I’m excited to announce our family crossed a HUGE dividend investing milestone. Our family’s projected annual dividend income surpassed $12,000! This is a huge milestone, not just for me, but any dividend investor! Why? We now earn $1,000 per month in dividend income!
I am very excited to share this news with the community. Achieving milestones is such an important component of dividend investing. Being a part of this community and reading about your investment successes provides me with a ton of motivation. That’s what it is all about, right? Pushing and encouraging each other to continue growing our passive income streams!
In this article, I will discuss the following:
- The milestone achieved!
- Reflecting on my dividend investing journey. Initially, I started with $0 in dividend income. Now, we are over $12,000. Further, despite the fact that we have a website and share every aspect of our journey, I still sometimes have a hard time opening up. Therefore, I wanted to share some thoughts and details about my journey.
- Discuss my dividend income and my mortgage.
- Share the next steps. Our journey to financial freedom is not complete after all!
The Milestone: $12,000 in Dividend Income Annually, or $1,000 per Month
In August 2020, we crossed $12,000 in annual dividend income! Our investments are producing $1,000 per month of dividend income annually. We could not be more excited to receive such a substantial amount of passive income. While we have achieved milestones in the past, there is something that feels different about this one. Averaging $1,000 per month in dividend income has a very nice ring to it!
The truth is, our current dividend income is actually $12,326.29. We actually crossed this milestone last month. $1,000 per month in dividend income. Simply incredible.
There is a simple, two word answer explaining why I waited a while to share the achievement: dividend cuts. During the pandemic, we have all been dealing with the impact of dreaded dividend cuts. In July, Dominion (NYSE:D) dealt us a major blow. Shortly after, BP (NYSE:BP) cut their dividend. With two snaps of the finger, our dividend income was reduced by hundreds of dollars. Therefore, before celebrating this achievement and sharing the news with the community, I wanted to make sure we weren’t at risk of falling below the mark.
The Journey – From $0 to $12,000 in Dividend Income
Building my dividend portfolio from the ground up has not been easy. I started this journey in 2012 after I met Lanny. At that time, I was investing in growth stocks. Rather than focusing on building a sustainable, growing dividend income stream, I was buying stocks for appreciation.
During countless long car rides to small towns for work, he taught me about the power of dividend investing and the freedom that one can achieve by having multiple income streams. Yes, I learned through all of this that dividend income is the easiest form of passive income. He wrote about it recently and I agree more with the conclusion each and every day.
Having the opportunity to learn from Lanny was instrumental in this journey. I would not be writing this article without him. I cannot begin to thank him enough for the opportunity to learn from him and his endless stream of motivation.
Couldn’t have asked for a better best man at my wedding!
After our first conversations, I created my brokerage account. At the time, he used Capital One Investing. Naturally, I followed suit. Capital One Investing was my investing home for years. Then, in 2018, ETrade completed their acquisition of Capital One’s brokerage division. After the sale, I changed brokerages to Ally Investing. While Lanny uses them, and they are listed as one of our financial freedom products, I preferred a larger broker. Now, I use Fidelity and couldn’t be happier. There wasn’t anything wrong with Ally and I would endorse it today. However, I just preferred Fidelity.
With my first brokerage account opened, I took the plunge and bought my first dividend growth stock! Does anyone want to guess the company? Any takers? Cue the Jeopardy final question music. The first dividend stock I purchased was… Philip Morris International (NYSE:PM). That’s right, the first dividend stock I purchased was the international tobacco behemoth with a massive dividend. Talk about starting my journey off with a bang!
The second stock purchased was AT&T (NYSE:T). We always talk about and promote our Top 5 Foundation stocks. It is funny that, when reflecting and typing this article, I also began building my dividend portfolio with one of these foundation stocks. Eventually, over time, I continued to purchase the remaining foundation stocks. Now, I own all 5.
Once I started, it was hard to stop. Seeing my dividend income grow each month was all the motivation I needed. Understanding the theory of dividend investing is one thing. However, actually seeing a dividend hit your account is another. I received a dividend one quarter that reinvested into fractional shares. Suddenly, the next quarter, the dividend was larger. With each dividend, the Power of Dividend Investing became clear. Also, it didn’t hurt having Lanny in my corner as well. He was crushing dividend investing milestones left and right. What better motivation could you have than to see the person you are sharing this journey with continue to do well!
Once hooked, I started doing everything in my power to achieve a high savings rate and invest as much as possible. I made a few financial mistakes in my 20s though. The mistakes set me back thousands of dollars in dividend income today. I learned from the mistakes though and moved on.
