Welcome to our weekly passive-income portfolio (PIP) update—#14 in the series! Before we get to the update, I wanted to take a moment discuss the brutal truth about dividend-growth investing.
Over the years, I’ve seen a lot of folks passionately jump into dividend-growth investing… only to quit and walk away before reaching the one-year mark!
While those who endure are rewarded with a very high success rate, this observation begs the question: Why is there such a high turnover rate with DGI—given that it is a highly-effective investing strategy?
Answer: The brutal and inconvenient truth is that dividend-growth investing is hard!
Look, there is a vibrant DGI community out there (including me) that loves this investing approach and wants to share all the good things about it. However, we often fail—in our well-intentioned exuberance—to be equally honest about the challenges DGI presents to the average newbie investor… the chief of which is that it is tough and mentally challenging in the beginning.
This can lead to unrealistic expectations for investors new to dividend-growth investing. This is why I refer to it as the “brutal” truth—it may dampen the enthusiasm of folks just a bit! However, at the risk of scarring-off folks, I think it’s important to tamp-down those initial (and often unrealistic) expectations. After all, ultimately, I want them to fully understand DGI and be adequately prepared to go the distance with it!
I have a number of personal portfolios and accounts—including those aimed at growth investing, value investing, and trading. However, my foundational portfolio upon which all else is built is my DGI portfolio. It provides the stability to ensure I reach my long-run financial goals. The others are tools to exploit short- and mid-run market opportunities. DGI is the heart and soul of my comprehensive investing system—an approach that I recommend for all investors.
Dividend-growth investing works… it works consistently… and it works exceedingly well.
However, if you can’t stick with DGI over the long run, then it’s worthless. That’s the brutal truth.
So, before we address this week’s info-packed portfolio update, let’s explore exactly why—despite its potential to generate success—dividend-growth investing is such a difficult endeavor for most folks to stick with.
To be honest, dividend-growth investing is by no means a difficult investing pursuit from a technical (i.e., knowledge, skills and abilities) point-of-view. However, DGI is extremely challenging from a mental or psychological perspective—a critical fact that far too many beginners massively underestimate.
Why is DGI so tough? Because it requires two fundamental ingredients that are in short supply with most retail investors: time (patience) and discipline (perseverance).
Provide those ingredients and you will likely achieve long-run success… fail to deliver them and you will likely quit as soon as your honeymoon phase ends!
The first reason dividend-growth investing is so mentally challenging is that it requires time—meaning you must develop the ability to be patient and formulate realistic expectations in the short-run.
DGI is predicated on the power of compounding, which requires a long-term focus.
Compounding is like a giant flywheel that—once spun up—stores a ton of momentum that can be unleashed… however, it does take time to get it spun up!
Unfortunately, a lot of the information and marketing regarding DGI that is out there today focuses almost exclusively on the rewards—the long-run passive-income potential.
While there is nothing wrong with highlighting this (it’s entirely valid), our DGI community does a poor job of highlighting the time required to actually achieve those rewards.
The result is waves of new DGI investors (good)—investors who are filled with excitement and expectations but who are uninformed and woefully unprepared for the journey required to reach their financial goals (bad).
Suddenly, the DGI grind becomes boring, arduous and daunting… and the honeymoon phase quickly comes to an end!
The results they are seeing (viz., dividend payments) are—like the pounds shed early-on in a diet—tiny and they begin to feel like they’re not getting anywhere.
Those wonderful financial goals of freedom, independence, wealth and passive-income seem to be moving further and further away–like a distant ship receding on the horizon.
As reality and frustration set in over the first 6-12 months, they inevitably bail on dividend-growth investing for the promise of greener pastures elsewhere. Sadly, most will find that those greener pastures were just fields of poop spray-painted green.
The brutal truth is that dividend-growth investing can be mentally demanding and draining in the early stages. It requires a solid understanding of the broader process and the required time ingredient.
The second reason dividend-growth investing is so mentally challenging is that it requires discipline—meaning you must develop the ability to persevere.
