We launched the Compounding Dividends High Yield Portfolio in December.
The goal was simple: buy good businesses with a portfolio yield over 5%.
So far, we’re doing very well! Let’s give you an update.
Honestly, the timing couldn’t have been better.
The market has been a wild ride lately.
It feels like every other week there’s a new headline causing market volatility.
But you wouldn’t know it by looking at this portfolio.
Which is one of my favorite things about high yield investing.
The stability of cash flowing into your account makes it a lot easier to ignore market volatility.
Take a look at the exact numbers from our High Yield Portfolio as of today:
I’m very happy with the results since we started this real-money portfolio:
An 11.58% Total Return
$2,145.57 in locked-in annual dividend income
$959.52 in cold, hard cash already in our account
Right now, the portfolio has a 6.14% yield on cost.
High Yield Isn’t High Risk
A lot of investors think that to get a high yield, you have to take a lot of risk, or buy complicated funds.
That’s not true.
There are no covered call funds, BDCs, or MLPs in this portfolio.
We just bought durable businesses with competitive advantages that the market was overlooking, and let them pay us for owning the shares.
High Yielders Outperform
And historically? The data shows that high-yield companies actually outperform the S&P most often:
High-Yield Doesn’t Mean High Payout Ratio
Another big myth is that a high yield means a business is fully mature and isn’t reinvesting enough capital to grow.
Again, the numbers prove this wrong.
You can lock in high starting yields with low payout ratios.
The Magic of Reinvestment
As happy as I am with how the High Yield Portfolio has performed so far, that’s not the best part.
Having more than $2,000 in dividends coming our way is great.
But what gets me more excited is what happens when our dividend snowball starts rolling.
The companies in Our Portfolio have good histories of dividend growth.
Average 3-year DPS CAGR: 4.7%
Average 10-year DPS CAGR: 7.3%
When you can reinvest those growing dividends, the compounding effect is very powerful:
Here is where things get really wild.
Let’s look at exactly what this math means for our actual portfolio.
Only Reinvesting
If we never put another dollar into the portfolio, and make some conservative assumptions:
5% stock price growth
5% dividend growth
Here’s what would happen if we just reinvested our dividends:
Adding Each Month + Reinvesting
Those numbers are pretty good.
what happens when we stick to our rule and add $5,000 every single month to this machine?
The income stream goes parabolic.
When we add our own contributions, and reinvest our dividends, it’s like going from letting a snowball roll on its own to actively pushing it down the hill.
It grows much quicker.
What’s Next - 2 New Buys
That brings me to what’s next.
In the next few weeks, we are making two major moves.
First, we are putting our next $5,000 into the High Yield Portfolio to keep that compounding machine rolling.
Second, we are adding a brand-new position to the main Compounding Dividends portfolio.
It’s a highly profitable cash machine.
And it just made an acquisition that turns it into a much better business.
The market hasn’t recognized it yet, so the stock is trading at a completely reasonable valuation.
I’m putting the final touches on the deep-dive research report.
When the report goes live, I’m also going to offer a limited-time discount to celebrate the launch.
Want to make sure you’re the first to get it?
Your Immediate Bonus:
You don’t have to wait until the report drops to get started.
When you add your name to the VIP list today, I will instantly send you the Dividend Growth and Reinvestment Calculator.
This is the exact custom spreadsheet I used to calculate the future growth and income projections for our real-money portfolio.
You can download it right now, plug in your own starting capital, adjust your monthly contribution goals, and see exactly how fast your own dividend snowball will grow.
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.
I like the behavioral case for income more than the headline yield itself. A visible cash stream can make it easier to sit through volatility, and that has real value if it prevents bad selling. The part I’d stress-test hardest is whether dividend growth and payout durability survive a weaker cycle. Yield is useful; balance-sheet resilience is the moat.
Tax effects ?