Wednesday, October 14, 2015

From zero to $15,000 in dividend income in 8 years

Back in May 2007 I had a net worth of $2,000.

I then promptly exchanged most of that networth for an old vehicle so that I can get to work. I sold that same vehicle less than two years later for a loss of 80%.

Luckily, I had better luck saving a large portion of my income every month, and investing it wisely. My savings rate has consistently been above 50%.

Right now, my expected annual dividend income is scheduled to cross $15,000 for the first time ever. This number is calculated by multiplying the current annual dividend per share on each investment I own, times the number of shares I own. This includes everything I own in taxable and tax-advantages accounts such as my 401 (k). In other words, if I do not add any new cash to my investment accounts, and I do not reinvest dividends, I will be able to generate $15,000 in annual dividend income going forward.



As you can see from the chart above, my annual dividend income has been increasing over the past five years. This is due to dividend growth from the companies I own, reinvestment of dividend income, and from new capital that is put to work. The amounts for 2015 include the first 9 months of actual dividend payments and my estimate of the dividend income for the last three months of the year.

There is a difference between actual dividend payments and forecasted dividend payments because I have added new capital to work throughout the year, companies have raised dividends throughout the year, and I have also reinvested my dividends into more shares throughout the year. For example, if I owned 100 shares of Coca-Cola at 12/31/2014, I would have expected to generate $122 in annual dividend income based on the quarterly rate of 30.50 cents/share. Since the dividend was increased to 33 cents/share  in February 2015, the expected dividend income is now $132/year. If I reinvest those dividends back at Coca-Cola at a 3%/yield, chances are that this expected annual dividend income could easily top $136/year ( and that's from just one stock position).

As I wrote in an earlier post, I spend approximately $1,500/month on average. However, I do want to have some margin of safety in financial independence, which is why I view a range of $1,500 to $2,000/month as a more sustainable one.

This means that I can cover anywhere between 7.5 to 10 months of expenses from dividend income alone.

So how did I manage to get there?

The answer is pretty simple actually. It has more to do with following factors within my control, than being a brilliant investor ( though I sometimes fancy myself as such)

1) Expenses

I believe that I can manage expenses to a large degree. The major expense categories include housing, food, transportation and taxes. I have always managed to keep housing expenses low by renting. I have kept transportation expenses low by living close to work. I have kept food expenses low by cooking for myself and brownbaging lunch for work. That way I eat healthier and avoid paying unnecessary high costs for lunch. I do spend funds on going for drinks though. Diageo is not going to research itself after all.

I did a bad job of minimizing tax expenses for the first five years of my journey. I had my a-ha moment when I read how the blogger from Budgets Are Sexy discussed how he saved tens of thousands of dollars by funding a SEP IRA in 2012 and 2013. After this initial dose of inspiration, I have been maxing out my 401 (k), SEP IRA, Roth IRA and now also HSA. The more money I keep from the taxman, the more money I keep compounding for myself.

I have found that by keeping expenses low, I need less money in retirement. For example, if I needed $40,000/year to live off, and my portfolio yielded 4%, I would need a nest egg of $1 million ( or $1.3 million at 3% dividend yield). However, if I cut my expenses by $10,000/year, I also reduce the need for savings by $250,000 - $333,333. In this scenario, for each $1,000 in annual expenses that are reduced, the investor needs $25,000 - $33,333 less money to invest.

In addition, if I spend less every month, this means that I can save more. This in turn reduces the time it takes for me to accumulate sufficient savings.

The higher the savings rate, the less money a person needs in retirement. The higher the savings rate, the quicker it takes to accumulate enough money for retirement. If I save 50% of income, I can retire in less than 20 years. If I save 75% of income, I can retire in less than a decade.

2) Investments

I cannot control the future total returns of my investments. I can control the types of investments I choose. I have chosen to invest mainly in dividend growth stocks, because they provide me instant feedback in the form of cash dividends every quarter. It is very easy to check how I am doing relative to my goals by using the dividend income from my portfolio. In addition, I find it helpful to have multiple layers of safety when I create a portfolio of dividend growth stocks. Those layers include solid competitive advantages, margin of safety in dividends, attractive valuations at entry, and diversification.

It is much easier to model retirement income using cash dividends. When the dividend income from my portfolio covers my expenses, I can consider myself financially independent. Receiving regular dividend payments that grow faster than inflation makes it very easy to pay for expenses. After all, when you work you receive cash to pay for expenses. So with dividends, the transition to retirement should be pretty easy. This is no rocket science, but common sense.

For example, if I needed $24,000/year to live off, but my portfolio yields 3% and generates $18,000/year, I would instantly know that I am 2/3rds on my way towards financial independence. If those dividends also grow organically by 6% - 7%/year during that period, and reinvest those dividends, I will reach this goal in a little more than three years.

Alternatively, if there was no organic dividend growth in that portfolio, I would have to reinvest those dividends back for ten long years. Otherwise, I would have to find a way to put $150,000 to work. This example is a long way of saying that there is a value to dividend growth in retirement planning. With growing dividends one can feel much more secure.

