Dividend yield vs payable dividends
In an ongoing effort to increase my dividend stock holdings and buy more high quality dividend stocks, I’ve come to the realization that I’ve been going about determining dividend goals all wrong.
With the recent market pullback, many, if not all of my dividend paying stocks dropped in share price. The resulting drop in share price artificially inflates a stock’s dividend yield. This perceived increase in dividend yield, in actuality, does not increase the actual payable dividend. Your dividend yield is locked in at the purchase price because the payable dividend doesn’t change with regards to share price. $1/share payable dividend will always be $1/share regardless of changes in share price, but the dividend yield can still change.
It’s important to realize this when purchasing dividend stocks because what really matters is the payable dividend. 100 shares of a stock that pays $1/share will yield $100. Ideally, you want the dividend to increase with time, and there are plenty of dividend paying stocks that regularly increase payable dividends.
I have been focusing a lot on dividend yield, trying to increase that yield to 3-4%, but that really doesn’t matter in the grand scheme of things because I should be looking more at the actual payable dividend.
As of 9/10/15, my dividend portfolio has thrown off roughly $1,600 worth of dividends. This seems low, but is a good start to getting me on track to early retirement. This year was all about reallocating my portfolio to include more high quality dividend stocks in an attempt to increase the dividend payout every year. Because the reallocation process isn’t exactly a one-and-done type of process, but rather a slower, more methodical way of selling certain stocks and buying dividend stocks, the dividend yield for this year 2015 isn’t exactly where I wanted it to be. By the end of 2015, I should be on track to end the year with $2,000 of dividends.
The stock market pullback certainly helped by allowing me to purchase stocks at a discount and to lock in fairly attractive dividend yields.
In recent months, I have purchased shares of Disney, Phillip Morris, and Kinder Morgan. I have also increased my position in PepsiCo and AT&T. On an annual basis, I should end up with $3,000 in annual dividends with these purchases. My goal to end 2016 is to generate $4,000 in dividends.
At the same time, I am looking forward to roughly 10% dividend increases year over year, in an attempt to generate enough annual dividends to sustain daily living expenses.