It’s dividend income update time. One of my favourite times of the quarter as I get to review my previous three months worth of passive income received from my ISA portfolio. Given my strategy of wanting to acquire enough dividends in order to cover my costs and be able to retire, it is really the dividend payouts that I care about. For each of the companies I invest in, I like to see a steady and growing stream of dividend payouts.
My dividends really do provide me with a comfort blanket during times of market turbulence as we have experienced recently. The market can be irrational at times as it seems to gyrate up and down on a whim but dividends add that bit of stability, reliability and predictability to my portfolio. Sure, dividends may not increase every year and a cut or elimination is even possible but the odds are greatly reduced when you diversify among different companies and sectors and focus on dividend quality – free cash flow, EPS and payout ratios.
So how did I do over the months of June, July and August?
Over the last three months, 45 companies sent me a dividend payout, adding up to a total of £756.
This has been a record quarter. It is a 30% increase from the same quarter last year as I received £578 in dividends during the third quarter of 2017.
It continues to amaze me that I regularly receive gushers of cash for nothing but owning shares in high quality companies. And that is just the beginning. This is cause the more the companies that I have an ownership stake in earn in profits, the more they send my way in dividends. And the majority of companies I own in my portfolio keep producing record sets of numbers year after year.
Just look at one of the companies in my portfolio, Imperial Brands. The company has been increasing its annual dividend by 10% over the past several year. And this adds up to huge amounts over time. For my 219 shares in the company, I received £56.61 in dividends in August 2017. For those same 219 shares, I received £62.27 in dividends in August 2018. I got a 10% raise for doing absolutely nothing. Over the course of a year, this 10% really does add up. Whilst I received £374 from IMB last year, I am expecting a payout of the company of £411 this year. The £37 increase is like adding fresh capital of £1,000 to my portfolio.
This is the power of divided growth investing. And with every passing year, the results get better and better. Let’s look at longer term results of Imperial Brands for an illustration of this.
Say in 1997 – the earliest the imperial brands website gives dividend information for – you bought shares in Imperial Tobacco (as it was known them) worth £3,000. This would have given you 1,000 shares in the company .
Back in 1997, each share paid out 21.4p in dividends giving you a total annual dividend of £214 for your 1000 shares. This high dividend yield of 7% (close to where it is today) was as a result of the bleak outlook surrounding the tobacco industry. Back then, the long-term outlook for tobacco in general was poor – advertisements were on the way to being completely banned and the negative health effects of smoking was becoming more mainstream. Despite the pessimism surrounding the industry, Imperial Tobacco has been able to lavish its shareholders with relative riches in the two decades since.
Imperial Tobacco continued producing record results year after year. And these record profits were showered onto shareholders. In total, over the holding period to date, you would have received £16,450 in cold hard cash. That is more than 5 times your original investment just in the form of dividends!.
And that is not all. Your £3,000 worth of shares bought in 1997 would now have a capital value of £25,770!
And that is not the end of it. Because your shares will continue to throw off cash year after year at an ever increasing rate. Over the coming year, your IMB shares will throw off £1,880 in dividend income alone. And the year after, that figure could well be over £2,000. Soon enough, you will be collecting more in dividend income per year than your original investment. That is the power of dividend investing. That is the power of long horizons.