This week, I finally had a chance to update my spreadsheet with the new dividend figures from companies that have announced raises from about April onwards. Every-time I entered the new dividend of a portfolio company, it put a smile to my face. At the end, when the total was tallied up, I was pleasantly surprised. This – together with Mourinho leaving my beloved club – has felt like Christmas has come early.
The total increases in dividends my portfolio companies have given me amounts to £104! That is £104 for doing absolutely nothing. That is £104 of free money. It is purely passive.
£104 is basically like investing another £3000 into the markets. Put it another way, the £104 increase in my annual dividend income that came about by way of the organic dividend increases announced by my holdings is analogous to investing £3,000 in fresh capital at a 3.5% yield – except I invested exactly £0 to achieve that increase in passive dividend income.
This is why I love dividend growth investing. Companies organically grow dividends without me having to lift a finger. As the companies I invest in produce higher and higher sales figures and make more and more profit, so do they reward me in the form of greater dividends.
Unilever sells more Lynx deodorant. More dividends for me. Coca Cola sells more beverages. More dividends for me. Procter and Gamble sells more Fairy dishwashing soap. More dividends for me. Visa processes more transactions. More dividends for me. Mondelez sells more Cadbury’s chocolate. More dividends for me. BP sells more petroleum products. More dividends for me. Pepsi Sells more Frito Lay snacks. More dividends for me.
You get the picture.
So whilst I got an organic increase of £104, I expect to get an even higher amount next year even if I were not to invest any more money in the markets nor re-invest any of my dividends. This is the power of dividend growth.
I get more and more dividend flowing into my account year after year without having to lift a finger. This is all organic growth without reinvesting dividends. And because I reinvest dividends, my dividend machine is super charged. Organic dividend growth coupled with dividend re-investment is the fuel that lets you compound money over the long term.
This £104 of extra dividend per year has helped me cross the £3,000 in annual dividend income mark. To be specific my portfolio is expect to generate £3,029 in dividend income over the next year. Another milestone ticked off.
Every £thousand is becoming easier and easier to achieve. The first thousand took the longest. The next thousand was slightly quicker. And this thousand was even quicker. It was only in September that I crossed over the £2,500 mark and here I am in December at £3,000.
I expect every subsequent thousand in dividend income to be achieved at a faster and faster rate. This is because dividend growth works better on larger figures. If you own shares in Company A and expect to receive £1,000 a year, a 10% increase will mean you’re new dividend income is £1,100 or £110 more. But if on the other hand you expected to receive £3,000 from a company, that same 10% increase will give you £3,300 in annual dividend income – or £300 more. It’s the law of larger numbers.
Another reason why any subsequent thousands will be easier to attain than the last is because my dividends are buying more dividends. I am using money to buy more money. I now have a fresh £3,000 hitting my account every year to invest as I please. With this added capital, I can add further fuel to my dividend machine.
£35.69 is all I received in dividends in 2015. I could have looked at this petty amount and asked ‘what’s the point?’ But I didn’t. I persevered. I knew it takes time to grow a dividend portfolio. Just like you wouldn’t expect a tree to grow the day after planting it. The same way you cannot expect your dividends to blossom immediately. These things take time. It takes effort. It requires saving and investing on a monthly basis. As as your dividend income grows, you will be more motivated than ever to continue on the path in the hope of achieving financial freedom.