When the honeymoon phase wears off and the “I’m not getting anywhere” feeling sets in, that’s when most investors quite and jump ship to the next great opportunity.
Their minds are bombarded by thoughts of “there’s got to be an easier or quicker way to get where I want to go!”
But the cold, hard truth is that there isn’t! There’s no free lunch.
The human condition makes us incredibly susceptible to the shiny-object syndrome (SOS). However, this unfortunately only leads to more failure and disappointment.
Dividend-growth investing is tough and will push you both mentally and technically.
It’s akin to “hitting the wall” in running. You simply have to have the discipline to push through that early-stage mental resistance that everyone faces early in their run!
You will be barraged by the investing “gurus” promising fast riches with their secret strategy.
Inevitably, folks who lack discipline will abandon the DGI race to chase these pipedreams… bouncing from one “secret” to another—whether it’s growth investing, swing trading, day trading, options, futures, penny stocks, cryptos, or a host of other golden gooses.
The reality is that most will simply wake up another year older with nothing but financial churn to show for their well-intentioned but highly ineffective efforts.
Fast can be good… but fast without control can be disastrous—especially in investing!
Be careful of those “opportunities” for quick gains. You may get lucky with a big win… but it is rarely repeatable (control). That big gain is usually offset over time by lots of little losses—death by a thousand papercuts. Or, worse, more than offset by some big losses.
It’s not a sprint—it’s a marathon. If your investing time-horizon is long-term, then you want to seek consistent growth (control). It may be slow but it’s steady and will get you to your ultimate goals—rather than flying high for a season… only to crash and burn before reaching the finish line!
There are no secrets. A slow and steady (disciplined) approach to long-term investing remains the most effective way to build wealth—a framework that DGI provides.
Instead of one step forward for one or two steps back, a dividend-growth investing approach will provide you with consistent progress toward your financial goals—but it is tough in the beginning.
Yes, that progress will be slow-going in the beginning. However, those baby steps will slowly grow larger and larger as your momentum builds and compounding begins to work its magic.
You must dig deep and persevere through the early stages—you’ll be rewarded in the latter stages.
DGI is tough. It’s mentally demanding—requiring both time and discipline.
There are no hammocks stretched between tropical palm trees on a sandy beach in the early stages of your investing journey—it’s a tough grind.
You need confidence and faith in your why (reason for investing) and your how (process).
Don’t buy the hype—put in the work, persevere through the grind, and let time and compounding perform their magic for you.
Dividend-growth investing is neither easy nor ostentatious—but it is effective. And that’s what the financial journey is really all about.
Now let’s get our weekly passive-income portfolio update…
This week marks an important milestone for us: the completion of our public portfolio’s first six months!
As we close out the week, we currently have a portfolio value of $4,040.54—up from our starting value of $500 on March 13th.
In terms of market performance, we are up 1.4% since inception, up 1.3% over the past quarter, and up +4.6% over the past month.
We have earned $71.35 in dividends since inception, $54.57 over the past quarter, and $17.60 during the past month.
As we noted last week, we officially closed the month of August with $29.49 in dividends paid.
Dividends continue to trend in the right direction with basically 25% of our earned dividends coming in the last month (representing 15% of the portfolio’s lifespan).
Here’s a look at our paid-dividends trend:
Our yield-on-cost (YOC) has risen to 8.1% and our current yield is 8.2%.
We have benefited from a recent period of broad opportunity with yields and, while the scope of that opportunity is currently narrowing, we still have a number of targeted positions that continue to provide opportunities.
Below is a graph of our YOC and current yield since inception. From a portfolio-level perspective, anytime YOC is below the current yield, it’s a targeted buy zone—there is opportunity to increase our capital efficiency (i.e., raise our YOC).
As you can see, our YOC has been trending up and chasing current yield as we deploy additional capital into specific opportunities. We’ve actually gained about 0.6% in yield-on-cost across the portfolio over the past two months—thanks to an effective process that efficiently deploys our capital.
