What is the most important spreadsheet for dividend investors? Does it have reams of metrics from payout ratios to dividend growth rates to up-to-the-minute stock price tracking? Does it sort and tabulate and calculate in all the colours of the rainbow?
Everyday investment nerds around the world bask in the bluish glow of their screens, tinkering and tweaking their formulas and cells in an effort to organize and understand. How much of this data is actually useful is up for debate, but this post is about the spreadsheet that I think is the most important for dividend investors: the dividend income spreadsheet.
It’s easy to make.
It’s simple to use.
And it is the most important tool for good investment decision making that I have ever found.
How to make a dividend income spreadsheet
I’ve seen a lot of investment spreadsheets over the years. I’ve made a pile myself (including the complete list of TSX 60 stocks by dividend yield). This is one of the simplest and easiest to set up. In it’s most basic form, this is how to do it (I use Google Sheets – data is hypothetical):
Column 1: List the stocks you own
Column 2: Input the number of shares for each stock
Column 3: Input the annual dividend payment per share
Column 4: Multiply column 2 by column 3 to get the total annual dividend payment per stock (to do this for ZAG, click on the cell and type “=C4*D4”)
Add up the values in column 4 to get your total dividend income for the year (use the “SUM” function). Make this number big and beautiful.
How can you make this spreadsheet even better? Fortunately, it’s easy to add all kinds of interesting data to this spreadsheet to make it even more informative: stock price, book value, current value, dividend yield, yield on cost, total account value, etc.
This is what a more detailed spreadsheet might look like (hypothetical portfolio and values) :
No matter how much additional data you choose to include, it’s the total dividend income that is the most powerful cell. I see it like a paycheck I don’t have to work for; it is the money that our money earns. And it is a powerful motivator for good decision making.
Why is dividend income so important?
Dividend doubters sometimes accuse dividend investors of being hypnotized by cash payments. But what we have seen over the past 30+ years of Beating the TSX is that DIY investors have enjoyed both dividends and capital appreciation with a total return that has beat the index by about 3% per year on average.
As long as we are invested in big stable companies who are committed to their dividends, the income is stable. Tempted to hold cash in anticipation of a crash? – that cash won’t pay you anything. Tempted to sell for fear of price declines? – your dividend “paycheck” will take a hit. This spreadsheet puts the right information in the right place, encouraging good habits and discouraging the bad ones.
If market volatility is the disease that tempts us to make bad decisions, for me this spreadsheet is the antidote. It doesn’t matter that Royal Bank’s stock price is down 25%. They haven’t missed a dividend in 20 years, and those payments have grown from $0.56/yr to $4.32/yr in that time. Even more powerful: Royal Bank’s total return over the last twenty years has averaged almost 14% per year. Focus on dividends, enjoy total returns.
Benefiting from a 12% rate of return over multiple decades, as BTSX has done, is not as complicated as many would believe. Similar to healthy living, it requires a little motivation, a handful of the right information, and creating tools that encourage good decision making.
Try it, you might like it
There are a lot of things investors do that are, to be frank, a waste of time: watch BNN, check our portfolios too frequently, try to decipher whether a chart is showing a head and shoulders vs a cup and handle pattern (or is it a double top??). In contrast, I can guarantee that creating a dividend income spreadsheet is worth your time.
Regardless of what investments you hold, try it. You can add all kinds of additional information that you find interesting and/or useful, but for me, seeing our dividend income motivates me to protect and grow it. In the face of market confusion and uncertainty – in no short supply these days – it’s just the cue I need to tune out the noise and focus on what matters. That’s why I think it’s the most important spreadsheet for dividend investors.
BTSX portfolio for August 2020
Not much activity in the BTSX portfolio this month. No dividend raises and, surprisingly given the
market world conditions, no cuts either. As a result, our yield remains high at over 7%.