Third Quarter Dividend Income 2

The months of July, August and September have been good to me. The companies I am an owner in have continued to shower me in cash. In total, I received £578 in dividend income over the past quarter. Considering I only received £195 , this increase of £383 shows that I am headed in the right direction in terms of wanting my passive income cover all my expenses. A good chunk of the increase came from me putting more money into the markets but the amount of organic dividend increases from shares in companies I already owned should not be underestimated. Companies like Unilever, Shire and Ag Barr have risen their dividend payments way ahead of inflation leading to the surge of dividend income I received this quarter.

Analysing the quarter, I received dividend payments from 45 different companies. The industries were profits are generated to pay me are wide ranging, Amongst them are oil, software, media, data analytics, coffee chains, hotels, beverages, cosmetics, telecoms, utilities, pharmaceuticals, retail, property and travel. Having such a diverse range of companies and industries ensures I am not too affected by any company or industry specific problems. Hopefully if any problems do occur, the rest of my portfolio can cover it up and keep propelling my dividend income higher.

I still find it amazing that I have gone from £0 passive or ‘unearned’ income at this same point in 2015 to £585 in this quarter and £1,355 so far for the year with three month still to go. I wish I learnt about the power of passive income sooner but I am thankfully to have learnt about it at a young enough age.

The dividend income I receive is treated as a bonus above my pay from employment. I treat it as fun money that can be used to fund my passion for travel or watching live sport or simply used for a night out on the town. But in this case,I want to take advantage of the power of compounding (link) and thus have re-invested the dividend income I received. I have used the money to buy even more shares in great companies so that my dividend income can further increase. I am using money to make more money (LINK). It’s a vicious money making cycle that anyone can be part off. All you have to do is get started.

For first time investors who are looking to one day live off dividends and consider this a propriety, here are some filters to build a truly defensive income portfolio.

  1. Screen only for stocks that have been raising their dividends for more than twenty years.
  2. Screen out the ones that haven’t grown earnings by at least 5% this decade. Given the gravity of the 08-09 crisis, the companies left on your list will be the truly goodies.
  3. Then remove banks, tech-oriented companies, and anything subject to product obsolescence (like Kodak film).

That’s about as defensive as it gets. There are a lot of opportunities you’d miss by following such stringent rules, but if your aim is “I want 99% success rate with a portfolio of common stocks”, that’s the best prescription there is for how to start your research in a quick and effective manner.

As long as you stay away from derivatives, investing is hardly quantum mechanics. The companies you are able to invest in (listed companies), make products, offer services and have to submit annual reports which are available to anyone. They either make a profit or they don’t.  They either have positive free cash flow or they don’t. They either pay a dividend or they don’t.  It is really that simple. When looking to invest in a business, take a common sense approach. Ask yourself, ‘would I buy the whole company at its current valuation  if I had the cash to do so’. If the answer is yes, thinking about buying shares – a partial ownership – in that company would be a good idea.