This week, I finally got round to calculating the organic dividend growth my portfolio has achieved during the year. The update is purely based on companies that have announced dividend raises over the course of the year. It does not include any new shares purchased or any dividends reinvested. The aim of this post is to show pure organic dividend growth. It will show how my portfolio would still grow even if I spent all my dividends as I received them and also if I never was to add a single cent again.
To find out how much a particular company had increased its dividend over the previous year, I had to comb through all the annual, interim and trading reports of the various companies I own.
This might seem like time consuming and hard work but it was anything but. In fact, I throughly enjoyed doing this work and wished I had even more reports to go through. You see, when you find out you are getting income raises from company after company, you start to enjoy even the most tedious of tasks.
Every-time I looked through a report and saw a dividend increase, it put a smile to my face. And there was a whole lot of increases. 2019 was a year where my portfolio as a whole did extremely well. It was increase after increase. This is why investing in quality companies pays off. At the end, when the total was tallied up, I was pleasantly surprised.
The total increases in dividends my portfolio companies have given me amounted to £180! Even without adding a single penny to my portfolio, my dividend income would have grown by this amount. How amazing is that! My boss wouldn’t give me a bigger paycheque for doing nothing. This is why I love dividend growth. I get an extra £180 for doing absolutely nothing. That is £180 of free money. It is purely passive.
The compounding dividend snowball is gaining size and speed, even while I go about my life and do as I please.
I’ll put that in perspective.
The £180 increase in my annual dividend income that came about by way of the organic dividend increases announced by my holdings is basically like investing another £5,200 into the markets at 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 continue to march upwards by producing higher and higher sales figures and making more and more profit, so do they reward me in the form of greater dividends.
Unilever sells more Ben & Jerrys ice cream. More dividends for me. Pepsi sells more beverages. More dividends for me. Reckitt Benckiser sells more Dettol. More dividends for me. Visa processes more transactions. More dividends for me. Mondelez sells more Oreo cookies. More dividends for me. Shell sells more petroleum products. More dividends for me. Primark sells more clothes. More dividends for me.
You get the picture.
So whilst I got an organic increase of £180, which is higher than the previous year figure 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 because dividend growth works better on larger figures.
If you own shares in Company X 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 £4,000 from a company, that same 10% increase will give you £4,400 in annual dividend income – or £400 more. It’s the law of larger numbers.
This is the power of dividend growth.
I get more and more dividends 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.
The £180 increase now brings my expected total annual dividend income to £3,894. How awesome is that. I am getting over £10 a day simply to wake up.
£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. I realised that everyone starts small. 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.