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I love me some dividend income!

Every quarter, another payment, and the payments get bigger every single time.  It’s a joy watching the numbers grow.

Q2 ended a while ago now, but life does have its distractions.  So without further ado, let’s get started!

Dividend Stocks? Why Not Index Funds?

Don’t get me wrong, I love index funds.

Low expense ratio. Broad diversification across companies, industries, even countries. And best of all, simple to pick and get started.

What’s not to love?

Especially when you consider how poorly most people do when trying to pick their own stocks.  Picking stocks can lead to timing the market.  And market timing leads to market losses.  Dollar cost averaging into a low cost index fund is a no-brainer.

So why do I waste my time with dividend stocks?

One word: fees.

Vanguard’s VFINX has an amazingly low 0.14% expense ratio.  So invest $10,000 in it, and every year, Vanguard takes $14 from your account.  Invest the same amount in AT&T via Vanguard or eTrade and pay $7, once.  Best of all, every time you earn more dividends and reinvest them, those transactions are no-fee.  Granted, 0.14% is a small savings, but in large investments, over a long period, it does make a difference.

Don’t get me wrong, I do still have a substantial investment in the S&P 500 Index, but I enjoy a bit of stock analysis from time to time in order to pick a new stock.  And the one-time fee can’t be beat!

Dividend Income Report

Let’s take a look at the numbers for the quarter.

I have been meaning to make another dividend buy, but haven’t pulled the trigger yet.  So no changes since last quarter’s update:

  • AT&T (T)
  • Clorox (CLX)
  • Leggett & Platt (LEG)
  • Olin Corp (OLN)

In 2017-Q2, they earned me $1,601 in quarterly dividends (a projected average annual yield of 3.05%).  This is the equivalent of $6,404 in annual dividends or $17 a day.

It’s not a substantial sum but, I was paid $17 today for doing absolutely nothing.

And here comes another $17 tomorrow.  And the day after that.

Forever.

It may not seem like much, especially when compared to my average daily expenses (mortgage, anyone?).  But in time, the trickle will become the stream that carries me into a secure retirement.

Financial Freedom Ratio

The financial freedom ratio is your passive income divided by monthly expenses.  When you reach a ratio of 1, or 100%, congratulations, you’re financially free!

At the moment, I’m unemployed, and eligible for significant assistance, starting with unemployment insurance, and moving on from there.  As a result, our monthly expenses are less than $2,000.  In a way, this is a preview of our expenses when in retirement.  With $533 in monthly dividends, at this expense level, my dividend income gives me a financial freedom ratio of 27%.

Still a long way to go, but my current dividend income would cover a quarter of my needs in retirement!  A few more years of mortgage payments and retirement is suddenly just around the corner.

Closing Thoughts

You’ll notice I still haven’t made my next dividend stock purchase.  Still in the planning phases as I keep an eye on a few candidates.  Another benefit of individual stocks is there are almost always bargains to be found, if you’re patient and your time horizon is long enough.

Since dividend stocks don’t seem to generate much conversation here, I’m debating whether to stop updates completely, or slow them to once per year.  Suggestions welcomed.

What’s your dividend stock story?  Do you like picking your own stocks, or stick with low cost index funds for your investments?

Photo of stacked coins courtesy of Pexels.

3 COMMENTS

  1. $17 a day is really great. I’d love to get my dividend portfolio up and rolling to greater heights. In my Roth, I have VHDYX, so right now I’m making about $150 a year in dividends… not great, but it’s a start!

    • Congrats on getting started, Erik!

      I’ve considered investing in dividend funds from time to time. You do get the broader diversification and simplicity while still generating dividend income. But you still have to pay the expenses every year. The 0.15% that VHDYX charges is wonderfully low, but I’m still greedy and want to keep every penny invested and reinvested!

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