Slowly, but surely, I was able to cross investing milestones. Here are the dates of some of our family’s major investing milestones
- Q1 2013: my projected dividend income crossed $1,000 annually
- Q2 2015: my projected dividend income crossed $2,000 annually
- Q3 2017: our family’s projected dividend income crossed $5,000 annually
- November 2019: our family’s projected dividend income crossed $10,000 annually
- August 2020: our family’s projected dividend income crossed $12,000 annually
Yes, it took time for our dividend snowball to grow. However, the length of time between milestones continues to shrink. Reviewing the five bullets above is leaving me speechless. This journey has been amazing, frustrating, but exciting every step of the way. In hindsight, do I wish I pushed harder at the beginning? You bet. However, going from $0 in dividend income in 2012 to $12,000 in dividend income in less than 8 years is a pretty cool feeling.
My Dividend Income Covers my Mortgage Payment
This really excites me. We purchased our first home over 3 years ago. Our initial interest rate was 3.89% and our payment was $1,041. Last year, when interest rates plummeted, we refinanced our mortgage with a local credit union. Now, our interest rate is 3.40%. Our monthly payment was reduced to $992.92 and the maturity date remained the same! The savings amounted to $48 per month and thousands of dollars of interest over the life of the mortgage. Those are some SERIOUS dollars right there.
Now that we are earning an average of $1,000 per month in dividend income, our dividend income covers our mortgage payments! The purpose of this journey is to have your dividend income and other passive income cover your annual expenses. That’s the goal.
While my dividend income is not sufficient to achieve that goal today, covering my largest monthly expense is a fantastic start. Step by step and dollar by dollar, we are getting closer. However, we still have a LONG way to go.
The Next Steps in Our Journey to Financial Freedom
Crossing $12,000 in dividend income, earning $1,000 per month, and covering our mortgage payment are all exciting accomplishments. I would be lying if I told you I wasn’t excited. There is still more work to be done. After all, we still have more expenses to cover!
In all seriousness, the best part of dividend investing is that you are continuously achieving milestones. Once you accomplish one, you immediately focus on the next one. It is a never ending, positive, motivating cycle. With $12,000 in dividend income behind us, I have two areas where I now want to focus my attention.
Increasing Our Traditional Brokerage Accounts
When I started my financial freedom journey, I contributed to a traditional brokerage account, a Roth IRA, and retirement accounts. Several years later, I began maximizing my 401(k) contributions to take advantage of the tax benefits.
This strategy was great for kickstarting my journey and increasing my dividend income. However, it resulted in the majority of our dividend income being earned in retirement accounts. The table below shows the current breakdown of income being earned in a traditional or retirement account. It is crazy that 62% of my income is in retirement accounts. Wow.
Lanny and I always talk about this frequently, as a matter of fact. It is a known improvement area for my overall portfolio and something I am working towards remedying going forward. Accessing income in a retirement account before retirement account is feasible, but not easy. There are Backdoor Roth IRAs and other mechanisms to achieve the end result. However, if I truly want to live off of dividend income and cover my expenses, I need to increase the dividend income received in our traditional brokerage accounts.
The good news is that I have made some progress in 2020. We continue to purchase dividend stocks despite the continuously rising stock market. All stock purchases lately have occurred in our traditional brokerage accounts!
The next milestone for our traditional accounts is $6,000 in dividend income, or $500 per month. I am currently $1,349.82 short of that goal. The chart below shows an extreme example. The example demonstrates the amount of cash I would need to invest at an average 3.5% dividend yield to achieve this goal. My purchases of late have averaged a dividend yield over 3.5%, which is why I used that yield in this example. This example is extreme because it assumes no dividend growth. That is unlikely; however, after receiving too many dividend cuts this year, I just assumed no growth to demonstrate the point.
Based on my calculations, I will need to invest over $38,500 in capital to reach $6,000! That is a lot of cash. $4,650 will be added via dividend reinvestment. After that, I will still need to add $33,000. That is still a lot of money. Sadly, it looks like I have my work cut out for me. Hopefully dividend growth starts to pick up again!
Next Milestone: $500,000 Investment Portfolio
The second milestone that I have my sights on is watching our portfolio cross $500,000 in market value. Sure, this is a milestone on paper only. If 2020 has taught me anything, it is that your portfolio’s market value can change at a blink of an eye. In March and April, our market value dropped significantly as the pandemic hit. We all know what has happened next. Since the lows in March and April, the market has continued to climb. In fact, it feels like I can count the number of down days on one hand since then (kidding of course).
Still, there is something exciting about seeing your portfolio’s market value cross $500,000. At the time of this article, our market value is about $470,000. Therefore, we have $30,000 to go before crossing this mark! If the market continues on this upward trajectory, this milestone may be arriving sooner rather than later.
Thank you all for taking the time to read this article and about my journey from $0 to $12,000 in dividend income. This community is amazing and I couldn’t have done it without the support of you, Lanny, and my family. Hopefully, this is proof that anyone can build a dividend stock portfolio and grow their own passive income stream. Now, let’s continue pushing, continue saving, and investing every dollar we can. As we always save, every dollar counts on your journey towards financial freedom. One milestone down… on to the next one!
What was the last investing milestone you hit? Which is next for you? What is your annual dividend income?
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.