Money Mongoose

August 2018 Dividend Income Review

I decided to take stock of my portfolio and see how my dividend income was progressing. For tax reasons, it would be better for me to get returns through capital gains rather than income, but when searching for quality stocks, it is almost inevitable that you come across quality companies that pay dividends.

So although I am not a dividend investor, I was curious to see how much of my current (after-tax) monthly expenses are covered by dividends. The results are in the table below:

Month Expenses covered by dividends
Jan 98%
Feb 15%
Mar 42%
Apr 77%
May 45%
Jun 63%
Jul 35%
Aug 50%
Average 53%

I noted a few things from this data:

1. The dividend income was higher than expected

With a newborn, my future expenses are expected to increase and so the percentage is likely to fall, but the fact that, on average, over half of my monthly expenses are covered by dividends is both surprising and encouraging!

2. The income was relatively steady

Although the monthly amounts are variable, they are actually less variable than I anticipated. I had expected dividend income to arise only quarterly with many months with zero income. I suppose I have sufficiently many stocks to give a reasonable spread of dividends.

I have not been banking on dividend income to cover expenses in retirement as I wanted something more certain, however, dividends can certainly contribute to an extent.

What should I take away from this?

Although dividends are not my primary investment focus (my focus is increasing wealth) they are certainly not negligible! Dividends are a component of increasing wealth (through re-investment) and also surely will play a role when the accumulated wealth is required to produce an income and I will need to think when and how to transition my portfolio towards income.

While I would prefer something more reliable than dividend income for retirement, in Switzerland, there may not be many options that are much better. Something for a future topic!


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