Our Growing Dividend Income - Retire by 40 (2024)

I love our dividend stock portfolio! Dividend income is my favorite form of income because it is very passive. I don’t have to do much and the dividends will keep rolling in AND grow. I used to like rental properties, but they are too much work for me now. These days, I don’t have time or to be a DIY landlord anymore. That’s why I invest in Real Estate Crowdfunding. I can benefit from the real estate boom, but I don’t have to fix the toilet. However, real estate crowdfunding is relatively new. I trust dividend stock more so most of our money is invested there. My target is to have enough dividend income to pay for about half of our retirement expenses. The rest, we’ll cover with other means (passive and active income.)

*If you’re a new to stock investing, here is a helpful post – How to Start Investing in Dividend Stocks.

Early retirement with passive income

One of the safest ways to fund early retirement is to pay for your living expenses with passive income. Once your passive income can cover your cost of living, you’re set. I keep track of this with the FI ratio*. This way, your capital won’t dwindle much over the years. You won’t have to worry about how long your retirement will last. However, this is more difficult than the 4% SWR. That rule requires prospective retirees to accumulate at least 25x their annual expense.

*FI ratio= passive income / expense

Anyway, it can take a long time to build your passive income. I’ve been at this for many years and our FI ratio is hovering around 100%. That’s good, but I want to have a little margin. Here is a chart of our passive income since 2016. Last year was a little iffy because our passive income decreased quite a bit. However, we spent much less than usual so it worked out pretty well.

Increasing dividend income

Dividend income is a big part of our passive income streams. Our dividend portfolio is in a taxable brokerage account so it is easily accessible. The bad thing about this is we have to pay taxes on our dividend income. However, it’s not all bad. Some years we had less earned income and we were in the bottom 2 tax income brackets. That was great because you don’t have to pay tax on dividend income at that point. We made too much money over the last few years so we had to pay 10% to 15% dividend income tax. (It was 10% in 2018 and 15% in 2019.)

I’m not too worried about taxes at this point. Once Mrs. RB40 retires, we should be in the bottom two tax brackets and our dividend income will be tax-free.

We’ve been working on our dividend income since 2012. That was when I retired from my engineering career. You can see it increasing steadily since then. Before 2012, we didn’t have much dividend income. I was focusing on growth before that.

If you’re looking for a discount brokerage, I recommend Firstrade. I used them for many years. Another alternative Robinhood. I have an account with them, but haven’t used it much. You can get a free share of stocks if you sign up with Robinhood. I think they’re good for new investors because you can buy fractional shares.

Our dividend growth portfolio

Our dividend growth portfolio is pretty stable from year to year. I only sell a stock if the future looks really bleak. Most of the stocks in our dividend portfolio are solid big companies. Most of these companies increase their dividend every year so our dividend income should keep growing in the years to come. Here is our dividend growth portfolio.

See Also

The 3 Best Stocks for Dividend Reinvestment Plans8 Facts About the Kiddie Tax - The Little CPAETF vs Mutual Fund: Similarities and Differences | The Motley FoolEarn $2,000 in monthly retirement dividends with these 3 easy steps

The first column is the company stock symbol.

The second column is the price from 12/31/2020. I usually don’t pay much attention to the price fluctuation in this portfolio. As long as the companies keep paying and growing their dividend payout, I’m pretty satisfied.

The 3rd column is dividend income. For 2021, we should receive about $14,365 from our dividend portfolio. Many companies got hit pretty hard by the pandemic. Disney, in particular, cut dividends to $0. Usually, I’d look to sell if a company cut dividends, but I’m giving most of them a break this year. Hopefully, life will resume as usual soon.

The 4th column is the dividend yield. I pay attention when the yield is under 1.5% or over 5%. Something might be wrong if the yield is too low or too high. Most of these are REIT, energy, and hospitality related companies. Our overall yield is 2.52%. That’s a bit low. I’d like to see 3% once things improve.

The 5th column is dividend growth. Most of the companies on my list grow their dividend every year. However, 2020 was a very tough year. I’ll wait until the end of 2021 to see how things go. Normally, I like to see some growth in this column.

2021 adjustments

I made some adjustments in 2020. I sold MO and UVV because I didn’t want to invest in tabacco anymore. I also sold a lot of VNQ when the market was down and moved most of the money into Disney.

For 2021, I don’t plan any big move. We’re saving up cash for Mrs. RB40’s mini-retirement in 2022. If I have extra money, I’ll invest in some dividend stocks, but we might not have much extra this year. I’m pretty happy with our dividend portfolio.

I’m mostly happy with our dividend portfolio, but I need to make some adjustments this year.

Okay, that’s all for today. I’ll update this post once per year. You can see how we’re doing in 2021 at my dividend passive income page. I update that page every month.

Recommendations

For new investors, I highly recommend Firstrade. Firstrade is a great discount brokerage that I used for many years. Their fees were recently lowered so investors pay $0 commission per trade. That’s right. You pay nothing to trade stocks and mutual funds! Wow, that’s a great deal for new investors. Check them out, Firstrade is a great online brokerage.

Here is something cool for the younger generations. You can trade with an app. With Robinhood, you can make unlimited commission-free trades in stocks, funds, and options. You can even trade fractional shares (rolling out this year.) Use my link to join Robinhood and we’ll both get a share of stocks like Apple, Ford, or Facebook for free. Robinhood is legit. I used them for several years and haven’t had any problems yet.

Image credit: Christian Bisbo Johnsen