Another year has passed here in dividend growth investing land. This was a year with a lot of changes for me. It is time to evaluate what happened, and see if we can learn anything from all of this.
Before I write things down, I want to let you know that I actually try to focus my efforts on building systems rather than goals. In other words, I believe that focusing my energy on those five items within my control will ultimately lead to me to my ultimate goal of living off dividends in retirement:

Dividend Income Investing, High Dividend Cover, High Dividend Yield
Photo by stevepb (Pixabay)

1) Growing my income
2) Saving as much as possible
3) Investing wisely, without overpaying for investments
4) Keeping investment and tax costs low
5) Remaining patient ( not chasing yield, not overpaying, not churning my portfolio)

I believe that by focusing too much on earning a certain dividend income in a certain year I am pressuring myself to do things for the sake of doing things. This is an example of short-term thinking, which I try to discourage on this blog. I am all for long-term dividend investing, not chasing short term targets. I would rather pursue only good opportunities that would result in a lifetime of sustainable dividend income instead.

For example, I have seen investors discuss that they want to generate a certain amount of dividend income. In order to get there, they may end up chasing yield, which is dangerous and a short-term in nature.

Other investors may end up investing at inflated valuations, even if there are not many opportunities, merely to increase their dividend income. It makes no sense to overpay for a dividend stock, merely to hit your annual income targets. It also makes little sense to buy a high yielding stock whose dividends are not safe, merely to hit your annual income targets. You may be able to hit your short-term goals, but this could be at the expense of sacrificing long term objectives.

A third group of investors will not max out retirement accounts, simply because they are limited in investing in low yielding index funds there. This third group is willingly losing out on hundreds of thousands of dollars in tax benefits throughout their lifetimes, merely because they want to have the highest dividend income today, and merely because they do not want to learn skills to better themselves. The “inconvenience” of tax-deferred accounts is something I am willing to take any day, since it could provide lifetime benefits in the amount of hundreds of thousands of dollars for me and my family. Remember, your goal is to generate sustainable dividend income that you can rely on for your 30 – 50 years of retirement. Whether you generate that $24,000 in annual dividend income in 2020 or in 2022 should be meaningless.

I believe that creating a system for finding quality investments at attractive prices, and investing savings every month, will foster the habits to ultimately reach those objectives. Following your system will help you through the inevitable ups and down. Following the system also becomes second nature. It is also important to keep improving over time, in order to improve your overall situation, rather than chase overly specific goals that may end up costing you, even if you reach them.

For example:

1) if you can reduce your housing costs from $12,000/year to $4,000/year for a cost of $100,000, this may be a better option for you than chasing yield and investing all the money at a high dividend yield that is not sustainable. You may not hit your dividend income targets, but you will manage to cut expenses dramatically.You are better off overall.

2) I also provided some examples on how using tax deferred accounts can help dividend investors tremendously. Example: If you earn $12,000 in annual dividend income from your Roth 401 (k), this is the same for me as earning roughly $15,000 in qualified dividend income per year. (Due to the 15% tax on dividends at the federal level and 4% – 5% tax at the city/state level).

So why am I posting this post? Well, it is likely due to peer pressure, or probably because you readers want to read stuff like that. The main reason may also be because I find it helpful to write things down, and then reevaluate a year or two later.

My year was a year of change. That is good, because change forces us to grow and become better versions of ourselves.

1) My forward annual investment income is now close to $16,600. This was a nice increase from the zero amount of forward dividend income I had in 2007. I usually write about my forward number once per year, rather than look in detail every single month. I think that posting my dividend income and net worth monthly is an overkill, which would lead me to discuss random changes due to share prices going up or down with the market ( or explain every single time the cyclical nature of month to month dividend income changes since most of my dividend income is generated in March, June, September and December, and the least being in January, April, July and October). Sometimes I believe that even annual mentions are meaningless. It is much more important to have a system to save and invest intelligently, that I can stick to, rather than drown you in meaningless regular reporting minutiae. That being said, I am on track to hit and exceed my objective of $18,000 in annual dividend income by 2018, merely by reinvesting distributions. So I will be financially independent by early 2018. But do not pop the champagne yet.

2) I managed to live off dividends and side income in 2016. I saved my entire salary in my pre-tax and after-tax 401 (k), Health Savings Accounts (HSA) & my Roth IRA. I will also save a portion of my side income in my SEP IRA in a few weeks. This was despite the fact that I had major one-time expenses in 2016. The amount of tax savings generated from this activity is equivalent to more than half of my estimated annual dividend income. This exercise doesn’t even include the amount of tax savings on dividends generated in tax deferred accounts.

3) I got married in 2016. So while my personal expenses are still in the $18,000 – $24,000 range, it is silly to only look at myself for the purposes of tracking progress towards financial independence. Since we are a one single household unit, it makes sense to look at combined finances. This one is still a work in progress at the time of writing. I would guess that our combined household expenses are roughly $30,000 – $35,000/year. I know my own personal expenses because I have lived on less than $18,000/year over the past 15 years. But we need to track things better as a couple in 2017 in order to get to a better gauge of things, and

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