Payback period
One of the stats I like to keep track of with my FI Portfolio is the payback period. Essentially the payback period is how long it would take an investment to return the original cost of the investment. In other words if you bought a business for $100k and it returned $20k in profits directly to you each year that would be a $100k / $20k = 5 year payback period. Now of course this isn't taking inflation and the time value of money into account but it's a good general overview.
I wanted to take a look at how some of my positions have done so far. The following table shows the invested capital, total dividends received and the payback percentage for each open position in my portfolio.
My leader so far in payback has been AT&T (T) of course that's not surprising given that it has the highest yield-on-cost for any position in my portfolio and was also one of the first stocks I purchased. I was originally reinvesting the dividends but have since turned the DRIP off and elected to reinvest them in companies with better growth prospects. I had originally purchased the shares in November of 2011 and have already received almost 10% of my capital back in the form of dividends.
My lowest is that string of four holdings at the bottom of the list. Nothing to worry about though, I recently initiated positions in them and haven't received any dividends yet.
I don't consider the payback period for my positions in any of my analysis because it's hard to predict given the different growth rates. Plus the timing of purchases and how long you've held a position can really affect the results. Just because you've had a 50% or 100% or higher payback doesn't mean it was a good investment. A good investment is going to provide dividends that are safe and consistently grow year in and year out based on the growth of the company. I still find it helpful to keep me on task by seeing just how much of my invested capital has been paid in the form of dividends. I can't wait for it to get to 10%+ for multiple positions.
Overall I've received 1.93% of my invested capital back in the form of dividends. In order to juice the paybacks I've been reinvesting most of my dividends into more shares. There's only a few positions that have the DRIP turned off including T from above.
Last year I took a look how the payback period is effected given different starting yields and dividend growth rates.
Do you have any great paybacks yet? Playing with house money?
I wanted to take a look at how some of my positions have done so far. The following table shows the invested capital, total dividends received and the payback percentage for each open position in my portfolio.
My leader so far in payback has been AT&T (T) of course that's not surprising given that it has the highest yield-on-cost for any position in my portfolio and was also one of the first stocks I purchased. I was originally reinvesting the dividends but have since turned the DRIP off and elected to reinvest them in companies with better growth prospects. I had originally purchased the shares in November of 2011 and have already received almost 10% of my capital back in the form of dividends.
My lowest is that string of four holdings at the bottom of the list. Nothing to worry about though, I recently initiated positions in them and haven't received any dividends yet.
I don't consider the payback period for my positions in any of my analysis because it's hard to predict given the different growth rates. Plus the timing of purchases and how long you've held a position can really affect the results. Just because you've had a 50% or 100% or higher payback doesn't mean it was a good investment. A good investment is going to provide dividends that are safe and consistently grow year in and year out based on the growth of the company. I still find it helpful to keep me on task by seeing just how much of my invested capital has been paid in the form of dividends. I can't wait for it to get to 10%+ for multiple positions.
Overall I've received 1.93% of my invested capital back in the form of dividends. In order to juice the paybacks I've been reinvesting most of my dividends into more shares. There's only a few positions that have the DRIP turned off including T from above.
Last year I took a look how the payback period is effected given different starting yields and dividend growth rates.
Do you have any great paybacks yet? Playing with house money?
Interesting table and idea. I have not thought of tracking this before but i think I will now. You could also calculate the payback with option income.
ReplyDeleteGareth,
DeleteIt's kind of like YOC where the metric doesn't show much unless you know the holding periods. A bad dividend growth investment can still provide a 100% payback, but if it takes 50 years to do so it wasn't that great. Of course this is just dividends alone so capital appreciation can help you out, but by itself it's not completely helpful.
If I were going to include option income then I think I would only use income from selling calls. I guess to me it just makes more sense, since the shares are in your possession and you were using them to gain extra income. Although tracking it would be harder, at least the way my spreadsheet is set up.
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I can't wait until we start investing in dividend-paying stocks. The whole concept just intrigues me!
ReplyDeleteLaurie,
DeleteI never felt good about the normal method of just amassing a huge portfolio and selling off pieces to fund your retirement. It wasn't until I stumbled upon dividend growth investing that it clicked. For me this is the best way, you keep the portfolio in tact and churning off dividends to live off of. Get started as soon as you can because time is your best friend when building a compounding machine.
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Nice, looks like you are a number crunching geek. I like it. Nice seeing another method where you have your investment completely for free. Once I came across this method in regards of using options to buy stocks. You continue selling puts as long as you make enough money to buy the investment, so you completely use other peoples money and once you purchase the stock you continue selling calls, collect dividends and if you get assigned and sell the stock, you rinse and repeat the cycle.
ReplyDeleteWell I too am adding dividends and option income to my overall stock performance and lower my cost basis. I noticed not all investors do it.
Martin,
DeleteYeah I'm a bit of a numbers dork. I don't add option income from my investments into the payback period. Although to me it would have to be just from selling covered calls, which I don't really like to do anyways unless I want to exit the position.
I have thought about using some of my capital to do just that. Sell puts until assigned then sell calls once I have the shares. Wash rinse repeat.
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