I recently tweeted that my dividend income spreadsheet just the year to year growth is 103.02%.
Why is this important and should you even care?
That was a question which my long-time blogger friend Mr.ATM asked. He said:
Each time a young dividend investor posts his astronomical dividend growth this way, it makes me cringe. I've said the same to
@DividendDaze. Long-term what is more meaningful is how much dividend is growing organically and how far/close it is to meeting your income goals
Let's say I have one share of a dividend paying stock last year and I buy one more share this year. What would be the dividend growth? 100%. How often will I be able to double my total share count each year, year after year?
Should you care about me growing my dividend income?
Mr.ATM's example is valid for sure and I also even cringe when others do the same. If you double your dividend account and grow your income from $10 to $20, that's not really interesting for almost anyone. We are only talking about $10. Even though you increased your income by 100%, it's not impressive at all.
But, it is interesting for one single person, namely you (in this case, me). Why? Because it shows:
- You are able to save money
- You are able to invest in the stock market to achieve higher forward returns
- You are going forward which is highly motivating, no matter how small your portfolio might be
- You are seeing results
- You have created a system to shift your focus away from stock prices
- You are on your way to create a long-term mindset
- You are trying to become a better and more patient investor
- You are investing in high quality companies with sound dividend policy
- You are not investing in scary high yield stocks that pay a lot one year and cut it the next year *and never make up for it
So for me and only me, the growth of my dividend income does matter.
But it shouldn't really mean anything to you.
Remember, Stockles is my public investment diary. My goal with the site is to show how I think and what I do to stay patient and sane. If someone learns something on the way while reading then that's amazing too.
What should you care about then?
The organic dividend growth is what matters, I know that.
That's why I have included a separate part of my dividend income spreadsheet to organic dividend growth.
As you can see, my compounded annual growth rate (OTCPK:CAGR) is around 6-8%.
If you want to take something out of the stocks in my portfolio, then it is just that. They compound at a rate around 6-8%.
How much I might make it dividend income matters dramatically.
US Dividend Policy
American firms and Nordic firms see dividends very differently. American firms will try to do anything they can to not freeze or cut the dividend.
It's even very common to use the payout ratio as one of the main measurements when trying to see if you should invest in the firm or not.
Simply Safe Dividends
What this means is that it's likely that you will receive the dividend income you have today in the future too (given low payout ratio and EPS growth). Then it's also much easier to calculate your dividend income and how much you need to invest in order to reach your dividend income goals
Nordic Dividend Policy
But Nordic firms don't operate like that. They pay dividend based on the last 6 operating months and the dividend is often the first thing that gets eliminated. For a detailed look into this, I recommend reading my introduction to accounting.
Payout ratio estimates about Marine Harvest from borsdata.se
What it all means
Being a Nordic investor and having a Nordic mindset, I don't solely focus on dividend payment. I want my dividend income for sure, but if that decreases the firm's ability to service and strengthened the long-term outlook, then I don't want them to obsess about paying me a dividend.
Take AB InBev (NYSE:BUD), they recently decreased the dividend payment by 50% because they wanted to stay within their Net to EBITDA goal at around 2.0.
So why do I share my dividend income?
What I want you to see is
I do save money and I do invest in the market *dividend growth table
My income increases even though I do nothing *organic dividend growth
As my portfolio grows larger and larger, my yearly dividend income will become more normal and more comparable to the organic dividend growth.
Until then, I just have to invest more and more capital.
The next main milestone is now $5,000 and then $80,000 in yearly dividend income.
And remember, this is my investment diary. It truly helps when you are a small investor to write down your thoughts and to see progress, even though if it's just a few $100.