3) Income

I have not shared my income on this site, because I am prohibited from disclosing it per my contract. However, it is safe to say that my base job income was never 20% more than the median household income salary in the US.

I have managed to earn extra money by earning some advertising income from this site, as well as occasionally writing a freelance article or two. Of course, blogging is hard work that is not paid well (and quite frankly you are often under appreciated as well). I would have likely made more money as a cashier at Wal-Mart, for the amount of time I have spent blogging. I have enjoyed writing, and interacting with smart investors, so I would not have had it any other way. This paragraph is a long way for me to state that although I have earned money from this site, it has not been anything too exciting. Plus, it fluctuates greatly, so it usually is feast or famine on a monthly basis.

There is a nice bonus about investing in dividend paying stocks that send you cash every quarter. The ability to generate more cashflow is not widely understood by most people. The more I invest, the more my income is increased. Let’s see what this means in a scenario where a single person earns $50,000/year, and saves $25,000/year. Let’s assume that this money is invested in a portfolio of dividend paying stocks yielding 4%, that grow dividends at say 4%/year on average. Let’s assume that in year two, the person is still paid $50,000/year ( it is a bad economy according to the bossperson) and they manage to save $25,000/year. However, the person would also earn $1,000 in dividend income from the dividend seed that was planted in year one. This increases the total annual income by 2%, but increases the amount of savings by 4%. Every little bit counts on the quest towards financial independence.

Conclusion

What is the purpose of this post?

The purpose is to show that someone who doesn’t earn that much, can still have a shot of attaining financial independence early in life. This is achieved by living frugally, which in effect results in higher level of savings as a percentage of income. This frugality also results in the need for a smaller nest egg in retirement. The other lesson is to keep investing simple, by creating a strategy that fits your personality, so you can stick to it through thick and thin. For me, I find it easier to track percentage of expenses that are covered by dividend income. When you receive cash dividends every quarter that cover or exceed your cash expenses, it makes sense that you do not ever have to work for money again ( though you will pursue activities that might bring in accidental income).

With every investment I make, I increase my annual cash flow. In other words, for every $1,000 I invest today, I can expect to generate anywhere between $30 - $40/year in cash. This amount will also increase over time. By investing in income generating assets, I am actually able to earn more and therefore save more. This is a vicious cycle.  If my wage was $20/hour, I am essentially buying 1.5 – 2 hours of freedom with each $1,000 that I put to work in my portfolio of quality dividend payers. My money will work hard for me 24 hours/day, without taking any time off. The raises from my dividend portfolio will also be higher than the raises I get from regular job of filing TPS reports.

Others have done similar things by investing in real estate, or index funds for example. The possibilities are infinite.

How much annual dividend income are you generating from your dividend portfolio? What is your target annual dividend income?

Thank you for reading.

Full Disclosure:

Relevant Articles:

How to increase your dividend income
Why am I obsessed with dividend growth stocks?
How to stay motivated on your road to financial independence
How to retire in 10 years with dividend stocks
My Dividend Goals for 2015 and after
My dividend crossover point

93 comments:

  1. DGI,
    Thanks for sharing these details of your journey to FI. It's awesome that you've hit the $15,000 mark and manage keep your expenses so low.

    Your story really shows how creating a plan and sticking with it can lead to freedom.
    -RBD

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    1. Hi RBD,

      Thanks for reading and commenting. You are doing pretty well on your journey towards FI, and you seem to be executing on your plan very well.

      DGI

      Delete
  2. Congrats!
    somehow I'm wondering how to figure out what growth percentages are from reinvesting dividend and add in capitals over time. Do you have spreadsheet formula to calculate out? Thanks

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    1. Hi JJ,

      I track organic dividend growth of my portfolio and total dividend income. Going for a deeper dive could be a little hairy calculation. Unfortunately I do not have a spreadsheet for this… But this is an idea..
      I guess I could start with estimated dividend income your portfolio generated at 12/31/2014. Then check to see what the change was due to changes in dividend payments. Then add dividend income due to new capital and dividend income due to reinvestment.

      You can then compare the estimated dividend income at 12/31/2015 to the estimated dividend income at 12/31/2014 and see if those reconcile.

      Delete
  3. Great article. I am generating $6800 currently. I am socking away around $3500 per month so it should go up nicely. One thing holding it back is that only 50% of my 401k is allowed in individual stocks. I have the other 50% in low cost Index Funds. I figure I am around 10 years from FI. Having young children at home complicates the calculations somewhat...

    ReplyDelete
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    1. Hi Rob,

      Your savings are very impressive. Your annual dividend income is impressive, particularly given the fact that this amount of income is dragged down by lower yields on index funds. I am in the same position for my 401 (k) investments where it has to be in mutual funds ( though the tax breaks are just too good to pass up on).

      In a decade, your young children will not be young anymore which will hopefully reduce your income needs. And you would have enjoyed a solid decade of compounding and putting capital to work..

      Good luck in your dividend investing journey!

