MMB Portfolio Dividend & Interest Income Update – April 2024 (Q1)

Here’s my quarterly income update as a companion post to my April 2024 asset allocation & performance update. I prefer to track the income produced as an alternative metric to performance. The total income goes up much more gradually and consistently than the number shown on brokerage statements (market price), which helps encourage consistent investing. Here’s a related quote from Jack Bogle (source):

The true investor will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies. – Jack Bogle

Here is the historical growth of the S&P 500 total dividend, which tracks roughly the largest 500 stocks in the US, updated as of Q4 2023 (via Yardeni Research):

That is a much smoother ride than the price index. I imagine my portfolio as a factory that churns out dollar bills, or a tree that gives dividend fruit.

More details on dividends. Stock dividends are a portion of profits that businesses have decided to distribute directly to shareholders, as opposed to reinvesting into their business, paying back debt, or buying back shares. The dividends may suffer some short-term drops, but over the long run they have grown faster than inflation.

In the US, the dividend culture is somewhat conservative in that shareholders expect dividends to be stable and only go up. Thus the starting yield is lower, but grows more steadily with smaller cuts during hard times. Here is the historical growth of the trailing 12-month (ttm) dividend paid by the iShares Core S&P 500 ETF (IVV) via StockAnalysis.com. (They seem to have a data glitch at the moment with respect to VTI.)

European corporate culture tends to encourage paying out a higher (sometimes fixed) percentage of earnings as dividends, but that also means the dividends move up and down with earnings. The starting yield is currently higher but may not grow as reliably. Here is the historical growth of the trailing 12-month (ttm) dividend paid by the Vanguard Total International Stock ETF (VXUS).

The dividend yield (dividends divided by price) also serve as a rough valuation metric. When stock prices drop, this percentage metric usually goes up – which makes me feel better in a bear market. When stock prices go up, this percentage metric usually goes down, which keeps me from getting too euphoric during a bull market.

My portfolio income history. I started tracking the income from my portfolio in 2014. Here’s what the annual distributions from my portfolio look like over time:

• $1,000,000 invested in my portfolio as of January 2014 would started out paying ~$24,000 in annual income over the previous 12 months. (2.4% starting yield)
• If I reinvested the dividends/interest every quarter but added no other contributions, as of January 2024 it would have generated ~$50,000 in annual income over the previous 12 months.
• If I spent all the dividends/interest every quarter and added no other contributions, as of January 2024 it would have generated ~$37,000 in annual income over the previous 12 months.

This chart shows how the annual income generated by my portfolio has increased over time and with dividend reinvestment.

At any given time, this is a pretty arbitrary number. But over a long period, I find it a much more pleasant way to track my progress.

TTM income yield. To estimate the income from my portfolio, I use the weighted “TTM” or “12-Month Yield” from Morningstar (checked 3/31/24), which is the sum of the trailing 12 months of interest and dividend payments divided by the last month’s ending share price (NAV) plus any capital gains distributed (usually zero for index funds) over the same period. My ttm portfolio yield is now roughly 2.53%.

What about the 4% rule? For big-picture purposes, I support the simple 4% or 3% rule of thumb, which equates to a target of accumulating roughly 25 to 33 times your annual expenses. I would lean towards a 3% withdrawal rate if you want to retire young (closer to age 50) and a 4% withdrawal rate if retiring at a more traditional age (closer to 65). Too much time is spent debating this number. It’s just a quick and dirty target to get you started, not a number sent down from the heavens!

During the accumulation stage, your time is better spent focusing on earning potential via better career moves, improving in your skillset, and/or looking for asymmetrical entrepreneurial opportunities where you have an ownership interest.

As a semi-retired investor that has been partially supported by portfolio income for a while, I find that tracking income makes more tangible sense in my mind. Our dividends and interest income are not automatically reinvested. They are simply another “paycheck”. As with our other variable paychecks, we can choose to either spend it or invest it again to compound things more quickly. You could use this money to cut back working hours, pursue a different career path, start a new business, take a sabbatical, perform charity or volunteer work, and so on.

Working less helps me be a better parent. (I need all the help I can get.) I am consciously choosing to work when they are at school but also consciously turning down work that doesn’t fit my priorities and goals. This portfolio income helps me do that.