A few month ago, I wrote that my shares in Royal Dutch Shell (LON:RDSB) pay me an annual dividend income of £367 or £1 a day. I am excited to exclaim that a second portfolio holding of mine has joined the pound a day club, Imperial Brands.
The company, which I have been regularly buying shares in over the last year, announced a 10% hike of its interim dividend from 51.70p to 56.87p. This has brought its total annual dividend to £1.76 a share. As I hold 211 shares in the company, my annual dividend has gone up from £360 to £371 and in the process it has crossed the £1 a day mark.
This is truly beautiful place to be in. It is a joy to wake up every morning knowing Imperial will send £1 my way – albeit via quarterly payments. I wake up Monday, I’m paid. I wake up Tuesday, I’m paid. I wake up Wednesday, I’m paid. I’m paid to basically exist.
To many, £1 a day may seem small and insignificant. But all good things start small. Tomorrow’s giant oak trees and planted by the small seedlings of today. And who is to say that the £1 a day I receive from Imperial today won’t turn into £10 or £20, or even £30 in the years to come.
Consensus estimates at present suggest that Imperial will increase its second half dividends by 10% as it has done in the past several years. This will further push up this year’s dividends to £1.88 from £1.71 received last year. Based on this estimate, my annual income from Imperial would be £396 for the year. This is a full £36 more than I would have received with the equivalent number of shares last year. And I have full faith Imperial will continue increasing its dividends at a decent clip over the coming years as it has a sustainable free cash flow payout ratio. With dividends compounding at a decent clip, it is not too hard to envision a time when Imperial pays me a dividend in the quadruple and quintuple figure range.
The above should also show you the power of dividend growth. I am getting an extra £36 a year from imperial brands for doing absolutely nothing. I simply made a smart decision. £36 extra a year in annual dividend income would be the equivalent of investing £1,000 in fresh capital at a 3.6% yield. Except I don’t have to do anything other than just let old money make new money.
And as the increases get bigger the benefit gets bigger. Imperial Brands is just one stock in my portfolio. I expect the majority of the stocks I own to increase their dividends at a high single or double digit rate. To put this into context, my portfolio is growing in such a way that it’s like I’m investing £4,000 per year in fresh capital, before I even invest a new dime. And this will only accelerate exponentially over time.
One of the most wonderful aspects of dividend growth investing is that money starts to work for you pretty quickly. Money’s ability to replicate itself is my favourite thing about it. When you invest in some of the best businesses in the world, you then have thousands – or even millions – of people working for you.
Better yet, money becomes more efficient at working for you and compounding itself the more it does so. The more money replicates itself, the better at replicating itself it becomes.
And now that I’m essentially collecting a dividend a day from a single share, my money has become very proficient at working for me, replicating itself, and compounding on my behalf.
Dividend Growth Investing can be a very useful wealth building tool if used correctly. By buying into high quality companies, you are able to build a portfolio that sends you ever increasing gushers of cash every year. The aim is for those dividends to one day cover all your expenses. And when this happens, you will be financially free. You won’t have to do things solely for money any more. If you don’t like your job, you can quit. If you don’t like your boss, you can quit. You don’t have to be part of the rat race anymore. So if you’re on that journey to financial freedom, keep chugging along. Keep building that dividend stream. For one day you will be grateful you did so.