      DGI

      Delete
  4. Hey DGI,

    Another great post. I really appreciate the posts every now and then that refocus on the "Big Picture."

    Quick question: does your $1500-$2000 expenses per month cover just you or other family members as well. Just trying to get perspective on how your number compares to mine. I average $2000-$3000 per month, with a family size of 2.

    Lastly, have you considered a traditional IRA with opportunistic roll-overs? We can discuss via email.

    -Z

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    1. Hi Zach,

      The $1,500 - $2,000 covers just my expenses. A family size of 2 will probably increase expenses to roughly $2500 - $3000.

      I max out my 401 (k), HSA, Roth IRA and also put some side income in a SEP IRA. I am not eligible to contribute to a traditional IRA and get the deduction presently.

      DGI

      Delete
  5. hi DGI,

    That is amazing! Congrats on your success!

    I was able to receive 545 last year and I am on pace to break 1050 this year. I am in a unique crossroads of saving for a downpayment as well as saving for investing.

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    1. Hi Mike,

      The most important thing is to get started investing. The seeds you plant today will bear fruit for decades to come.

      Good luck in your investing journey!

      DGI

      Delete
  6. Zero to $1k/month (half way) over the past four years as I learned so much from DGI. Enjoying life on less is the MOST IMPORTANT lesson for a successful retirement. No debt, home cooking, and a beautiful bride - priceless!

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    1. You seem to be living the dream my friend! Enjoying life today at your own terms while building out for the future is my type of luxury!

      Delete
  7. You are so right the level of income is not the main thing. It's how much of that income you keep and revinvest. When I worlked in a bank many years ago we had lower income customers who regularly saved and invested and over time they did better than the high-income spenders. The WWII generation did not have near the investment choices we have yet they managed to save and create fortunes passed down to baby boomers. They didn't have: IRA's, 401k's, Roth IRA's and mutual funds were not household items. They had pensions, social security and expensive annuities. Many didn't buy stocks because of memories of the depression. And while pensions sound good remember they don't increase with inflation. When given the choice of being a good saver or investor, pick saver first. Combine the two as you have done and.....there you go....financial independence.
    Keep posting. Much appreciated.

    ReplyDelete
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    1. Thanks for posting. It is eyeopening that the people who leave millions of dollars to charity are simple folks, who lived frugally all their lives, and saved and invested wisely.

      Information is much easier to obtain these days, which makes learning about finances that much easier and within the reach of many!

      I totally agree that high savings rates coupled with wise investing could produce financial independence.

      Good luck in your journey!

      DGI

      Delete
  8. DGI - regarding your feeling of being under appreciated. Please know that you are very much appreciated by myself and, I'm sure, thousands of other readers. You have been a major inspiration and source of information for my transformation into a successful dividend growth investor. With retirement in the not to distant future, where once there was darkness now there is light. Thank you very much for all your efforts.

    ReplyDelete
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    1. Thank you for posting and reassuring me. I am truly honored that I have so many people to read what I write, and I find it hard to believe.

      Unfortunately, I do receive a fair share of hate postings and email. It is truly sad that some people derive all their enjoyment in life by putting other people’s work/ideas down.

      That being said, I am very happy that you are well on your way to reaching retirement. I wish you a happy retirement!

      Delete
  9. I have been following for a few years, and thanks for your posts. I appreciate that you have shared more of your personal expenses, but I do not feel that you have to. I know the guy at Dividend Mantra shares way too much of his personal life, and I hope you do not feel that you have to do that. We all view, save, invest, and spend our money differently with different priorities. What is frugal to one may not be so frugal to another. I am up to about 10,500 a year in my dividend income, not including my mutual funds, so I am getting there. I had too much perhaps in Chevron, but so far, no dividend cut there. Anyway, keep up the good work and thanks.

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    1. I wrote the past two posts because I wanted to put things in perspective. This is because I keep talking about strategy, dividend ideas and analyzing companies, but I never really put together the ideas of frugality, savings and investments, along with tangible numbers that show progress.

      I have debated how much I wish to share for eight years. I may not really share everything ( as I can’t share certain things like income), but I believe that as long as I can communicate the main big ideas, I would have done my job in inspiring other to get a firm grip on their finances and retirement!

      Thanks for reading and good luck in your investing journey! Your level of annual dividend income is pretty impressive - some people have to work ~30 hours/week at a minimum wage job just so they can earn that type of income.

      DGI

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    2. While not making you money, we all appreciate the effort you put into this blog. Thanks for doing it.

      Delete
  10. Congratulations on going from 0 to $15,000 in eight years! You mention the 'vicious cycle' of investing in income producing assets, but in your case, it seems to be a 'virtuous cycle' :)

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  11. Thanks for your inspirational post. Keep up the good work DGI!

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  12. Hello DGI, I wonder if you ever thought of Option Strategies to extend your stock market income? I know that you sell puts on stocks you like to own occasionally, but I feel that this way of income generation is much to little appreciated for what it can help the investor to break financially free.

    Great job with your dividend income so far! I still have a long journey to go, but I know that is worth every step!

