On September 6 Verizon (NYSE:VZ) announced a dividend increase of 2.1% from $.59 per share to $.6025 per share. The increase VZ announced is modest (the impact on my portfolio, more modest still) but it illustrates a point worth considering. What I'm talking about is a psychological benefit of diversification that you almost never hear about.
By way of background, I own 97 positions in my portfolio, consisting of 13 ETFs and 84 individual stocks. Three of the ETFs I own are preferred stock funds - there are no regular dividend increase announcements. The remaining 94 positions, however, can be expected to raise or lower their dividends each year.
On the whole, the individual stocks I own typically announce dividend increases at least once a year on average. The 10 ETFs work differently. I look at an average of the past four distributions to determine what the expected income for each year will be for each ETF position. That means I will expect to make 40 different adjustments per year for my expected income from these 10 ETF positions.
Together, the total separate dividend increases from my individual stocks and ETFs translates to 124 potential dividend increases (or decreases) per year. On average, that translates to one pay raise every three days per year. Not bad.
But it gets better. Sometimes, I sell higher priced, lower yielding shares and replace them with lower priced, higher yielding shares. Each time I reallocate capital in my portfolio this way I can expect a slight pay raise. On average, I typically might make about 30 different capital reallocations throughout the year that result in slightly higher dividend payments. That brings the number of separate pay raises I can expect up to 154 per year.
But wait! That's not all! I also get a pay raise each and every time I reinvest dividends into more shares of dividend-paying stocks. I would estimate that I reinvest dividends roughly twice a month - or 24 times per year.
Put this all together, and you see that I can expect roughly 178 distinct pay raises every single year. That comes to an average of one pay raise every two days. That's what I mean when I say diversification across multiple income producing assets delivers a very satisfying psychological benefit in the form of small but very frequent pay increases. The market may be up or down on any given day, week, or month... but rarely does a month go by when I don't see at least a few pay increases for my portfolio. And without fail, every month, there always are some dividends that come in and that I can reinvest to generate compound income growth.
Small but frequent dividend increases can create a sense of steady, regular progress toward your financial goals. Frankly, I find that it drowns out any anxiety that I might otherwise feel about crashing or stagnant stock prices. It's one benefit to diversification that I can feel very directly every two days, on average, all year long.
Disclosure: I am/we are long 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.
Additional disclosure: This is not investment advice and I am not an investment advisor.