Paying My Bills With Dividends - Q3 2018 Update

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Includes: CAH, CAT, DIS, DVY, JNJ, LMT, PEP, T, TGT, XOM
by: DJ Habig

Summary

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.

With the end of the third quarter, I wanted to provide an update on my progress towards my long-term goal of full income replacement. Because I am still relatively young, I plan to use the power of compounding and DRIP plans along with regular capital infusions to reach this goal over several decades. I've been using individual monthly bills as benchmarks to measure my growing income stream against. Setting these smaller, shorter time frame goals serves as motivation for me to stick with my plan.

As stated in my last article, "Paying My Bills With Dividends - Q4 2017 Update", the next income goal I've been working towards is my 401(k) loan which is $78 a month, or $234 a quarter. I also want to measure my individual portfolio's performance against an ETF, and I've been using iShares Select Dividend ETF (NYSEARCA:DVY) for comparison.

For Q3 2018, my income totaled $236.26, finally reaching my quarter's long goal. This was an increase of $49.33 or over 26% from Q3 2017. If I compare it to last quarter, the income growth is 7.1% which I'm quite happy about considering I lost all of my partial shares and with it fractional dividends during a portfolio move during the quarter. The loss of those shares was overcome by new shares of AT&T (T) and the fact that Disney (DIS) pays a dividend biannually instead of quarterly. Raises from Target (TGT) and Caterpillar (CAT) also helped push up my total.

To compare my portfolio to DVY, I simulated converting my entire portfolio to shares of DVY on June 26th, 2018, to capture the third quarter's dividend. This transaction would have left me with 312 shares of DVY after backing out transaction costs. Those shares would have led to Q3 dividend income of $250.28, outpacing my performance by nearly 6%. I've stated previously that underperforming this fund wouldn't necessarily convince me to switch my approach because I enjoy being more involved. This is especially true because I believe my brokerage move was a one-off setback to my performance which should be remedied with the next quarter.

It had been several quarters since I set the income goal that was finally achieved. This necessitates choosing a new goal to work towards. After looking at my regular bills, I've decided our cell phone bill should be the next target. The total quarterly payment comes to $321.12 which will take an additional $84.86 in dividend payments. I've already made progress towards this with several purchases that will pay their first dividend to me in Q4 2018. I added to positions in Exxon Mobil (XOM) and Pepsi (PEP), while initiating new positions in both Lockheed Martin (LMT) and Cardinal Health (CAH).

In addition to my recent acquisitions, I will be looking to add more capital to my portfolio. I'd like to add more to both of my new positions, CAH and LMT. However, they both experienced slight run-ups since my initial purchase. I always consider adding to my existing Johnson & Johnson (JNJ) position, but I will also be keeping an eye out for upcoming opportunities before my next purchase in November. I'd like to get about halfway towards my goal for the next quarter and reach it with Q1 2019. This could be a bit of a reach, but continuing to set and reach these smaller, more manageable goals motivates me to execute my plan through the years and decades ahead. Thank you for reading.

Disclosure: I am/we are long PEP, CAH, LMT, JNJ, DIS, XOM, TGT, CAT, T.

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.