It's dividend time!

Are your investments structured properly?

Photo by Hans Eiskonen on Unsplash

Collecting dividends never gets old.

My only issue is me. I’ve grown greedy and perhaps a tad impatient.

I want larger payouts. I want my dividends growing at a much faster rate. I’m ready to see thousands of dollars arrive each quarter without needing to lift a finger.

I know that day is coming — soon.

And I know just the trick.

Here’s the magic formula I’ve learned for accelerating dividend growth: invest more money!

Simple.

Sadly, it’s not something I’m able to do at this time. Because I’ve realized that my investment order has been misaligned. That, more than anything, is what’s stunted my portfolio’s growth.

I’ve slowed my roll with stock investing so I can get started in real estate.

But tax efficiency matters, and I had been pulling the white collar version of hustling backward.

My primary brokerage account, the one I opened at the start of my financial transformation in September 2022, is a taxable account. I funded that account with a little more than $31,000 through September 2023. This week will be the first time I’ve added to it since. Another $1,000. Nike is on sale.

That’s after-tax money I’m contributing that the government will tax again whenever I sell at a profit.

I didn’t know any better in my excitement as a new investor. I’ve learned it doesn’t make sense for me to direct funds to my taxable account first.

Instead, it’s smarter for me to shift my focus to real estate, which not only will help us build wealth but also is known as one of the best vehicles for tax avoidance.

From there, I must funnel money to tax-advantaged accounts: My 401(k), my Roth IRA and my HSA. Only after those boxes are checked can I concern myself with pumping money into my taxable account and growing dividends.

Lately, I’ve wondered if I put my daughter Parker at a massive tax disadvantage by investing heavily into a high-dividend yield ETF through her taxable custodial account. Despite my best intentions, at some point she’ll be taxed on the capital appreciation and her dividends. Parking her stake in her tax-advantaged Roth IRA would have been the wiser route.

I’m thinking of sensible ways to amend her investments before we get too far down the road. (And I’m open to ideas!)

If we’re going to play the game, we might as well play it smartly.

That’s why for the foreseeable future, my dividend growth in my primary account will be slow. I’m turning down the heat. I’m letting my shares simmer.

But the best part is our dividends won’t stop.

I never unloaded Realty Income, ticker symbol O, like I said I would do back in January. The stock price never reached my average purchase price, which is when I wanted to sell. It actually dropped more. I was down 5% at the last update. I’m now down 12% in my position. I’m holding, collecting a little more than $4.50 each month on my 18 shares.

I earned $112.93 in dividends so far this quarter, with two remaining payouts scheduled to arrive from Realty Income and Altria in the coming days.

I’m up to $821.47 in dividends within my taxable account. I’m still eager to cross the $1,000 threshold as a milestone moment.

With a $70.39 payout on March 20, Parker’s custodial account has amassed $411.77 in dividends.

Future tax obligations, however, make our dividend growth bittersweet.

But the next round of dividends will deliver Parker’s first payout to her Roth IRA. She’ll start collecting dividends from her position in the Vanguard Total World Stock Market Index Fund, ticker symbol VT.

My Roth IRA has collected $1,756.09 in dividends since I started the account in late December 2022. Seeing the amount makes me relive regret that I didn’t put my money to work sooner.

But when you know better, you do better.

At every turn, that’s what I’m striving to do.

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