dividendmono225While my 3rd Quarter 2021 portfolio asset allocation is designed for total return, I also track the income produced quarterly. Stock dividends are the portion of profits that businesses have decided they don’t need to reinvest into their business. The dividends may suffer some short-term drops, but over the long run they have grown faster than inflation.

I track the “TTM” or “12-Month Yield” from Morningstar, 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 over the same period. (ETFs rarely have to distribute capital gains.) I prefer this measure because it is based on historical distributions and not a forecast. Below is a rough approximation of my portfolio (2/3rd stocks and 1/3rd bonds).

Asset Class / Fund % of Portfolio Trailing 12-Month Yield (Taken 10/17/21) Yield Contribution
US Total Stock
Vanguard Total Stock Market Fund (VTI, VTSAX)
25% 1.28% 0.32%
US Small Value
Vanguard Small-Cap Value ETF (VBR)
5% 1.67% 0.08%
International Total Stock
Vanguard Total International Stock Market Fund (VXUS, VTIAX)
25% 2.56% 0.64%
Emerging Markets
Vanguard Emerging Markets ETF (VWO)
5% 2.25% 0.11%
US Real Estate
Vanguard REIT Index Fund (VNQ, VGSLX)
6% 2.65% 0.16%
Intermediate-Term High Quality Bonds
Vanguard Intermediate-Term Treasury ETF (VGIT)
17% 1.18% 0.20%
Inflation-Linked Treasury Bonds
Vanguard Short-Term Inflation-Protected Securities ETF (VTIP)
17% 2.26% 0.38%
Totals 100% 1.89%


Trailing 12-month yield history. Here is a chart showing how this 12-month trailing income rate has varied since I started tracking it in 2014.

Maintaining perspective on portfolio value. One of the things I like about using this number is that 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.

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.

Absolute dividend income. This quarter’s trailing income yield of 1.89% is still near the all-time lows since 2014. At the same time, both the portfolio value and the absolute income produced is higher than in 2014. If you retired back in 2014 and have been living off your stock/bond portfolio, you’ve been doing fine.

Here is the historical growth of the S&P 500 absolute dividend, updated as of Q3 2021 (source):

This means that if you owned enough of the S&P 500 to produce an annual dividend income of about $13,000 a year in 1999, then today those same shares would be worth a lot more AND your annual dividend income would have increased to over $50,000 a year, even if you had spent every penny of dividend income every year.

As a result, I prefer looking at absolute income produced rather than portfolio value or dividend yield percentages. Total income goes up much more gradually and consistently, encouraging me as I keep plowing more of my savings into more stock purchases. I imagine them as a factory that just churns out more dollar bills.

Big picture and rules of thumb. If you are not close to retirement, there is not much use worrying about these decimal points. Your time is better spent focusing on earning potential via better career moves, improving in your skillset, and/or looking for entrepreneurial opportunities where you can have an ownership interest.

A nice, simple goal can be based on the 4% or 3% rule of thumb, which means to accumulate roughly 25 to 30 times your annual expenses. There are countless articles debating this topic, but I support a 3% withdrawal rate as a reasonable target for planning purposes if you want to retire young (before age 50) and a 4% withdrawal rate as a reasonable target if retiring at a more traditional age (closer to 65). Build in some spending flexibility to make your portfolio more resilient in the real world, and you’ll be most of the way there.

How we handle this income. Our dividends and interest income are not automatically reinvested. I treat this money as part of our “paycheck”. Then, as with a traditional paycheck, we can choose to either spend it or invest it again. Even if still working, you could use this money to cut back working hours, pursue new interests, start a new business, travel, perform charity or volunteer work, and so on.

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MMB Portfolio Update October 2021 (Q3): Dividend and Interest Income from My Money Blog.

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