Another run at the concept

I am in the accumulation phase of my retirement investment portfolio. I would like to retire with adequate dividends and distributions from my retirement accounts to pay expenses. The date I can cover those expenses is my Paycheck Emancipation Date. It may or may not be my actual retirement date, but it represents the earliest time I can voluntarily choose to retire. One way to get a rough fix on that point in time is to know the Dividend Doubling Time of my portfolio.

Various metrics inform the investor of the performance of one's portfolio. You already know most of them, so it doesn't pay to recite them all. Investors in the dividend growth space have eschewed following the value of the portfolio from day to day, as well as the total return. Some of us continue to sneak a peak at those numbers, although our better selves know that anything connected to the price of a stock is subject to the vagaries of the market, rather than strictly related to the business performance of the underlying companies.

By appropriate selection criteria, one can assemble a basket of equities representing companies who have paid dividends faithfully over years, and an even more select collection of companies who have raised dividends reliably over many years. Dividends are unique amongst ALL metrics in that they are ALWAYS positive, even when other performance metrics may vary from year to year.  Even a dividend cut still yields a positive dividend, unless that cut is of the most-feared dividend elimination variety. For most investors, a dividend freeze puts the company on probation and a dividend cut results in a prompt sale and re-deployment of assets.

Since most companies that pay dividends tend to maintain and periodically raise them, a portfolio with multiple such companies will regularly experience increases in the composite dividend income.
Each company within the portfolio will contribute variably to that dividend growth according to multiple factors, but the trend should generally be up.

In the accumulation phase of a retirement portfolio, dividends are generally reinvested, either via DRIP,  selective reinvestment or both.  The compounding effect of dividend reinvestment accelerates dividend growth within the portfolio.

Finally, most investors who are contributing to a retirement portfolio contribute regularly to the account, so additional infusions of cash are invested, producing additional dividends as well.

So, the three components to dividend growth are dividend raises by individual companies, the compounding effect of dividend reinvestment and addition of shares via cash contributions to the account over time.

There will be no single metric that accurately estimates the rate of dividend growth within the portfolio, so one must measure it in real dollars on an ongoing basis, or estimate it by back-of-the napkin methods.  Still, it's a very important metric to the dividend investor, as it represents the real cash flow produced by the investments themselves, once cash contributions are converted to equities.  All of us hope to produce a sufficient stream of cash that we won't be forced to sell shares to pay the bills.

So, how does that back-of-the napkin estimation of dividend growth work? First, new contributions amount to a percentage in the growth of the share count. I contribute an additional 5% to the corpus of my retirement account every year, so if it is broadly distributed across the equities I own, I know that next year's dividends will grow by roughly 5%,  other factors notwithstanding.  Second, the composite current yield of my portfolio is between 3-4% and I reinvest all dividends via my brokerage's DRIP program, so I know that next year's dividends will increase by slightly more than that composite yield, due to the compounding effect of either quarterly or monthly dividend reinvestment. That puts me between 8-9% dividend growth per year within the portfolio. To be sure, this is not the pure investment performance of the portfolio, because the majority of the growth is due to new purchases. However, in my real world, it still represents a growth in the cash-producing engine that will be my primary source of income in retirement, so every contribution matters.
Finally, there is a composite rate at which the companies I own increase their dividend payments. This varies quite a bit from company to company, so I don't have a great fix on the actual number, but it is safe to estimate that it adds something short of an additional 1% to the actual growth in cash flow from dividends. After all, if I take my 8-9% more shares every year and add intrinsic dividend growth, I'm pretty sure that adds up to less than 10% intrinsic dividend growth per year in the aggregate.

This rough estimation turns out to be pretty close to the truth, as I look at the brokerage statements from my retirement account. The actual dividends in the whole portfolio are growing at roughly 9-10% and my dividend doubling time looks like it is a bit under 7 years.  If I choose Uncle Sam's definition of retirement age for SSI, I have about 12 years to go earning paycheck, so I'm expecting just under two doublings of my dividend income before that date. There are a bunch of reasons I expect I won't continue to draw a wage that long, so I'm taking that into account as I plan my investment contributions.

Getting a rough fix on the nominal dividend growth rate within the portfolio allows one to predict the rate at which the dividend will double, or the Dividend Doubling Time (DDT).  For any given equity within the portfolio, the dividend doubling time will vary by the rate at which the company's executive decides to adjust the dividend year by year, as well as decisions to purchase new blocks of stock. This makes calculation of an individual equity DDT fairly useless, except to say that it will be less than the time estimated by simply predicting a doubling of yield on cost of the initial position.

I get lost in the weeds when another writer does a comparison of two companies with different yields and dividend growth rates, projecting the point of dividend parity many years into the future and discussing the merits of the one stock over the other. I am very skeptical that this type of analysis is meaningful, understanding that any number of macroscopic economic factors may intervene and multiple events could occur within a single company that might change it's dividend growth over many years time. I'm much more comfortable with estimating what may occur to my entire portfolio over the next 3-5 years if I continue on the same investment pathway, understanding that I am monitoring and shaping the portfolio with my purchases.
Have you calculated that ACTUAL rate at which the dividend stream in your portfolio is growing? Do you have a rough estimate of the dividend doubling time, or DDT of your retirement portfolio? How does that inform your decisions about the next purchase?