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    1. Hi Buterfly Millionaire,

      A journey begins with a single step. The important thing is to get started, and then to keep at it.

      I have found that puts provide more premium than calls – I also sell puts on stocks I want to own and buy at a discount to the current price. I do not want to limit my upside and miss out on future dividends by selling covered calls, while leaving downside wide open.

      Good luck in your investing journey!

      DGI

      Delete
  13. that's my goal as well,$2000 a month. I'm almost there. we had a little over $20,000 last year. I am curious about one thing, you said you rent. why ? I doubt you would put your money in 0% account. thanks for the great articles and sending me your portfolio.

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    1. That seems like some pretty impressive dividend trust fund that you have created for yourself. Even at a modest dividend growth and dividend reinvestment, you will be there within a year or so.

      I have mostly rented, because I have moved every 2-3 years or so for work. I started thinking about buying a home late 2014/early 2015. I need to write a post on my thoughts on the topic.

      Please stop by when you hit your dividend crossover point!

      DGI

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    2. I'd be interested in reading an article by you on the buying vs renting topic as I am currently discussing the merits of each option with my wife!

      Delete
  14. Very nice work! Your saving and investing discipline has really paid off for you. To compare where you were just a few years ago to where you are now provides a stark contrast. Bravo!

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    1. Dividend Gravy,

      Thank you for visiting. The best thing is that the discipline to save, live frugally and invest wisely is something that anyone can achieve, if they put their mind to it.

      Good luck in your dividend investing journey!

      DGI

      Delete
  15. DGI,
    Your website is the first that I found in January, 2013 when I decided to switch from index funds to investing in individual stocks, particularly those that pay and grow dividends. I have read many blogs, but have only stuck with 4 of them. So yes, you are appreciated. ;)

    Our current dividend income is $20,745. I am retired with a pension, so the dividends are currently being reinvested. I was given a pension bonus to retire at age 58 that disappears when I hit 62, so we may have to start spending the dividends then. We are comfortably living on the pension now, though, but don't have new capital to deploy outside of the reinvested dividends.

    My wife and I have never spent all of our money. We have an older house, much smaller than we "qualified for". The mortgage was paid off when I hit age 50. We have 2 vehicles that we paid cash for. We pay off the credit card bill in full every month. Not paying interest is one of the ways we saved. Maximizing the 401k (and when we could afford to, the Roth IRAs) has been a major contributor to early retirement. Even with my wife being a stay-at-home Mom for the last 30 years.

    Best wishes,
    Keith

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    Replies
    1. Hi Keith,

      Thanks for your continued support. I am truly honored that my site made it as one of the 4 your read on a consistent basis!

      It is really great to hear that after a lifetime of thrift, and smart savings and investing, you have been able to retire much earlier than anyone else, all while on one income ( plus you have three children). You definitely deserve that retirement more than anyone else!

      As a side note, have you considered doing a 401 (k) to Roth 401 (k)/Roth IRA conversion ladder so as to convert slowly assets while your income is “lower” and avoid RMD?

      Best Regards,

      DGI

      Delete
    2. DGI,
      Thanks for the kind words. They are always appreciated.

      I have not considered a 401k conversion since a 401k is protected if my wife or I get sued and any IRAs would not be. On top of that, Merrill Lynch will only do a stock-to-stock conversion if I use them for the IRAs, otherwise they insist that I convert everything to cash. ML hasn't really had the best service, so I won't even consider starting IRAs with them. Since I just passed 58 and 6 months yesterday, I have 12 years before RMD. But your suggestion is a good one and I should do my homework sooner rather than later.
      Thanks!
      Keith

      Delete
    3. Actually, if you get bored in retirement and you find a job, you could roll the 401 (k) money there, and as long as you are not a 5% owner of the business and you work there at age 70 or after, you don't have to do RMD.

      Keeping the money in a 401 (k) is a smart move in case you get sued ( hope you don't get). I think that the value of a private residence up to $1M is safe from lawsuits as well. I need to investigate if IRA assets are safe or now.

      I have an IRA account with Merrill Edge. It will take a while before I can get to $50K there and get free trades. I am not very impressed with them.

      Best Regards,

      DGI

      Delete
  16. i am one of the few investors that saves 65% of my work income and reinvest all of my dividend income -> usually invest about 2700€ per month (this value is after i paid over 25% taxes and over 42% taxes on my work income) and frugality is the main key to that as i only need between 700-800€ per month to live - and when i went to spend money on something i try to get money with other activities like gettin deals from banks to open a new account there and receive a bonus in cash for that or stuff like that.

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    1. This is a great story to hear. Would you mind sharing which European country you are living in? I have always thought that many European countries have a higher cost of living than the US – which makes your story all more impressive!

      Good luck in your investing journey!

      DGI

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  17. Congrats! It is easy to talk about saving and investing more, but expense management is the dark horse in the long road to financial independence.

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    1. Wealth in Dividends,

      I agree that frugality, coupled with high savings rates and conservative investing is the building block of any sustainable retirement plan.

      Thanks for stopping by and good luck in your dividend investing journey!

