The first half of the year is undeniably the preferred half for European dividend growth investors. Unlike their American counterparts, European companies don’t stick to a quarterly payout regime, but often pay a dividend once or at most twice a year. In the beginning of the year, our dividend incomes therefor shoot upwards, propelling our investor’s spirit even higher.
Of course, these inflated monthly payouts are temporary, and we’re all very well aware that becoming financially independent through dividend investing, or any other type of investing for that matter, is a long-term game. A lot of people struggle with the delayed gratification that comes with financial freedom, but dividends make that delay a bit easier.
First, the constant stream of income provides an enormos boost to morale. What’s not to love about receiving money on a very regular basis for not having to lift a finger? Great businesses pay parts of their profits to us even when we’re asleep or lollygagging, and all it took was not spending money on things we don’t need but on undervalued stocks. I find that to be an enormous stimulus.
Second, this recurring passive stream of income makes it possible to, over time, purchase more and more dividend growth shares. Most people employ a dividend-reinvesting plan of some kind, where new shares are automatically purchased, while others take their dividends and re-invest them into different opportunities. Both approaches result in what I’ve called the external compounding effect of dividend growth investing, as compared to the internal compounding where companies regularly increase their payments.
Individual payments may be small, and so are all beginnings, but you’ll notice that a lot of small payments over an eight-year investing period grows into quite a significant amount of money.
Let’s take a detailed look, shall we?
All dividends below are listed in Euros, and are after foreign withholding taxes and a 30% income tax levied by the Belgian federal government.
|19/01||NG||National Grid plc||56.47|
|08/02||DE||Deere & Company||3.73|
|15/02||PG||Procter & Gamble||17.85|
|08/03||JNJ||Johnson & Johnson||11.32|
|29/03||BHP||BHP Billiton plc||99.80|
In total, I raked in a whopping 651.20 Euros for the first quarter, or over 200 Euros per month in dividend income – amazing! That’s a decent amount of extra purchasing power on top of my salary, but of course these dividends are going straight back into the stock market.
Dividend income in and of itself is great, but the real magic lies in the “growth” part dividend growth investing. Last year I made 540.17 Euros in Q1, so this year constitutes a 20.5% increase compared to 2021. I thought the underlying value of my dividend portfolio was growing as lightning speed, but my dividend income eclipses that growth by a big margin.
Most of that growth comes from solid dividend increases, with BHP (BHP) taking the crown. This Australian miner has managed to improve its payout by nearly 50%, which makes me believe that my net yield on cost for its share will grow above the symbolic 10% threshold this year. A first for my portfolio!
Forward dividend income is also looking strong, with an expected 3,682.73 Euros in payments for the full year. That’s double my very first paycheck in 2014 and a total of almost 307 Euros per month. As such, my portfolio will pick up even more steam in the second quarter.
Ofcourse, the journey doesn’t stop here. My plan is to continue sleeping and receiving my dividend payments in the morning on a regular basis, ha!
On top of that I am looking forward to be able to invest more than I have in the past months. Moving into a new place has made my free cashflow dry up in 2020 and 2021, so I have had very little cash to throw at the stock market. This has left me feeling a bit uneasy and I can’t wait to transfer my savings to my brokerage account again.
However, the sale of my old place should free up a lot of investment funds over the coming months. These funds are going to be put to work almost immediately, slowly grinding away and taking advantage of the effect of compounding interest until they’re an unstopable snowball of dividend income.
At the moment I already feel like that snowball has started rolling with no way of stopping it anymore anytime soon. The only thing I have to do is remain invested in great companies and wake up every morning. I feel like I’ve won the lottery.
Thank you for reading and for your support.
Great to see you posting again! You are one of the only Belgians still promoting dividends in the fire movement.
Me and lots of other people would be really interested if you backtracked your investments with an index ETF strategy and see where you would be now and how much faster or slower you would be to a fire goal. Even though I understand the mental part of dividends is also important to you!
Would you ever consider doing that?
You’re not the first person to ask this, so a couple of days ago I have started to compile a list of my dividend stock purchases, and see where it would have gotten me had I bought IWDA for a similar Euro amount on the same day.
I am not finished yet, but do plan an entire post on it.
Common sense would dictate that the ETF strategy would have resulted in a higher net worth, since active management doesn’t beat passive indexing over the long run.
We’ll see! I’m curious to find out too, because it might mean I’d have to adapt my strategy a bit. 🙂
The Belgian dividend tax is 30%, not 27% 😉
Johan, thank you for catching that! Bad copy-paste from when the tax was still 27%…
20.5% is a very nice growth! I think your goal for dividend income this year is pretty similar to mine and yes, if you compare it in terms of paycheck, it’s pretty incredible being paid while you sleep! 🙂
Your snowball continues to roll, perhaps slower because you aren’t able to invest as much as you like but the dividends being invested are still doing their job! I find myself in a similar position having moved house at the end of last year. I still have some bills to pay at my old place (my parents’ house) but once that has been sold, I should be able to start investing more again.
DGI is no longer fashionable among FIRE wannabes, but I think detractors underestimate the psychological factor of selling capital to get your income – I know for a fact that in a falling market, I wouldn’t want to sell. Common sense does dictate that an ETF strategy would have more gains, hence I have a bit of both in my portfolio!
You’re absolutely right about the snowball still rolling. It’s slower, I admit, but even with my modest amount of income I can still see it pick up a lot of speed. It’s uncanny how similar our trajectories have been the past few years. Who would have imagined us haven gotten this far in such a short amount of time?
DGI is less fashionable as it once was, true. I think it has to do with both the high multiples of a lot of core dividend stocks, but also with many newcomers taking the easy route with ETFs. I totally understand that choice and I think it’s a good call by many people. The last months I notice less interest in keeping up with all my holdings, so I have also started buying into a World index fund again. I’ll probably keep the dividends for the psychological factor, as you mention, and build up a proper ETF foundation as well.
Thank you for taking the time to comment!
Looks like a solid Q1 for you. Considering the 1 or 2 payments that most European companies make you have a solid amount coming in each quarter. Also congrats on reaching a 10% YOC for your BHP position. We’ve got 2 holdings that have reach that level which is cool to see. It really speaks to the power of dividend GROWTH investing.
Great to hear from you again!
My first two quarters are great indeed. The past few days alone I have received over 400 Euros of dividends from European companies that pay only once per year.
BHP also caught me by surprise. The high demand for iron iroes really has made that stock pop together with its revenue and earnings.
A 10% YOC is weird to imagine, because it really puts a turbo charger on dividend re-investing and hence growth.