CCOI - My Dividend Growth Income Mid-Year Review

2023-07-17 05:37:58 ET

Summary

• Dividend income has grown by 35.77% in the first half of 2023, adding $1,606 to estimated annual dividends, due to dividend reinvestments, dividend increases, new purchases, and re-allocation of capital.
• Several changes have been made to the portfolio, including closing seven positions and reallocating capital to five new positions, aiming for a balanced approach to dividend growth for long-term sustainability.
• The goal is to reach $6,600 in estimated annual dividends by the end of the year.

Now that we have completed the first half of the year 2023, I would like to spend some time looking at how my dividend income has grown and evolved. In addition, I will highlight what I am looking forward to in the second half. I am more than happy with the first six months of the year and look forward to the year-end review of this portfolio. In my eyes, the cup above is most certainly half full.

Overview

A more detailed description of my strategy and goals can be found in my latest dividend growth income monthly report. But as a quick overview, I use a dividend growth investing strategy that centers around recurring weekly purchases of dividend growth stocks which are reinvested to create a snowball effect on my forward estimated dividends. The ultimate goal is to have the ability to retire early and live off of my dividends. While I am still far away from my goal, I am inching closer and closer every week. I believe that it is reasonable that I can achieve my goal due to the fact that I have taken advantage of investing at a young age and still have plenty of time to build my portfolio as I am currently 29 years old.

Dividend Growth

I have seen massive growth in my forward dividends so far in 2023, adding $1,606 to my estimated annual dividends which equates to a 35.77% increase. At the conclusion of December 2022, my total forward annual dividends stood at $4,490. At market close on June 30th, my annual projected dividends stood at $6,096.

This strong growth is attributed to four major factors: dividend reinvestments, dividend increases, new purchases, and re-allocation of capital among investments. The first three are the main factors that I look at on a month to month, treating the re-allocation of capital as a separate, special event. However, it is impossible to ignore the effect the change that re-allocation had on my portfolio during this time period. In total this accounted for $1,159 of the $1,606 increase to my dividends, with the remaining $447 are attributed to my main three factors. I will go into greater depth on the change in positions later in the article so for now I will look at contributions from my main factors.

I am pleased to see a near-perfect 50/50 split in dividend growth contributed by organic (div. reinvestments + div. increases) and inorganic (new purchases) growth. A balanced approach to dividend growth will be key to the long term sustainability of future growth.

A major pillar to my investment philosophy centers around dollar-cost averaging and maximizing the number of days in which a transaction (new purchase, dividend reinvestment, or dividend increase) takes place within my portfolio. Throughout the first six months the U.S. stock market has been open to trading for a total of 124 days, of which I have recorded a transaction in 74 different days. This means I was able to capture the power of dollar-cost averaging in roughly 60% of the total possible trading days. I have no doubt this has played a large role in the success of my investment returns.

Re-Allocations and Portfolio Shuffling

I have made several changes to the composition of my total holdings so far this year, closing a total of 7 positions and re-allocating that capital to 5 new positions which has slightly reduced my total number of stocks owned by two. The motivation behind these changes was to eliminate smaller holdings and in one case because I was forced to sell my position as it was taken private. In summary, here is how my portfolio has evolved since January 1st:

One may notice that I sold out of my VOO (S&P 500 Index ETF) and be concerned that I re-allocated into a more divided focused ETF, SCHD (Schwab U.S. Dividend Equity ETF). So I would like to note this is due to the fact that I do not track my 401k holdings in my reports, of which is mostly consisted of S&P 500 index funds. All in all I believe this re-shuffling will be beneficial long-term for my dividend growth portfolio by generating a noticeable increase in overall yield and providing a respectable level of dividend growth for the future as well.

Portfolio

My portfolio has gone through a considerable change in 2023 to this point but is more in line with my investing philosophy and in alignment with my goals outlined in previous articles:

2 Undeniable Cornerstones For A Long Term Portfolio

Analyzing My Market-Beating DGI Portfolio: I Must Be Doing Something REIT

The latter article being chosen as an Editor's Pick by the Seeking Alpha editorial team was a highlight of the year for me, I hope you all enjoyed the article as well.

To easily visualize the change to my portfolio, let's look at the side by side comparison of my portfolio composition on January 1st vs. June 30th.

The most notable changes are the reduction in the weighting of my ETF holding and the strong growth of Microsoft ( MSFT ) and Visa ( V ) in weighting across my full portfolio. Both of these developments are exactly what I was aiming for and I hope to see this trend continue throughout the rest of the year. For a closer look at the income currently produced in my portfolio, I have included the table below.

Looking Ahead

I can only hope to see the continued success from the first half of 2023. While that may be difficult without some re-allocations or large new purchases, I do have several goals for the last six months of the year. First, I'd like to be able to increase my recurring weekly investment dollar value one more time. In April this year I was able to increase my dollar investment by 10% from $150/week to $165/week. Another bump in my recurring investment amount, no matter how small, can add up to huge increases in my dividend income in the long term. Second, I'd like to hit $6,600 in estimated annual dividends by the end of the year. This equates to $550 per month and would require an 8.27% increase in annual dividends from the current $6,096 projection. If I were to hit this goal, I would witness 47% year-over-year growth in my projected annual dividend income. That is a massive increase and well above my medium term goal of 15% growth annually in my dividends.

Lastly, I am hoping for an increased contribution to my forward dividends from dividend increases in the second half of the year versus the first half due to the historical tendencies of my holdings.

Takeaways

I have learned a great deal this year about the strength of dividend investing and have made several observations. There are two major items I'd like to highlight from the first half. Firstly, one of the emotions I have been increasingly fighting is the lure of higher dividend stocks. The desire to add as much as possible to my forward dividends every month keeps attracting me towards higher yielding positions, an attraction that needs to be reined in and monitored. While high yields are attractive, the sacrifice of growth and greater risk of dividend cuts could have a major effect on my investment returns and total dividends in the long term could be tremendous. I feel I have done a fairly decent job of keeping this in check but I imagine this will be a continued struggle as a younger dividend oriented investor.

Secondly, I am now finally starting to see how the small increases in dividends can compound over time. While I have witnessed less than 2% increases month-over-month in forward dividends for the past 5 months, these have compounded to provide substantial growth for my future dividends. An example of compounded growth from an individual stock in my portfolio is American Tower Corporation. This company has historically announced an increase to the dividend every quarter, in addition I have made several new purchases via recurring investments to add to my position over the last six months. The combination of these two factors has led to 26.44% growth in annual dividends received from this holding already this year.

Summary

It is hard to ask for a better first six months to start the year. Just a single year of high growth in my dividend income at a young age can cascade and significantly increase my long term dividends. Through the first half of 2023, I grew my forward annual dividends by 35.77% to a total of $6,096 and hope to hit my target of $6,600 at year-end for full year growth in annual dividends of 47%. I will need to remain diligent and focused but believe my goal is well within my capability to achieve by trusting in the power of compounding and consistent investments.

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