      DGI

      Delete
  18. Hey great post! Are you comfortable commenting on the range of capital you had invested at each point to generate these levels of dividends? Or is it safe to assume it's roughly a 3-4% yield pretax so 375-500k range?

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    1. Hi Andrew,

      I have found that tracking income is easier for me than tracking net worth. This is because dividend income is more stable, while net worth has more volatility due to to the nature of stock prices in the short-run.

      Good luck in your dividend investing journey!

      DGI

      Delete
    2. Very reasonable response and agreed re: volatility. Just wanted to get a better sense of roughly what your capital base is currently since you grew quickly from $2,000 to $xxx,000 likely over a few years .

      Great job and thanks! Keep up with the blogging.

      Delete
  19. Congrats, $15k per year is fantastic. You definitely outlined steps on how to achieve FI via dividend investing.

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    1. Hi Tawcan,

      Thanks for stopping by.

      Slow and steady wins the race!

      Good luck in your dividend investing journey!

      DGI

      Delete
  20. Awesome, love your style D! You are a testament to the American dream- you work hard, you are dedicated, you are consistent. A real inspiration. Excellent research too. I will understand if you quit blogging in a couple years but I will be sad if that happens.
    -J

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    1. Hi J,

      Thank you for stopping by and commenting! At some point in the near future I may not have anything new to say. But who knows what the future holds for us? Let’s just live in here in the moment..

      Good luck in your dividend investing journey!

      DGI

      Delete
    2. Well, the good thing about the capital markets is there is always something new going on to talk about! :)

      Delete
  21. This is an outstanding accomplishment! I hope I could do the same! Very inspiring!

    I'm at my 10th month of saving and investing and at the $13k level still without very much dividend (40% cash). But I wish to do the same as you are with prudent investing DGI.

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    Replies
    1. Hi Mark,

      Thanks for reading and commenting. The important thing is to get started – never despise the days of small beginnings. If you are not sure about valuations or what to invest in, it might be prudent to sit in cash while researching what to put the money in. Avoid rushing into investments.

      Good luck in your dividend investing journey!

      DGI

      Delete
  22. Impressive progress, DGI. Congrats on your milestone. :) A combination of good work ethic, frugality, and smart investing always pays off in the long run. I'm up to about $7,000 in annual dividend income, and have been at this game for only 6 years. My goal is to make $36K of dividend income eventually.

    ReplyDelete
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    1. Hi Liquid,
      Thanks for stopping by and commenting!

      You are well on your way to financial independence yourself. You also have some pretty good insights into alternative income generating asset classes such as farmland. I think you are earning a very sizeable chunk of income from those activities as well.

      Good luck on your dividend investing journey!

      DGI

      Delete
  23. I appreciate you DGI, I have learned so much from your blog and it is one of my top two favorites the other is Dividend Mantra. This is my first year working on my dividend fund plan of course I have other investments and I would like to put more in the Dividend fund currently only $300 per month I am putting away a lot towards my 401k, Traditional IRA and HSA (all together 18%) not to mention the mortgage but not car payments! Any minuscule pay raise I get goes towards my 401k to save on taxes. $300 is not much but I am seeing tiny results.
    Thank you so much for doing this blog, it is a great place for learning and I really trust what I'm reading.

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    1. Hi Particular Places,

      The most important thing is to get started with investing. Do not get discouraged by the small amounts initially – sounds corny but even a mighty oak was once a small seed. If you keep saving and investing wisely, and allow enough time for your capital to compound, you will get there.

      You are doing the smart thing by investing through tax-deferred accounts, in order to compound money tax free for decades. If you can save future raises and bonuses, you are definitely going to improve your situation.

      Delete
  24. Awesome div income DGI. I would expect my wife and I could live off of 30k or less in retirement (assuming the house is paid off). Living off of only dividend income would also greatly reduce my tax bill which sucks away most of my current income now. Taxes are 25% and my house and utilities are 27% combined.
    Later,
    DFG

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    1. Hi DFG,

      That sounds like a nice retirement budget you have ( particularly with a paid off house). Have you considered minimizing the tax burden today by using 401 (k), IRA, H.S.A. accounts?

      Good luck on your dividend investing journey!

      DGI

      Delete
  25. I love your posts and it is always a highlight of my day when I receive an email with a new post from you! You are touching more
    lives and inspiring more people than perhaps you will ever know!! Keep up the good work. I'm generating about $12,000 in dividend income which I'm reinvesting and have it mostly in stocks that grow their dividends annually. However, for my portfolio size it doesn't seem like I'm doing well ($345,000), wondered what you think. I'm averaging about 3.4% on the portfolio. Any ideas on boosting up those returns? My goal - retire in 10 years, hopefully in that time this income will double or perhaps triple, not sure how to really figure that out...

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    1. Hi Unknown,

      You might be surprised but you are doing much better than most age groups in America in terms of savings. I consider an average portfolio yield of 3% - 3.50% to be sustainable, as I am not comfortable chasing yield. I think that your portfolio could easily double dividend income within 7 – 8 years assuming you reinvest dividends at 3% - 4% and your dividends grow by 5% - 6%/year. If you add new capital to work each year, you will double your dividend income even quicker.

