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Another way of looking at my portfolio – DGR

Last week I read a number of articles about dividend growth rate. One of these articles was a good article from Dividend Engineering (click here) about three methods to calculate the average dividend growth rate (DGR) of a stock. He concluded:

After reviewing all three methods, I believe that the best method is the Compound Rate Method. The main reason is that this is how dividend typically grows.

However, there are two things to keep in mind when using this method.

First, it is very sensitive to the annual dividends at the beginning and at the end of the period of reference. Abnormal annual dividend either at the beginning or at the end could skew the result.

Second, this method totally ignores what happened during the intervening years. Valuable insights could therefore be lost if you don’t look at the full data set. So in the end, whatever method you use, always check the raw data.

I agree with the Dividend Engineer that the best method is the Compound Rate Method. This is also the method used by Dave Fish in his monthly Dividend Champions spreadsheet. After reading all these articles I asked myself ‘What is my portfolio’s weighted average dividend growth rate?’

Dividend stocks can be found in all sorts. There is high dividend yield/low annual growth class; you have average yield/average growth class; and low dividend yield, high annual dividend growth class. Which one do I prefer, you ask? Well you have to wait for a future article. For now I want to calculate my weighted average dividend growth rate on my Vrijheid Fonds.

For all my individual stocks I calculated the 3-year DGR. I use the 3-year DGR, because I think this give the most realistic long-term rate. And therefore it is a good indicator for future performances. Of course I look at the full data set of all my stocks to see if there are irregularities. For that reason I dropped the DGR for ARCP in my calculations.

My weighted average dividend growth rate on my Vrijheid Fonds came to 6.92%.
And Okay now I know this. Great, and now what can I do with it?

Lanny of the Dividend Diplomats had a nice article about it (click here). I will us the same method for answering this question.
As I mentioned my weighted average dividend growth rate on my Vrijheid Fonds is 6.92%. And, my weighted dividend Yield on my Vrijheid Fonds is 3.66%. If we add these two metrics together, we can use this number to calculate how much my income could essentially grow without doing anything. 😉 Of course this new metric can be used as an expectation.

For 2015 I have a projected income for my Vrijheid Fonds of € 1,600. This means that approx. € 169 will be added this year, just by doing nothing. That sounds good!

Final thought
What a great way of looking at my portfolio. Imagine what the numbers will be if you do this for more than 20 years. So this shows again that buying stocks earlier in your life (and consistently keep adding stock each year) the 8th wonder of the world (compound interest) has a giant impact on the value of your portfolio.

If my Vrijheid Fonds can keep these numbers for a number of years, I can expect a growth of around 10% each year without doing a thing. Wow! This brings me closer to the destination of my journey. That is a nice thought just before bedtime 😉

What do you think about this way I looked at my portfolio? Have you calculated yours?
Please comment; I am looking forward to it.

Thank you.

Cheers,

Polie

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8 thoughts on “Another way of looking at my portfolio – DGR

  1. No More Waffles

    Pollie,

    Interesting way of looking at things. I’ll have to run some math this weekend myself to see where my portfolio stands.

    Almost 7% of dividend growth rate a year is huge, btw. That’ll provide you with some serious cash flow in a decade.

    Cheers,
    NMW

  2. Dividend for Starters

    Hey Pollie,

    Out of all the wonders of the world, I think I like the 8th the best!
    I’m probably not going to be able to visit all 7 others, but I will be able to receive my share of the 8th.

    You are doing great so far. Nice to see fellow Dutch investors doing great at DGI, despite the downhill of our currency, the Euro.

    Keep it up.
    Best wishes, DfS

    1. polliesdividend Post author

      Hello DfS,
      Thanks for your kind words.
      Compound interest. You have to love it😃

      It helps me to get closer to my destination.

      The euro is getting weaker but it will be raising in the future i’m sure.

      Keep up the good work DfS
      Cheers,
      Pollie

  3. Dividend Diplomats

    Pollies,

    I think my stomach dropped when I saw my name — thank you so much, it’s an honor to be in your article and I’m humbled by it. Means so much.

    I love this..”As I mentioned my weighted average dividend growth rate on my Vrijheid Fonds is 6.92%. And, my weighted dividend Yield on my Vrijheid Fonds is 3.66%.” That is a phenomenal combined number, without a doubt. I feel most of our portfolios will be somewhere around the 7% mark. I recently purchased a few low yielding stocks, that had higher growth rate. I think as of today, right now, my yield on my individual account is 3.93% with a DGR of 7.23%, which I am googly eyed looking at this.

    I think we for sure need to take this into factor when making a decision – whether the stock has a higher yield than our overall yield or a higher growth rate than our overall portfolio WA growth rate – you would hope each purchase fits one or the other, and if we are lucky – BOTH!

    Great article and I’m a huge supporter of this!

    -Lanny

    1. polliesdividend Post author

      Hello Lanny,
      I really love your (and Bert) articles. When I read yours I was fascinated. Combined with the knowledge of some other articles, I got really excited and immediately picked up my calculator and punched in the numbers.

      I agree that a combined number of more than 10% is phenomenal. So congrats to you for your great number!
      Low yield stocks with great growth rate are in my opinion the best! This because I buy stocks for the long run. So if a company can keep up the growth rate, i’m happy and it is good for my Vrijheid Fonds.

      When I’m looking for new stocks, i definitily look at this combined number!

      Thanks for your kind words. And keep up the good work. I’m a fan of your website!
      Cheers,
      Pollie

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