FiveTwenty chronicles the journey to build a dividend income portfolio. The portfolio is built by periodic investment of new capital and paid out dividends over a period of 5 years. The 5 year period starts Jan 1, 2021 and ends Dec 31, 2025.
The strategy we follow to build and measure the performance of the portfolio is outlined in the remainder of this post. You can always find an up to date version on the Strategy page. Furthermore we will announce any updates to the strategy in a standalone post.
For us to consider initiating or expanding a position in the FiveTwenty portfolio, a company must meet the minimal entry criteria:
- raised dividends for 25 consecutive years
- Yield >= 2.5%
- PE <= 20
- Payout ratio <= 60%
In addition to the minimal entry criteria, we use the following portfolio diversification rules to guide the build:
- If the portfolio does not have at least 20 open positions, then we cannot add to an existing position. However, we make an exception to this rule if no company outside the portfolio meets the minimal entry criteria.
- If no company, outside or inside the portfolio, meets the minimal entry criteria then we can add to an existing position.
- If a company cuts its dividend, then we will evaluate if it warrants closing the position.
Finally, we analyze company fundamentals of companies that pass our screening criteria to select the ones to add to the FiveTwenty portfolio.
Every Wednesday, we establish a new position or add to an existing position. (The entire weekly amount to be invested, is allocated to a single stock.) We use $2,000 of new capital plus any dividends paid out in the previous week to fund the purchase.
If we make a decision to close out a position, we close out the position on the first Wednesday following the decision. We re-invest the proceeds of the sale back into the portfolio. In order to avoid over-indexing into a single position, we split the amount into $2,000 chunks and add them to the weekly investment capital until the entire amount has been re-invested.
Before submitting the purchase/sale order(s), we announce the stock selected for the weekly purchase and any other changes to the portfolio on the blog.
To quantify the effort put into building the FiveTwenty portfolio, we benchmark the portfolio against the easy-peasy portfolio. Easy-peasy consists of a single position: VT. Additionally, easy-peasy has automated dividend reinvestment turned on. Finally, we build easy-peasy over time by investing $2,000 of new capital every weekly over the same period as the FiveTwenty portfolio.
- total value (aka balance)
- most recent quarterly dividend payout
- lifetime dividend payout
As January 2021 rolls around US equites have been a 10+ years long bull market. All major US indices are near their record high. COVID-19 is still having an outsized impact on our society and economy. It is quite likely that the US will see a significant market correction and a recession during the 5 year period of the FiveTwenty experiment. The experiment is neither a bet that stock prices will continue their great bull run, nor that they experience a major decline. It is instead a bet that investing in solid dividend paying companies for the long term will yield good returns irrespective of the economic cycle.
With that backdrop in mind here is the quarterly dividend milestones we aim to achieve:
|Total Capital Invested||Quarterly Dividend|
|2021||Q1||$ 26 000||$ 114|
|Q2||$ 52 000||$ 342|
|Q3||$ 78 000||$ 570|
|Q4||$ 104 000||$ 798|
|2022||Q1||$ 130 000||$ 1079|
|Q2||$ 156 000||$ 1307|
|Q3||$ 182 000||$ 1535|
|Q4||$ 208 000||$ 1763|
|2023||Q1||$ 234 000||$ 2101|
|Q2||$ 260 000||$ 2329|
|Q3||$ 286 000||$ 2557|
|Q4||$ 312 000||$ 2785|
|2024||Q1||$ 338 000||$ 3185|
|Q2||$ 364 000||$ 3413|
|Q3||$ 390 000||$ 3641|
|Q4||$ 416 000||$ 3869|
|2025||Q1||$ 442 000||$ 4334|
|Q2||$ 468 000||$ 4562|
|Q3||$ 494 000||$ 4790|
|Q4||$520 000||$ 5018|