      That $345K nest egg is working quietly for you in the background, and doing a large part of the heavy lifting. It is a worker who shares all of his/her wages with you, while working 24/7 for you.

      Good luck on your journey. Please stop by along the way!

      Dividend Growth Investor

      Delete
  26. Excellent post Dividend Growth Investor! I have been lurking here for about 3 years and am a big fan. These details are very helpful. Your writing inspired me to begin on this journey. I should hit about $2,800 in dividend income this year. Is disclosure of your holdings is next?

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    1. Hi Unknown,
      Thanks for stopping by and reading. $2,800 in annual dividend only after 3 years is a very good achievement.
      I will be posting the details to the subscribers of the free email list in the next week or so.
      Good luck on your journey.
      Dividend Growth Investor

      Delete
  27. On track for $2,600 in forward annual income. Maxing Pre Tax 401k +ROTH and roughly $500 a month in taxable account. Stared in 2013 getting serious about investing, also when student loans were paid off and received promotion which helped. As you said renting has helped, cooking at home, and enjoying a lifestyle of outdoor activities which are mostly free allowing me to save 60% of take home pay. Goal is FI @ 40 with $25k interest and dividend income but continue to work in something creative passionate about and outdoors.

    Kids, mortgage can change this. But fail to plan yiu plan to fail.

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    1. Hi Matt,

      Seems like we are in a very similar position. It is very smart to increase your human capital and get raises/promotions, and then save that raise ( not succumb to lifestyle inflation).

      I am in a similar position where I will likely keep being productive with activities I am passionate about after becoming FI.

      While kids could be expensive, I think that many of those fears are overblown – there is a blogger called Mr Money Mustache who has a kid and a paid for house, who lives on something like $2K/month with his wife. Even if you end up needing $30K at age 40, you will be in a very good position where you have all your time in the world and $25K coming your way without lifting a finger. Having a $5K shortfall could be easily rectified by doing consulting, doing some part time/seasonal work,.

      Good luck on your journey! Please stop by along the way to report how you have progressed!

      DGI

      Delete
  28. Hey! Congrats man, such a cool thing to see! Didn't realize you were inspired by my IRA goodness from back in the day too - love hearing that. And even more so that you live off $1,500 a mo - that's incredible. Keep hustling!

    ReplyDelete
    Replies
    1. Hi J Money,

      I am honored that you took the time to comment on my humble site.

      You would be surprised how many lives your blog touches and improves for the better. Your hustling series are particularly helpful

      I have to stay frugal, because I see each dollar I save in my 20s is equivalent to 100 dollars in my name in my 70s. Each dollar saved in my 30s will be worth $100 in my 80s…
      But $1,500 in the Midwest could have a higher purchasing power than $1,500 in New York City or San Francisco.

      Best Regards,

      Dividend Growth Investor

      Delete
  29. DGI,
    I am a big fan and thanks for all the research and articles. If you are investing in tax deferred accounts, you will not have access to those dividends until you reach 59 1/2 correct?

    ReplyDelete
    Replies
    1. Hi Michael,

      Thanks for stopping by. Actually, you can withdraw money from tax-deferred accounts before the age of 59 ½. You can either do that using Rule 72 (t) distributions, Roth Conversion Ladders without incurring any penalties. With Roth Conversion Ladders, you may even end up paying no tax if you keep income low.

      You might like this post: http://www.dividendgrowthinvestor.com/2015/04/taxable-versus-tax-deferred-accounts.html

      Good luck in your dividend investing journey!

      Dividend Growth Investor

      Delete
  30. DGI,
    Quick question: if you could invest all of your 401k in dividend paying stocks would you do that in addition to all the other stocks you purchase outside your 401k? I fund a SEP for retirement and could self-direct and buy stocks. It seems a little safer to have some core funds in addition to the individual stocks.
    Thanks in advance.
    KB

    ReplyDelete
    Replies
    1. Hi KB,

      If I could buy dividend stocks in my 401 (k) I would do that. Unfortunately, my 401 (k) limits me to mutual funds only.

      I do buy individual dividend stocks for my taxable accounts, and my IRA accounts.
      I have previously rolled over old 401 (k) plans into IRA, and bought individual dividend stocks for income. The plan is one day to convert 401 (k) with index funds into a dividend cash machine.

      http://www.dividendgrowthinvestor.com/2013/05/twenty-dividend-stocks-i-recently.html

      Best Regards,

      Dividend Growth Investor

      Delete
  31. DGI. I really appreciate your blog and it has molded my investment style. Every since I stumbled across one of your articles about the crossover point back in 2012 IIRC, I changed my ways. Got serious about DGI mid 2012 and I'm happy so far. Currently generating 3500 in dividends a year on a 100,000 portfolio, adding 2000 a month as I go.
    I recently got a big promotion at work. I can no longer invest in my Roth IRA but do max out my 401k. My employer puts a large amount into my 401k as well but it goes into a fund that is like a money market that averages 1.2%. It can not be moved from this fund unfortunately. The only funds I can invest are my contributions. Currently 300,000 is jammed up in this fund, leaving me 160,000 that I can invest in mutual funds , so it's a little frustrating. I often think Of taking the huge tax hit and liquid the 401k so I can buy DG stocks. Though I think this would be financial suicide.

