that the dividends will grow over time through the power of compounding. Many dividend growth investors ignore these funds, but I think that index funds can still be a great source for dividend income and dividend growth.

My Level of Financial Freedom

I track my dividend income and look at how much freedom it would buy me. I estimate that I could maintain a similar standard of living on $20/hour. This would equal out to $41,600 per year, or just below $3,500 per month. I would be able to avoid many of the expenses, especially taxes, that I currently have at that point.

Also, geographical arbitrage could come into play to make this income stretch even further. I'm not even close to this level, and I expect that I will be working until my late 50s or early 60s regardless.

My goal is to supplement my income from any pensions and Social Security payments, so if my dividend income exceeds my needs before that point, great. If not, I'll keep plugging away and should be in better shape than the people who save very little. I figure that have a couple of decades to build up my wealth, as I'm currently in my early 40s.

Based upon my $20 estimate, my Slowly, But Surely portfolio could buy me slightly less than 30 hours of freedom (29 hours and 45 minutes to be more exact) based upon my estimated dividend income for the next 12 months. This is nearly 4 days of work that my dividend income could buy back, and it does not include a couple of other small accounts that I cannot access. Once I can replace 40 hours of work with passive income, I could theoretically take a week off.

I also look at this number as a percentage. Back in November, my passive dividend income could have paid for 1.36 percent of what I needed to live. Currently, I'm up to 1.43 percent coverage of a 2,080-hour working year. This was not a huge move, but it was a move in the right direction nonetheless.

These increases are admittedly slow at this point, but they should accelerate over time. Larger numbers just tend to compound more quickly. It's the math. It takes a while to get the snowball rolling, but over time, as the snowball gets larger it should largely roll along on its own and build up.

How did your portfolio perform in December?

If you'd like to keep up with my progress, please scroll to the top of the page and hit the follow link. I appreciate any support that you might choose to give.

Disclosure: I am/we are long BNS, JNJ, VTI, T, KMB, KR, SO, O, OHI, SKT.

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.