Why I Invest in Dividend Stocks
I invest in dividend stocks to grow a my passive income. One day, my dividend income will be large enough to cover my monthly expenses. That is why we are relentlessly searching for undervalued dividend stocks to buy. To put our hard earned cash to work.
We use our dividend stock screener with every stock purchase. Our stock screener continues to help us find some awesome undervalued dividend stocks to buy. This simple, 3 step stock screener is designed to identify undervalued stocks with a strong payout ratio that have a history of increasing their dividend. Fundamental dividend growth investing at its finest.
Watch: Dividend Diplomats’ Dividend Stock Screener
Building a large dividend income stream takes time, consistency, hard work, saving, and most importantly, investing. I have been investing in dividend growth stocks since 2012. Saving a high percentage of my dividend income allows me to invest as much as possible, so we can retire as soon as possible.
Slowly, but steadily, my income has grown. Brick by brick. DRIP by DRIP. It is really exciting to see the growth and larger dividend checks trickle into my brokerage account.
Each month, we share our dividend income summaries to highlight our growth and progress. It is a fun and helpful excercise that holds us accountable. Further, it helps you, our followers, see the stocks we are purchasing.
Bert’s March 2021 Dividend Income Summary
In March, we received $4,003.58 in dividend income. This represents ~72% year over year increase compared to last year. Holy freaking cow! We were so pumped to cross the $4,000 mark during the year. This is esaily a personal record (for a non-December month, where funds pay their capital gains distributions). The chart below summarizes each individual dividend payment we received during March:
In addition to the chart above, I always like to include 3 observations about the dividend income received during the month. The remainder of this section will discuss the 3 big observations:
Observation 1: Maximizing Our 401(k) Each Year is Paying Off
Several years ago, my wife and I committed to maximizing our pre-tax 401(k) contributions. To us, after crunching the tax savings, it was a no brainer decision. Not only are we reducing our tax bill significantly, we are also automatically investing a large amount of capital into low cost, S&P 500 index funds.
Read: Why We Are Maximizing Our 401(k)s Finally
Read: Tax Benefit Series – Why Maximizing Your 401(k) Can Save Reduce Your Taxes Significant
Fast forward several years to look at the results of the strategy. Our Top 4 dividend payments we received were all in our retirement accounts. This represented $2,600, or 65%, of our monthly dividend income. Insanity.
Here is the crazier part. This doesn’t even represent the full amount of our dividend income from our 401ks. One of our major 401k funds pays a semi-annual dividend in June and December. The other is an annuity fund at Principal. Frustratingly, this fund doesn’t disclose the dividend income received!
It is nice to see the impact of an automated, consistent dividend investing strategy several years down the road. That is why I am so pumped up that my wife and I started buying 1 share of Johnson & Johnson (JNJ) every week. 3 years from now, the impact of this strategy is going to be real. Heck, Lanny is feeling the impact of his VYM weekly investment strategy just 8 months later.
Read: Why I’m Investing in Johnson & Johnson Every Week
Read: VYM’s HUGE 18% Dividend Increase has a Major Impact on Lanny’s Dividend Income
Folks, its all about time in the market. Can’t stress that enough. The results are real.
Observation 2: New Investments Flexed Their Dividend Muscles
Sure, the dividends received from mutual funds were large. However, that doesn’t mean that we didn’t receive a nice sum of cash from our individual holdings. In fact, it was quite the contract.
Looking at the chart above, we received several dividend payments from new companies that we initiated positions in over the last 12 months. The list includes: IBM (Wife), Walgreens (Both), Discover (Wife), Intel (Both), Smuckers (Both), and LCNB (Me). The new dividend payments from last year were also major contributors to our 72% year over year growth rate.
Watch: Our Playlist of Dividend Stock Purchase Videos
However, it wasn’t just new dividend stock positions. I added significantly to my stake in Aflac during the pandemic and IBM over the year. In fact, the additional investments were huge and helped offset some of the dividend cuts we received from Royal Dutch Shell and Dominion during the year!
Observation 3: The Power of Dividend Investing is REAL
This continues to be a recurring theme in our monthly dividend income summaries. The Power of Dividend Investing is real. It may sound cliche, but it is true. We had many dividend payments that increased solely due to dividend reinvestment and dividend increaes. Those additional fractional shares resulting in more dividend income in 2021 than in 2020.
Read: The Power of Dividend Reinvestment
To me, the best part wasn’t even the additional income from dividend reinvestment. It was all of the dividend increases we received during the last year. Even during a global pandemic that shook our economy to the core and changed consumer habits (potentially forever), many of the companies in our portfolio still management to grow their dividend.
Watch: Our Dividend News Playlist – Which Features All of Our Dividend Increase Summary Videos
That is exactly why we invest in companies that have a history of increasing their dividend through multiple economic cycles. We want to own companies that will not waver when times are tough. Companies with management teams that will continue to keep the boat moving in the right direction.
The chart above, summarizing our March dividend income, has too many examples of dividend increases compared to last year due to dividend reinvestment and dividend increases. That is what is all about. That is why we invest in dividend growth stocks. Plain and simple.
The Impact of Dividend Increases
We love dividend increases. It is plain and simple. There is no better feeling than seeing your dividend income grow without lifting a finger. Heck, that’s part of the reason why we think dividend investing is the best, and easiest, form of dividend income.
April is going to be a crazy month for dividend increases. We are expecting some of the largest names in the dividend investing space to announce dividend increases. This includes Johnson & Johnson, Procter & Gamble, IBM, and others.
Read: 9 Expected Dividend Increases in April 2021
Why am I discussing April in my March dividend income summary. Well, lets just say, march was the calm before the storm. We will be swimming in dividend increases in April. Unfortunately, March was a slow month for us, as we only received two dividend increases. The following chart summarizes the impact of each dividend increase:
The good news is that we received two dividend increases from Dividend Aristocrats. However, the bad news is that the dollar impact of the increases was relatively small. We could get 3 items off the dollar menu from McDonalds with our dividend increases.
Still, a dividend increase is a dividend increase. I’ll never complain about seeing my dividend income grow without lifting a finger. Whether the impact is $.01 or $100!
Summary
I could not be happier and more excited with our March dividend income results. We corssed a huge milestone figure during the month, earning over $4,000 in dividend income. Further, we had an INSANE 72% dividend growth rate compared to last year. After years of hard work, saving, and investing, the results are starting to show. I still have a lot of work to do. Now would be the worst time to take my foot off the gas pedal. That is why we are going to continue being aggressive, making every dollar count, and buying as many dividend growth stocks as possible. Financial freedom is become a reality.
Did you set a record for dividend income in March? Did you receive dividend income predominately form mutual funds and ETFS, or individual stocks? How many dividend increases did you receive?
Bert