Weighted Dividend Growth for the Portfolio

Early in 2018, I was reading a post about a Dividend Growth Checkup by JC over at Passive Income Pursuit.  That post was part of a year-end review of his dividend growth portfolio, and had multiple ways to look at the dividends being paid by his portfolio of stocks.  One particular section of the post discussed the weighted dividend growth for his entire dividend portfolio.  I was rather intrigued by this, as I long had a desire to calculate this for my portfolio.  Suffice it to say that his post motivated me to figure out how my portfolio was performing with regard to portfolio-wide dividend growth.

In my annual projections, I’d often use 6% as a dividend growth number for my entire portfolio, with a hope that I could do better and perhaps achieve 7%.  The 6% number I used was one I had seen as an achievable number after reading various posts about dividend growth.  It also seemed to be appropriate in my mind based on the dividend raises I was getting for the stocks in my Portfolio.  Well, I’ll wonder about my actual percentage no more, as I’ve gone back and calculated my weighted dividend growth for my Portfolio, not only for 2017, but for the previous 2 years as well.  The results were very encouraging, and will give me better estimates to use in any future projections I might make.


Weighted Dividend Growth for the Portfolio

To determine the weighted growth percentage contributed by an individual stock, its dividend growth percentage for the year is multiplied times the dividend amount that company paid me for the year, divided by the total dividends for the portfolio for the year, or…

Div Growth % for Stock * (Div Paid by Stock / Div Paid by Portfolio)

Each of these individual dividend growth percentages is then added up to obtain the weighted dividend growth percentage for the entire portfolio of stocks.

First, here’s some info to help understand what you see in the table below.  Tickers in blue are for stocks that I no longer own.  These stocks have weighted dividend growth cells that are empty and shaded blue once they no longer contributed to my results.  Cells that are empty and shaded gray are for stocks that I didn’t own at the time, and thus did not contribute to the weighted dividend growth calculation in that year.

Note – I did not include special dividends in the weighted dividend growth calculations, as these are usually a one-time occurrence, and they skew the percentages up and then down from year-to-year.  Also, in the review section below, I’ll try to explain some of the commented cells in the table (red triangle in upper right of cell), along with any other details that might be worth mentioning.

Let’s see how the Portfolio performed in each of the past 3 years…


Review of Results

Looking at the totals, the dividend growth for my Portfolio came in at 10.24% in 2015, 6.94% in 2016, and 8.64% in 2017.  As you can see, on average this is much better than the 6% number I was using for my projections, and even better than the 7% number I was hoping for.

In 2015, my best contributor was Pepsico (PEP), providing 0.90% of the total for the year.  The primary factors for its significant contribution were its large dividend contribution for my Portfolio that year, and its healthy 11.04% increase in the dividend.  The contributions from Quest Diagnostics (DGX) and Western Digital (WDC) were 0%, as I purchased these stocks late in 2015, and did not receive any dividends from them before year’s end.  Also of interest in 2015, Union Pacific (UNP) changed its payment date for dividends, resulting in 5 payments in 2015 before returning to the normal 4 in 2016.  This resulted in a higher than normal percentage in 2015, followed by a negative contribution in 2016.  Note – special dividends from Franklin Resources (BEN), Main Street Capital (MAIN) and T. Rowe Price (TROW) were delivered in 2015, but were not a factor in the calculations (as noted earlier).

In 2016, my best contributor was Skyworks Solutions (SWKS), providing 1.11% weighted dividend growth for the year.  SWKS had an impressive 50% dividend increase midway through the prior year that helped here, as well as it providing a good dividend total for the year.  The contribution from HCP was negative in 2016 thanks to cutting its dividend after the spinoff of Manorcare (under the flag of QCP) later in the year.  Also affecting my weighted dividend growth was UNP’s negative contribution as previously noted.  Note – special dividends from L Brands (LB), Main Street Capital (MAIN) and Nike (NKE) were delivered in 2016, but were not a factor in the calculations.

In 2017, my best contributor was Air Lease (AL), providing 0.85% for the year.  AL was able to reach the top spot even though their dividend yield was less than 1%.  This was possible as a result of it providing a modest dividend total thanks to being my largest holding, but mostly due to its massive 50% dividend increase in 2017.  The contribution from HanesBrands (HBI) was 0%, as I purchased this stock late in 2017, and did not receive any dividends from them before year’s end.  The contribution from Financial Engines (FNGN) was 0% since they did not raise their dividend payment from 2016 to 2017.  On the other hand, I show the contribution from Cognizant Technology Solutions (CTSH) as 0% since CTSH didn’t start paying a dividend until Q2’17, and thus paid $0 in 2016, leading to an infinite result for dividend growth percentage for the year (using 0% is no doubt a conservative adjustment).  Finally, Linear Technology (LLTC) only paid one dividend in 2017 prior to the completion of their merger with Analog Devices (ADI).  In my calculations, I assumed LLTC would have continued to pay that same dividend for the remainder of the year, which resulted in a small positive dividend growth being reflected, as opposed to a negative growth rate being shown due to no other dividend payments for the year.  Note – special dividends from Main Street Capital (MAIN) were delivered in 2017, but were not a factor in the calculations.

You may notice that the individual percentages tend get smaller at the years progress, even though the dividend percentage increase for an individual company may have held roughly steady.  This is a result of more companies being added to the Portfolio each year, and thus the dividend weight for an individual company declining as a percentage of the entire portfolio.  Aflac (AFL) is a good example of this.