    My goal is to achieve 36000 a year in dividends by 55 years old. I'm 38 now. Nyc cost of living is high and my expenses are 2500-3000 a month. I hope your influence gets me to that goal and I'm pretty certain it will! Can't wait for future posts!

    ReplyDelete
    Replies
    1. Hi BlueCollarDividendBum,

      Thank you for stopping by and sharing your story. I love reading stories from readers who have taken control of their finances. And congratulations on the promotion – by increasing your income, you can manage to save more, and you will probably be able to reach you goals earlier than expected.

      About this $300K in the 401 (k) – is any of this money your contributions? If not, it seems like this employer has a very good match program. If the employer gives you the money, then I guess you don’t have a choice. If you don’t need the money, the tax bite on taking the money out now could be an issue today. If you ever switch jobs however, it is possible that you will be able to roll that money over to another 401 (k) plan or an IRA, where you will have options of how to invest the money.

      You do have a choice on the $160K though – a low cost mutual fund would do wonders in the accumulation phase, particularly in a tax-deferred account.

      I am really digging the $300 in monthly dividend income – you are covering over 10% of your monthly expenses. You also seem to have $460,000 in assets – when you retire, you can roll them over to an IRA, and pick your own investments. This could potentially generate $16,000 in annual dividend income at 3.50%.

      So it would look like you could get to your dividend crossover point in your 40s...PArticularly if you could move to a lower cost of living area. Of course, I do not know the specifics so this is the most I could say.

      You could also do a backdoor Roth IRA - http://www.investopedia.com/ask/answers/042214/how-can-i-fund-roth-ira-if-my-income-too-high-make-direct-contributions.asp

      This of course is all my opinion.

      Good luck in your dividend investing journey! Please stop by when you reach your dividned crossover point!

      Delete
  32. Thanks for sharing some more details about your journey. That's some truly amazing stuff to see that you've gone from $0 to $15k in 8 years. Even more encouraging is that you did this while earning a upper middle class income. The key takeaway is that you've done a good job minimizing expenses across the board to really fuel your investments. I need to revisit our tax situation because we could very well be leaving quite a bit of money on the table since we'll be dropping tax brackets (most likely) during FI so getting the tax savings now at a higher tax bracket and then paying lower later would be a nice bit of bracket arbitrage. Although it does complicate things a bit later. What's your plan regarding access to the tax sheltered accounts? I expect to retire early, or at least from a steady job, much earlier than I can legally access the funds in a 401k/Traditional IRA without the penalty. Other than the 72t distributions what are other options you've come up with regarding accessing those funds so they are actually useable without paying the 10% EW penalty which would wipe out the tax bracket arbitrage?

    ReplyDelete
    Replies
    1. Hi PIP,

      I wouldn’t call myself upper middle class. My base salary income has not been more than 20% higher than the median household income in the US. Though with rising five digit dividend income I guess I could be.

      Keeping expenses low is the fuel behind future investments. Keeping taxes as low as possible in the accumulation phase is a very important part of this. If you fail to max out the 401 (k) with the $18K/year, you are essentially paying $5,000 - $6,000 too much in taxes.

      It is a common misconception that you cannot access retirement early without a penalty.

      You might like this article I have written: http://www.dividendgrowthinvestor.com/2015/04/taxable-versus-tax-deferred-accounts.html

      You can access tax-advantages accounts before the age of 59. You can either do 72 T - Substantially Equal Periodic
      Payments.

      Or

      You could do Roth IRA Conversion Ladders - http://rootofgood.com/roth-ira-conversion-ladder-early-retirement/
      I will possibly write another article on the topic, because this is a common question I receive.
      Best Regards,

      DGI

      Delete
    2. If you fail to max out the 401 (k) with the $18K/year, you are essentially paying $5,000 - $6,000 too much in taxes.

      Or................you don't make enough to do so. You get as close as you financially can, and put in twice the match if at all possible.

      Delete
  33. Nice article. I've been a dividend investor my entire life. I don't expect to be able to 100% live off it, but it will be a very nice part of my retirement income, if I ever get to retire, along with IRA and 401K money.

    ReplyDelete
  34. Passive. Interesting info.

    http://www.forbes.com/sites/advisor/2012/05/09/did-you-know-you-can-access-your-401k-penalty-free-at-age-55/

    ReplyDelete
    Replies
    1. Great link. Check the above link to the article from Root of Good

      DGI

      Delete
  35. Love this article DGI! Great, great, great example of the power of growth in Dividend Growth Investing and how it can turn little into something rather big. Congrats to you and thank you for sharing.