Below is a chart of our portfolio’s current yield-variance distribution.
As we have narrowed the above-mentioned yield opportunity gap since the start of August, the distribution has shifted to the right. However, it clearly identifies remaining opportunities with targeted holdings—opportunities we will continue to capitalize on by efficiently deploying capital.
We did make a portfolio change this week—selling out of our Tailored Brands position ($TLRD).
This change was initiated based on one of our sell triggers when the company announced that it was suspending its dividend. (To learn more about our sell triggers, I encourage you to read our article 3 Reasons to Sell a Dividend-Growth Stock… And When NOT To!)
This announcement was combined with a poor earnings report. While we typically exit a position when the dividend-cut rule is triggered, we do analyze the situation first. In this case, the fundamentals simply do not warrant remaining in the position.
It appears that the company is going to focus on reducing its debt for the time being rather than buybacks or dividends. While this makes sense for the company in the long run, it doesn’t benefit shareholders in the short run nor does it fit our strategy for this portfolio.
This does make TLRD a potential long-run pure value play… but that is not the strategy of this portfolio. Always know your strategy/process and stick with it!
To wrap up, here are our current allocations by capitalization, asset type, and sector:
Additionally, we have two sectors that are further broken-down into sub-pies. We don’t always show these allocations but, due to popular demand (and the fact that we do show their performance each week above), we will be adding these to our updates moving forward:
We hope you’ve enjoyed this week’s update on our public-view dividend growth portfolio and my always-opinionated (but usually valid and hopefully beneficial) discussion.
You can always view our Wicked Capital dividend growth portfolio at https://m1.finance/1zUclN2JL
If you’re interested in starting an M1 Finance portfolio, please consider using our referral link https://mbsy.co/sZVS3 and we’ll both get some free cash!
That’s just one more reason to start your dividend growth investing today! It’s never too soon to start working towards your financial freedom!
If you’re interested in dividend growth investing—you’re in the right place! We focus exclusively on helping others be as successful as possible with this approach and we hope you’ll continue to return to our site to learn, grow, sharpen your skills, and find effective and positive ideas and motivation!
Soak it all in, take and use what you want, modify it to fit your unique situation, and keep building that portfolio with a solid process and winning mindset!
Remember, DGI is tough in the beginning! It requires time and discipline.
If you’re new to the game (or considering starting), it’s critical that you understand this. You will be filled with excitement when you start… but the honeymoon phase will end—it always inevitably does!
When it you hit that “wall” and things begin to get boring, arduous and daunting… when it seems like you’re getting nowhere… dig deep within yourself and persevere!
You ARE getting somewhere—even if you can’t see it yet! You are spinning that flywheel and building momentum. Over time, your effort will begin to produce visible results—results that will keep compounding in magnitude!
If you persevere, overcome the mental challenges, and make it through that early wall, you will join the ranks of successful long-term DGI investors—just understand that it will won’t be fast or easy! (But it will definitely be worth it!)
Enjoy your week and good investing!
Always remember, investing involves substantial risk of loss and is not suitable for everyone. The valuation of investments may fluctuate, and, as a result, you may lose substantial amounts of money. No one should make any investment decision without first consulting his or her own financial adviser and conducting his or her own research and due diligence.
You should not treat any opinion expressed on the Wicked Capital website as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinion for entertainment purposes.
The opinions are based upon information we consider reliable, but neither Wicked Capital nor its affiliates, partners and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such.
Past performance is not indicative of future results. Wicked Capital does not guarantee any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment discussed on this website.
As noted above, strategies or investments discussed may fluctuate in price or value. Investors may get back less than invested.
Investments or strategies mentioned on this website may not be suitable for you. The material presented does not take into account your particular investment objectives, risk tolerance, financial situation, or needs and is not intended as recommendations appropriate for you. You must always make an independent decision regarding investments or strategies mentioned on this website. Before acting on information provided on this website, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own licensed financial or investment adviser.