It should hopefully come as no surprise at this point that I love spreadsheets, as I have recently made adjustments to my dividend spreadsheet to track monthly stock performance and annual forward dividend income.
As I read blogs across the DGI community, I always keep an eye out for how people track their portfolios and look for new features that I can incorporate into my spreadsheet.
Recently, I was reading the quarterly review from FerdiS over at DivGro and noticed something that I wanted to add.
Payback Percentage
The payback percentage is the amount of your investment into each position that has been recouped through the dividends that you have received since your original purchase.
It is a simple calculation, boiled down as follows:
Dividends Received / Cost Basis = Payback %
The utopia that we seek as dividend growth investors is when a position surpasses the 100% payback threshold, as this means that we are essentially playing with “house money” at that point. Our original investment has been fully recouped through dividends.
As a means of full disclosure, tracking the payback percentage is essentially for informational purposes (I considered saying entertainment, as I do love tracking data) as this typically will represent the amount of time that you have been holding a particular position followed by the level of dividend yield.
Tracking My Payback Percentage
Recognizing the point above, here is what my current portfolio looks like in terms of the payback percentage.
Digging into the details a little, I have made the following observations:
- It does not surprise me to see Apple, AbbVie, and Abbott at the front of the pack because I have held those positions for quite a few years. In all fairness, the payback percentage should actually be higher than represented here because I only went back to 2017 to record historical dividends in my spreadsheet. However, it is nice to see each of these on their way to paying me back.
- The handful of REITs at the far left have not returned anything as of yet. Having just established my REIT portfolio last month, the dividends have just started to trickle in now. On the bright side, as these REITs have much higher yields than most of my portfolio, I expect to see them move up the chart rather quickly–as an example, look at IRM near the right after just one dividend payment.
- Moving past the REITs, you will see a number of positions that have relatively low yields. Snap-on Incorporated is the lowest non-REIT and that is in part due to their sub-2.0% dividend yield and also because until my recent purchases I only owned 5 shares. With the lower yielding stocks, they typically have higher growth rates though so that will help move them along.
By tracking this information, it may help identify laggards in the portfolio and provide an additional data point when evaluating positions to add to or possibly even trim.
Wrapping Up
While adding a payback percentage tracker to your dividend spreadsheet will largely be informational, it does offer some potential value when looking at the bigger picture.
It is extremely easy to add this type of chart to your spreadsheet and is based on information that you’re most likely already tracking–namely the total dividends received per position and your cost basis per position. With that information available, it only takes a few clicks of the mouse to add this handy chart.
Are you tracking your payback percentage?
Do you have any positions that have reached the point of “house money”?
Hey DivvyDad. I track the payback percentage of my individual dividend stocks, as well as for my portfolio as a whole.
I do have a couple of stocks that have topped 100% in AFL and RPM, in fact RPM is over 180%! As you mentioned, these have been long-time holdings, helping them reach that level.
Also as you noted, many of my REITS are quickly moving up the ranks thanks to their high yields.
My formula is a bit different in that it’s dividends received divided by cash investment (reinvested dividends excluded). If I used the cost basis I wouldn’t be able to reach 100% payback.
One action that can skew payback to be higher is the partial sale of a position, as you have the
same dividends received divided by a now lower cash investment.
I enjoyed the post, DivvyDad. I’m always interested in the various ways to track my portfolio.
Thanks for the feedback ED, and you’ve raised a couple of valid points with regard to the cost basis vs. cash invested as well as the partial sale of a position. I’ll have to give that some further consideration.
I am not surprised to see that you’re already tracking this, as I know we both enjoy the tracking and monitoring of our portfolios.
Have not tracked mine, but a quick look at one of my older positions shows $7.136 dividends received with original cost basis of $10.75 on AXAHY purchased July of 2012.
Thanks for stopping by and sharing your feedback Fred. Sounds like that position is doing quite well for you in terms of the payback!
Glad to see a post about this. I remember staring out on my FIRE journey, upon purchasing any security I would always run the payback number to determine how many years it would take before my investment was fully paid off. It was a nice number to see, especially when your purchase will pay itself off after 6-7 years. After that its all 100% generated profit!
Thanks Dr. D, and I like how you would calculate that out at the time of purchase to determine how long it would take to pay off the investment.
The payback percentage has the positive effect that we take a long term focus and concentrate on what matters: the dividend.
I’ve been tracking that rate since 2009 for each of my roughly 50 positions. Clearly on top is Royal Dutch Shell which returned to me over 90 % in dividends since 2009. Other higher yielding stocks such as Zurich Insurance, HSBC or mining companies Rio Tinto and BHP Biliton have shown strong paybacks in just a few years.
But the payback percentage also shows the power of constant dividend raisers (JM Smucker, Nestle, Roche, Novartis etc.). Just thinking of the cash returns over the next 20 years, it will truly show the magic of the compound effect.
That’s awesome FS, and nice to see that healthy return from RDS! I am looking forward to tracking this over time with my portfolio, and seeing returns like you’ve mentioned.
It really does demonstrate the magic / power of the compound effect!
Interesting percentage to calculate, have not looked at it that way. Thanks for your post, it has me thinking again (your post seem to do that). 🙂
You’re welcome Mr. R, and thank you for that note as it makes me happy to hear that something I have shared (whether it be this or anything else) has resulted in someone considering how it might be applicable for them.
DD, It’s not something I track. It would be interesting and informational, but not necessarily anything to base a buy, sell, hold decision on. Kind of like yield on cost, which is another interesting DGI metric I’m sure you are familiar with. Tom
Hi Tom, you’re right that this is similar to yield on cost–which is a nice metric to understand how your investment has performed over time in relation to the dividend, but is not something that should be the driving factor of portfolio decisions. I have the YoC calculated for each holding as well and currently sit at 4.28% for the overall portfolio.