    Cheers,

    Mike

    ReplyDelete
  36. Fantastic stuff here DGI. I want to thank you for taking the time to educate us and provide insightful information regarding dividend growth investing and saving for retirement. This post in particular should be read by everyone, irrespective of occupation / profession. As a 24 year old, this is extremely powerful stuff. I'm thankful for coming across your blog at a relatively young age and learning about the wonders of dividend investing (and frugal spending). Thanks again!

    ReplyDelete
    Replies
    1. Hi Gavin,

      Thank you for stopping by.

      As a 24 year old, you have the advantage of time. You can essentially compound your investments for decades. You also seem to be decades ahead of your age group, even thinking about investing for the future. When you have a six figure networth and decide to call it quits early, your peers would have likely just gotten started their planning for retirement.

      Every dollar you put to work today could end up being worth $100 and generating $3 - $4 in income in 50 years.

      Good luck in your dividend investing journey!

      DGI

      Delete
  37. Congratulations Dividend Growth Investor! I recently started reading your blog a couple months ago and you inspired me to start my own. I've been working on my financial independence for a few years now and I'm getting closer myself. Keep up the good work. I love your analysis. www.thelonghaulinvestor.com

    ReplyDelete
  38. Hi DGI, long time reader, but I rarely post. Great article, as always. I have a very good paying job with benefits, that takes a lot of time and concentration. My first home is now my rental property. I have 5 kids and a farm that also take a lot of my time and concentration. As most of my money is tied up in my assets, it is tough to save money like you do, much less find time to figure out where to invest it. I've tried Rule#1 with Phil Town, but don't have the time to go 1" wide and 1 mile deep. So your approach really works for me. I buy companies that I believe in, using your principles, and I feel good about when the price drops enough to buy more. But I made a big mistake in my Roth IRA with Ensco ESV and got blinded by the high dividend. But your blog always reminds me of the principles I need to cling to. Best financial blog out there.

    ReplyDelete
    Replies
    1. Hi gaerkej,

      Thanks for stopping by and commenting. Your family and your job are more important than anything else. That's why wise conservative investing is important for you, so you can provide better in the future.

      I am sorry to hear about your loss in ESV. Unfortunately, I didn't understand the business well enough, which is why I never bought into it.

      Good luck in your dividend investing journey!

      DGI

      Delete
  39. Hi DGI,

    I'd also like to say how informative I find your blog. In fact, it's the number 1 investing resource I use, in terms of overall investing philosophy. I'm fairly early in the investing game, only one year out of a masters degree, but the way I see it, setting down a strong foundation for dividend growth now is what will allow me to either retire early or have financial freedom in the latter half of my working life. Cheers,

    James

    ReplyDelete
    Replies
    1. Hi James,

      Thanks for stopping by and reading ( and commenting).

      You have an advantage over most investors, because you know the strategy to pursue and you have decades of compounding ahead of you.

      Best Regards,

      DGI

      Delete
  40. DGI, Great to see some additional personal context behind your dividend journey. Congratulations on your performance to date. I'm pretty sure you'll be able to hit your goal in time. Truly an inspirational performance. Keep it up

    ReplyDelete
    Replies
    1. Thanks for stopping by mate. You have some pretty impressive numbers coming out from your portfolio!

      Good luck in your dividend investing journey!

      DGI

      Delete
  41. What is your portfolio gain from shares price after this time period (6-7 years)? Is it positive ?
    Thanks

    ReplyDelete
    Replies
    1. HI Mati, you must be new to this site. I don't can about stock price fluctuations, since your capital gain today could easily turn into a loss. I focus on dividend income, which is more stable than capital gains, more reliable than capital gains, and cannot be taken away from you.

      To answer your question - the past 8 years I have "gains". I have also done better with my strategy than investing in the recommended mix of index funds. Even if I did worse than the mix of index funds, I would still stick to my strategy. Those who switch strategies are dooomed to failure.

      Best Regards,

      DGI

      Delete
    2. Thanks for your response. I am not new to this site. I am using a similar strategy of DGI and reinvesting new cash to have dividend income. But in parallel, there is a possibility that in 4-6 years i will need to sell a great portion of my portfolio in order to purchase a house to live. I hope that it will not be the whole portfolio so that was the reason for my question about the capital gain .

      Delete
  42. Congrats on your success. Your future looks very bright. I plan on continuing my dividend journey once I'm debt free minus my mortgage. I noticed that you max out your retirement accounts. My question is at what age do you start using your dividends to live off of and not pay a 10% penalty? I understand that the minimum age is 59.5 for Roths and 401k.

    ReplyDelete
  43. I'm up to $13,170/yr in dividends. It's so comforting to think of the additional income stream that's there if you ever get in trouble. We recently paid off our house, so we're going to really try and kick the investing into overdrive this year!

    Thanks for all your great posts, they keep me motivated!

    ReplyDelete
  44. Hey DGI,

    You've had a great journey so far and you really got a good head on your shoulders. It all comes down to saving and investing, eh. DGI is definitely the way to go. Thanks for the inspiration man.

    DB

    ReplyDelete

Questions or comments? You can reach out to me at my website address name at gmail dot com.

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