January has come and gone and that means it is time for a goals/progress update. My goals were defined in this December 1, 2007 Investing Goals post. Below is an updated version of the table found in the original post.
| Description | Dividend Income Annualized | Yield on Cost |
|---|---|---|
| 2027 Goal | 110,000 | 20.00% |
| 2017 Goal | 30,000 | 10.00% |
| 2008 Goal | 4,000 | 4.90% |
| Jan/2008 | 3,280 | 4.99% |
| Purchases | 212 | -0.11% |
| Div. Changes | 41 | 0.06% |
| Sales | (27) | 0.04% |
| Dec/2007 | 3,054 | 5.00% |
| Net Changes | 228 | 0.12% |
| Nov/2007 | 2,826 | 4.88% |
For the month dividend income increased $226, while Yield on Cost (YOC) declined 0.01%. These changes were driven by new purchases, divided changes and sales. Let's examine each of the these categories:
Purchases: The $212 increase in annual dividend income and 0.11% decrease in YOC related to the following purchases (yield at the time of purchase):
- $71 USB (5.48%)
- $36 PAYX (3.46%)
- $32 GE (3.37%)
- $43 VFH (2.90%)
- $30 SYY (2.89%)
Dividend Changes: The $41 increase in annual dividend income and 0.06% increase in YOC related to the following dividend changes (a=dividend stated in annual terms, q=quarterly, m=monthly):
- $21 SDY (ETF - 1.77a>2.76a - 0.03%)
- $6 GE (0.28q>0.31q - 0.01%)
- $7 FR (0.71q>0.72q - 0.01%)
- $1 O (0.136125m>0.13675m - 0.00%)
- $6 CNI (correction .01%)
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It is difficult to set goals based on YOC, because YOC is based on how aggressively companies raise their dividends. The same can be said for my goals though that I base on market performance long term.
MG: For me the problem with the YOC goal is my lack of history makes it difficult to predict. I am confident that once I have several years of history I will be able to model it and better predict it.
To your point, it will definitely be affected by companies dividend policies, but I think I can control the ultimate YOC through stock selection and diversification. It will be easier to control over the long-term with the short term goals having less meaning.
Best Wishes,
D4L
D4L: For my income-focused investments, I track what is called actualized income from the investment. I call it income-focused because, i have some international investment (not same as dividend, but provides regular income on my investment). This is somewhat same as YOC albeit little difference. I did not know of the concept of YOC until I read your blog. Anyways, recently I have been exploring (1) how to factor-in the current stock pricing in my tracking metric, and (2) how to factor-in the impact of inflation e.g. If we look at PFE, although it provides good dividend, its stock price has halved since 2000. i.e. Although the YOC remains statistically constant (i.e not significant difference), the actual value of stock price has gone down for last 7 yrs. So is that a good investment to hang on just for dividend ? Another one is GE, it stock price is more or less constant, although there is improvement in YOC. If the stock does not move increase equal to inflation, then it is reducing in value? Is it still a good investment ?
I guess, that's when qualitative analysis kicks in !!
Any thoughts ?
On predicting YOC:
Making some assumptions, YOC can be predicted based on MEAN (with variation/std deviation).
Comparison metric is DivPerShare / EarnPerShar.
Let us say Company A, has 10 years of dividend history. Calculate DPS/EPS for each year. This data point could be quaterly-basis or annualized. I would prefer to look at both and see which numbers makes sense. Determine the MEAN for this ratio (w/ SD).
DPS/EPS takes into account the payout factor. Typically, there are consensus estimation for EPS for upcoming year and may be even 5 years.
This MEAN (with SD) can be used to predict YOC for Company A for may be 5 or 10 year horizon.
Do this for all stocks in portfolio.
Factor in the proportion of each company's value in the portfolio.
Adding all will YOC prediction.
This is my take on it !!
Passive Income: I consider inflation when calculating by total return - it should be in excess of inflation and my required return on capital.
As for predicting YOC, I have a model that simulates my current investments. Obviously the most important input is dividend growth rate.
Best Wishes,
D4L