Published by Ace on February 20th, 2017
Hi everyone, my name is Ace and I was a guest poster for Ben on this site several years ago. I run the Dividend Digger site.
During that time, Ben reached out to me and asked if I could share with you readers on how I used dividend growth investing as well as several other important yet simple wealth building factors to increase my net worth from approximately 20k, to over 100k within one year.
When I wrote the first post for Ben, I was still relatively a new investor and truth be told I wasn’t exposed to the market that long at least not long enough to experience bearish/pessimistic markets.
Now that several years has pasted and I have weathered a few solid bear markets, especially with oil’s plummet in the spring of 2016, it is safe to say my perspective as a dividend growth investor certainly has changed.
To begin this post Ben had asked me to provide you readers with some details as to how my net worth, and dividend income has transformed over the years. This first chart is a breakdown of my dividend income I have been paid since 2014, up until this recent January 2017.
Total Dividends Collected by Year
- 2014: $1680.47
- 2015: $5245.65
- 2016: $7889.87
Cumulative sum of all the dividend I have received: $14,815.99
As you can see there is a steady incline in dividend income up until July of 2016, this seems to be where the growth slowed down quite significantly especially in YOY growth. There is a good explanation for this, last year in April I sold close to $20k worth of stocks (on top of money that I was already making for several months after) to contract the move of my home. So, from April 2016 up until January 2017 I hadn’t really put any fresh capital or time into my principle dividend income investment fund. Throughout much of this time I didn’t really pay close attention to the markets, occasionally I would look at my portfolio and see how much its changed. This past year the Dividend Growth Investing model really worked out well, on top of that I am now a mortgage free home owner!
Having an asset like a home offers another sense of safety that dividend growth stocks simply do not offer and that’s something I took for granted when I was renting, which is security. The reason why I decided to contract this move was because I had nowhere else to go when I was informed my home I was renting got sold, on top of that I am immune from landlords increasing price of rent. Ultimately, I had to make a slight compromise in my dividend growth for security.
Moving forward I predict 2017 will be a solid year in terms of gaining more momentum with growing my dividend income. While I have concurred some debt this past year (roughly $45k) I am hoping to make some financial leaps and gains because I no longer pay rent and I have a roommate who adds an additional $500 a month to my passive income stream.
In terms of Net Worth, the value of my investments is just shy of $220k, however if I combine the value of my home as well as any debt I would be closer to the realm of $280k.
- 2014: ~$20,000
- 2015: $106,622.04
- 2016: $158,921.30
- 2017: $280,452.60
Reflecting on last year, there are a 3 things about life and investing I learn and thankfully not the hard way.
#1: Life is very unpredictable, it’s better to be prepared for an emergency or opportunity, not needing it, than being in a situation and not being prepared.
This lesson hit hard during the time I was transitioning from my old home to my current. No bank wanted to provide me a loan to contract this move, so I was stuck having to pay for it all of it cash, over a period of several months. The whole process of me obtaining my home mortgage free involved me having to liquidate a part of my portfolio (as well as a personal loan from family) to access immediate cash during a time of need. Although I’d rather not rely on my stocks as emergency funds, I at least I had the option of utilizing liquid asset in a time of need. One of the other benefits of investing in dividend growth stocks is that you have liquidity.
#2: DRIP your way into automating wealth accumulation
I would say this is one the biggest factor that helps me reach my investing goals. There is a book I read when I first learned about this type of investing and it called “The Lazy Investor”, this style of investing suits me the most because it takes the emotion out of investing and makes the most out of dollar cost averaging, it is not really timing the market because you are always buying. Buying when the times are good and when the times are bad, either way automating your investments through things like a DRIP really does affect your returns especially in the long run. When I was setting my home up, many of the large costs in energizing it up took up large amounts of my take home income leaving me with very little to invest, fortunately for me the DRIP allowed me reap the benefits of investing in a bear market when I didn’t have capital to invest, best of all I didn’t have to actually do anything, the dividends reinvested themselves.
#3: When considering buying good Dividend growth companies, always hold quality as a higher valuation than quantity.
I am not a pro stock picker by any means, and quite often I make purchases on companies which some may deem as “overvalued” despite being a high-quality dividend growth company. However, I do not see myself changing this strategy anytime soon. My YOY growth in dividends is a good enough proof well established businesses know how to surpass inflation for me. I think I made this mistake when I purchased Potash, I bought that company thinking I got a good deal on share price, and because of that I not only suffered a loss with them but also a dividend cut. As a dividend growth investor that’s our nightmare. I should have stuck with companies I knew were more resilient considering there are companies publicly traded that have been providing steady dividends for over 100 years.
The Warren Buffet quote below captures this idea nicely:
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”
To conclude, 2016 certainly did not go anywhere near as I had planned 1 year ago, I had several obstacles which hindered me from growing my dividend income to its fullest potential. Despite these hindrances, I kept debt low, paid myself first, had money working for me, and I reinvested my returns. I think after 3 years of rather consistent results I think it’s safe to say those principles are the real deal.