Hi Partner 👋
I hope you are doing well.
It has been nearly 2 years since we launched the Compounding Dividends portfolio.
It’s time to look through what we’ve built and see if we can make it even better!
The goal was crystal clear from day one:
Build a stable, growing income stream
Target $5,000 per month (or $60,000 per year)
Today, let’s take a look at our progress.
Our Scorecard
A quality dividend portfolio should be durable.
I think ours is.
Since launch:
Zero dividend cuts
Only one company sold
One cannibal initiated a brand new dividend
11 companies increased their payouts since we bought them
The average holding has raised its dividend by more than 9%.
Over the long term, our companies have grown their dividends by 11.5% per year.
At that rate, it would mean that our income doubles roughly every 6 years.
Here is what the cash generation looks like today:
$35,080 collected year-to-date
~$48,000 projected for the full year
That translates to:
$4,000 every month
$923 every week
$131.50 every single day
All because we own great businesses and let them do the work.
Where Are We Now?
The broader market is currently experiencing a Big Market Delusion.
Tech giants are pouring trillions of dollars into AI infrastructure.
But companies are already starting to limit their AI spending.
Revenue per token is shrinking, and the return on all the spending is unproven.
It looks very similar to past capital cycles, like the telecom buildout during the TMT bubble if you ask me.
At the same time, consumers are pinched by sticky inflation and higher interest rates.
This is why we are not chasing speculative tech investments.
Instead, we want to own necessary businesses with pricing power: essential infrastructure, toll roads, and daily staples.
Furthermore, with short-term Treasuries offering yields above 4%, cash is an attractive asset.
It’s an option on future volatility, and generates income now.
We can afford to be patient.
We do not need to swing at bad pitches or buy overvalued equities just to stay fully invested in stocks.
Some Compounding Math
Let’s look at what the future looks like.
Assuming a conservative 10% dividend growth rate, we will hit our goal of $5,000 per month in less than 3 years.
What if we look 5 years out?
Under conservative assumptions:
8.5% annual dividend growth
7.0% annual stock price growth
Reinvesting all dividends
Here is what you get in 5 years:
What about 20 years?
Under the same model, our income grows to $35,387 per month.
Even after accounting for:
3% inflation (meaning you need $9,030/month for the same purchasing power)
A 25% dividend tax drag (pushing the amount needed to ~$12,040/month)
You are still left with over $23,300 in excess cash per month to reinvest.
The math behind quality dividend investing is simply beautiful.
Time for Some Maintenance
To make sure our dividend income machine continues to run smoothly, we cannot afford to be complacent.
As Richard Feynman famously said:
“The first principle is that you must not fool yourself - and you are the easiest person to fool.”
On Wednesday, we’ll take a skeptical look at Our Portfolio.
We will run through every single position using a simple Stoplight Framework (Green, Yellow, Red) and separate our highest conviction ideas from those where the opportunity cost of holding might be too high.
If a company's expected forward returns are no longer attractive, there are better places to deploy our capital.
See you then!
One Dividend At A Time,
-TJ
Used sources
Interactive Brokers: Portfolio data and executing all transactions
Fiscal.ai: Financial data
Disclaimer
As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.
Zero cuts across two years is a strong scorecard, and $4,000 a month against a $5,000 goal makes the gap easy to see. I am still learning how to prune, so I am curious what turns a holding yellow instead of green in your Wednesday review, and what would actually make you sell one?
Nice update, and zero dividend cuts in nearly two years is a solid scorecard. How do you decide when a payout growth rate like 11.5% is sustainable versus a warning sign?