My 2016 total differs from the number I left in my comment over at Passive Income Pursuit, as I made an adjustment to the weighted dividend growth percentage for Gilead Sciences (GILD) that I believe more accurately reflects the dividend growth.  The adjustment brought the total down from 7.99% to 6.94%, and stemmed from the fact that GILD only starting paying dividends in Q2’15, and thus the growth from 2015 to 2016 appeared exaggerated if left alone.



A few things came out of this exercise for me…

First, I was pleasantly surprised by the weighted dividend growth my portfolio achieved.  Rather than the 6%-7% I was thinking I might see, I instead saw a range of 7%-10%, with what looks to be an average north of 8%.  Time will tell if this level of growth can be sustained.  Any dividend cut from one of my larger dividend payers could easily dent my performance for a single year.

My portfolio leans a bit more toward growth than yield, and thus the companies in my Portfolio tend to offer more aggressive dividend growth increases than say a slower growing company offering a high yield in exchange.  I believe this is a factor in my better-than-expected weighted dividend growth.

Second, even low yielding stocks can have a significant contribution to your portfolio’s overall dividend growth if they can offer large dividend growth, and they provide a decent portion of your overall dividend income due to their large weighting in your portfolio.

Third, I now have the ability to quickly ascertain the weighted dividend growth percentage that any stock is contributing to my entire portfolio’s performance.  This could be helpful to know prior to removing a stock from the Portfolio, or deciding if I want to over or under weight a position within the Portfolio.

Fourth, I like this calculation enough that I’ll plan to show the weighted dividend growth for my Portfolio as part of my Annual Performance Review moving forward.

Would you find individual weighted dividend growth percentages helpful to know for your portfolio stocks?  Do you already calculate the weighted dividend growth for your portfolio?  If so, please share in the comments!

12 thoughts on “Weighted Dividend Growth for the Portfolio

  1. ED, this is a helpful post. You described metric I had not thought of evaluating. Thanks for laying out the analytical steps.

    Air Lease has an interesting business model, and they certainly seem to be doing well. I’m going to take a closer look at that stock.

    Congrats on your portfolio performance!

    1. I’m glad you found the metric helpful, DF! Hopefully, it will be a calculation you find useful making for your portfolio.
      As for Air Lease (AL), it’s been a great stock for me. I think the valuation today is favorable. Let me know what comes of your investigation.

  2. ED, Right on. This is a metric I always have on hand for my portfolio. My portfolio tends to be higher yield lower growth. What is you weighted average dividend yield of the portfolio? And, dividend cuts are killers when looking at this metric to be avoided at all costs. Tom

    1. Awesome, Tom. I’d love to hear how your portfolio performed with respect to weighted dividend growth.
      I haven’t calculated my weighted average dividend yield – more work for me to do now! I’ll let you know how it turns out.
      I’ve been lucky to avoid dividend cuts for the most part… just one that I had to live through thus far… from HCP in 2016… certainly no fun.

  3. Very interesting article, I’m going to look into calculating this for my own portfolio in the future.

    Thanks for sharing you analysis!

  4. This is great – I went ahead and did my own. I came up with 7.39% – not bad! I didn’t truly refocus on dividend growth until mid to late in 2017, so I expect improvement in 2018. In the meantime, I’m still happy with that number. Four of my top five growers were due to their large increase percentages, and the other was due to a decent increase, but a larger holding in my portfolio.

    1. Yeah, 7.39% sounds good to me, Dozer. I’m glad you liked running through the calculation. Thanks for sharing your number.
      Given all the unexpected dividend raises to start this year, I wouldn’t be surprised to find our final 2018 numbers being better than those from 2017.
      This growth certainly supercharges the forward dividend income.

  5. I’m glad you enjoyed my dividend growth checkup and it looks like you have a great weighted dividend growth rate for your portfolio. Even better is that it’s coming in ahead of your projections. I’ve found the weighted dividend growth rate to give the “truest” reflection of dividend growth although there’s still some issues with it. Namely whether the starting point is the beginning of the year dividends or the end in order to calculate the weight and also how you treat new capital purchases. Personally I just use the EOY forward 12-month dividends because I already have those set up in my spreadsheets so it makes things a lot easier and then just use the dividend growth that I received from each position. For me it’s the simplest way to get the calculations done. Another thing I had done in the past was having a sheet that would calculate the 1-, 3-, 5- and 10-year weighted dividend growth rates but that also came with it’s own issues on how you treat the companies that don’t have dividend growth streaks at each of those levels. All in all though I think it’s a good exercise to go through every year just to see how things stand on a portfolio as a whole perspective.

    I have to say I was pretty disappointed with my dividend growth for 2017 although that was largely due to 2 cuts and 4 “freezes”. So far 2018 has gotten off to a great start for my portfolio except of OHI’s recent announcement that they’ll be freezing their dividend for the remained of 2018. That’s fine by me though because at over a 10% yield I don’t really care about the growth as long as it’s sustainable.

    1. Hi, JC. I’m certainly happy with the growth rates achieved for the past 3 years. 2018 looks to be off to a strong start as well thanks to so many unexpected dividend increases. This strong start is despite freezes from OHI and CVS (merger with Aetna), and what appear to be ones from HBI and SCG (buyout from D).
      I agree there were some nuances to the calculations. For one, I chose to ignore the special dividends in order to avoid the ups and downs in growth rate from year-to-year. It was also tricky determining how to handle companies that just started paying dividends, or those that quit paying dividends due to a merger or buyout. The key to comparing the growth rates in future years will be to handle these situations in a consistent manner.
      I completely agree that this was a useful exercise, and I’ll plan to make calculating the weighted dividend growth a part of the annual review moving forward. Thanks for the inspiration!

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