Tuesday, July 12, 2016

The Importance of Setting & Tracking Dividend Goals

This is a guest contribution from Ben Reynolds at Sure Dividend.  Sure Dividend uses The 8 Rules of Dividend Investing to systematically identify high quality dividend growth stocks.

The end goal of dividend investing is financial freedom.  It is the point at which your passive dividend income (after taxes) can pay for all your expenses.

When you hit that point, you are truly financially free.  Don’t want to work the 9 to 5 job (which is probably more like the 8 to 6)?  You don’t have to.  It doesn’t mean you have to retire, it just means that you are free to live your life on your terms without worrying about where the next paycheck will come from.

Unfortunately, reaching financial freedom is not something that happens quickly or easily.  It takes time, patience, dedication, and planning.

Based on what you read online analyzing hundreds or thousands of dividend stocks is what it takes to reach financial independence.

It’s true that you need to invest in dividend stocks wisely.  I’m not saying to randomly select stocks to invest in.  What businesses you invest in matters. 

But what I think is even more important is to be able to set goals and track your progress towards 
reaching those goals.

As an example, if you find the ‘perfect’ dividend stock, hold for 2 years, sell, and then switch to momentum investing you are never going to have your passive dividend income exceed your expenses.

It’s not about finding short term gains, it’s about being able to make a plan and stick with it for the long-run. 

And that’s what JC does so well at Passive Income Pursuit.  If you haven’t seen them yet, take a look at JC’s Goals page and his Progress page.

Setting Goals

One of my favorite goal setting methods to follow is the SMART method.  Following this method, goals should be:
  1. Specific
  2. Measurable
  3. Attainable
  4. Relevant
  5. Time-Bound
When you are setting your goal, you should make it specific.  As an example:  “My goal is to have my after-tax dividend income exceed my monthly expenses.”

The goal should be measurable.  Obviously, annual dividend income is very measurable, so no problems there.

The goal should also be attainable.  For example, my goal shouldn’t be to become the world’s first trillionaire.  It isn’t going to happen.  Financial freedom may take a long time, but it is attainable (with a plan).

Becoming financially free is certainly a relevant goal.  Relevancy is determined by your specific life.  It’s important to ask if achieving the goal is something that will improve your life, others’ lives, or make you happier.  Some goals are worth completing, others aren’t.  I strongly believe financial freedom is an excellent goal to strive for.

The final aspect of the SMART method is to make your goal time bound.  For example:  “My goal is to have my after-tax dividend income exceed my monthly expenses by 2028”.

Time bound goals force you to think about how you bring your goal to reality.  Financial freedom someday isn’t really concrete – after all, reaching financial freedom when you turn 98 might be nice, but it probably isn’t most people’s ideal scenario.  Financial freedom by 2028 (or any other year in the future) is concrete and actionable.

Tracking Progress

It’s not enough to just set your goal.  Goals are not a ‘set and forget’ thing (unlike high quality dividend growth stocks). 

You have to track your goals to make sure you are on schedule.  If you are on schedule or ahead of schedule, congratulations!  Keep doing what is working.

If you are behind schedule, you should look at why

Was your goal to ambitious?  Does it need to be revised?  Did a one-event derail you that won’t happen again?  Are there toxic elements in your life preventing you from progressing?  What can you do to get back on track?

You won’t know if what you planned is coming to fruition or not unless you check the progress of your goals.

How often you check your goals depends on the goal.  If your goal is to break a habit (like smoking or nail biting), daily progress is likely appropriate.  For dividend growth investing, either monthly or quarterly is a good time frame.  You can see that JC updates monthly

Final Thoughts – Realistic Dividend Goals

There are only 2 factors in reaching true financial independence (when passive income exceeds expenses):
  1. Passive Income
  2. Expense
You have immediate control of #2 (to some degree – unexpected things happen in the real world).  You have eventual control over #1 (also, to some degree).

Your dividend growth investments will compound over time.  The exact compounding ratio will likely be somewhere between 6% and 12%, depending on what the market does and the success of the businesses in which you invest (assuming dividend are reinvested).

The amount you save each month is a very large factor in how quickly you will reach financial independence.  The amount you save is entirely determined by your income and your expenses.

Finding ways to boost your income and reduce your expenses helps to increase your savings rate which will reduce the time required to reach a certain level of passive income.

Building your dividend growth portfolio is only half of the battle.  You must also have a long-term mindset and the ability to set and track goals.

Reaching financial independence isn’t easy, but it is attainable with time, patience, discipline and knowledge. 

Image provided by markuso via FreeDigitalPhotos


  1. Thanks for the article. The SMART method is a well known and well proven method for keeping yourself on track. I've read numerous self help books that use that as their primary guideline for keeping people motivated. It's no surprise that it would also be useful for investing and keeping your portfolio on track and benchmarked. I hope this inspires those that aren't already keeping track to start. Thanks again for the read.

    -Dividend Reaper

  2. This comment has been removed by a blog administrator.

  3. Good summary of the SMART method -- thanks!

    Another goal setting acronym with a slightly different philosophy is BHAGs, for Big Hair Audacious Goals:


    FerdiS, DivGro

  4. Of course the best results would be attained by having a total return approach in the accumulation stage - more money equals more income. More money buys more income. One would then slide to a retirement funding approach. That's easy for a reasonably knowledgeable self directed investor. Dale