Welcome to my newest project. If you got here expecting to see a different blog, well, this one has replaced that one. I created this blog to detail my investment activities, insight into investment, and lessons that I have learned. I will explain the methods I use to decide where to invest and how I made that decision.
My decision to invest is due to the fact that it was something that I should have been doing these past 20 years but hadn’t. So, now I’m in catch-up mode. I need to make up for lost time because I’m not getting any younger and, to be honest, I seriously want to quit working. I’m fed up with getting up early in the morning and trudging out in all kinds of weather instead of staying in the comfort of my home.
But, unfortunately, I have bills to pay, prefer to live indoors, and I am very attached to eating. So, I have to leave my home and generate an income actively but I also do not have a large amount of money to invest. Thus the name of the blog, The Cheap Investor. I’m not big on risk-taking at this stage of my life. If I had started investing 20 years ago I’d be now in a position of having passive income. This blog will detail my activities and insight towards that passive income position.
This site contains affiliate links to products. I may receive a commission for purchases made through these links. For more details click on the Affiliate Discalimer at the top of the page.
I’ve decide that it was time to modify my investment strategy. Not because it was wrong but because it wasn’t moving things along fast enough. Again, as I’ve stated before I have a timeline that is considerably shorter than the normal “rule of thumb” timeline of 30 years. My timeline is only 5 years, albeit a rolling 5 years. One cannot turn back the clock and try to redo the past so all we can do is work with what we have. My goal is still to stop working and live off of the dividends. To do so I have to have a extremely larger amount of money invested than I do presently. To this end I am putting any discretionary funds into investments.
I have outlined my strategy previous but now I’m going to be adding another point. And that is that I will be focusing on companies and funds that pay dividends on a monthly basis. Quarterly payouts are nice, but monthly is much better. If you are a believer in compound interest then you know what I am getting at. Why wait for the quarterly dividend in order to re-invest when you can re-invest the dividend on a monthly basis. All other criteria in my strategy still holds.
My focus will be Exchange Traded Funds (ETF). This will allow me to diversify and to minimize my risk. I get to own a little bit of everything instead of trying to own everything all at once. I also don’t have to keep a constant eye on the market value to determine when the stock no longer performs to meet my goals. Someone else does that. Yes, I’m willing to pay someone to do that…to a limit. I still have my criteria of not getting ETFs that charge over 0.6% in costs. There is a high yield ETF that has a dividend yield of 7.77%. Seems good. Except that the Expense Ratio is 1.25%. Morningstar rates the Risk as Above Average and rates the Returns as Low. So, I am not going to blindly invest just on a high dividend yield. I am not a great risk taker. Especially with an abbreviated timeline. I like my risks to be Average or Below. The returns should be rated Average or Above.
So, what caused me to tweak my strategy? I had viewed the video 5 Monthly HIGH Dividend ETFs (5%+) ETFs that Pay Monthly Dividends that I had posted on my blog previously. This video is put out by Learn To Invest. He does put out quite a few useful tutorial videos about investing. This one got me to thinking that his presentation of ETFs could help me accelerate my investment activity and thus increase my investment values at a higher pace. So, I have to determine if I should liquidate all or some of my individual stocks and put the proceeds into ETFs or do I just invest my money solely into ETFs going forward from now on, leaving the individual stocks untouched.
So, follow my blog to learn what I end up doing. Maybe you’ll get something out of this taht you can apply to your investment strategy.
Seasonal pattern getting bullish for stock market
Investors could benefit from a strong seasonal tailwind if they buy stocks this month and stay invested, according to Bank of America technical strategist Stephen Suttmeier. In a note to clients, Suttmeier pointed out that the best three and six-month periods for the S&P 500 begin in November, making October a prime opportunity for investors to increase their equity exposure. "Investors and financial media love to commiserate over 'Sell in May and go away' but often forget about 'Buy in October and stay,'" Suttmeier said.
As a dividend investor, dividends are the key factor in deciding if I want to invest in a company or not. As I’ve mentioned in my previous posts there are other additional factors that go into my decision making process to invest or not to invest. But in this post I want to focus on the aspect of dividends. Many investors are growth investors. They buy the stocks of a company for the purpose of selling for a profit within a specific period of time. Others, like myself, invest for the long term to capitalize from a company’s increase in revenues and thus profits, which then translate into dividends. But again, not all dividend stocks are created equal. Some companies pay very low dividend payouts while others pay a substantially higher amount.
One of the key things I look at is the dividend payout relative to the company’s stock price. This is referred to as the Dividend Yield. This is the amount of dividend you will receive for every dollar you have invested. Some are very low, such as Dollar General ($DG), where the yield is 0.67%. Their last dividend payout was $1.44/share. To get that $1.44 you’d have to spend about $218 to buy 1 share.
Then you have McDonalds who just increased their dividends. Even with the last payout being $5/share, this is still only a little over 2% in dividend yield. You’d have to spend about $224 to buy 1 share of stock. That one share would then pay you the $5 in dividends.
There are many similarities between growth stocks and dividend stocks when it comes to deciding if the company is worth investing in or not. But with dividend stocks you’re looking for a continuous income coming in. The growth stock investor is also looking for income but they have to sell all or a portion of their holdings to generate the income. This means that they have to constantly be on the lookout for their next “Deal”. They have to replace the stocks that they sold.
This is the reason that I prefer dividend investing. Once I have researched a company and I have decided that it is worth investing in, all I have to do is hold my investment and collect the dividend payments. As long as there are no drastic or catastrophic changes to the company, there is no reason to sell the stock. Once you decide to buy the stock the only things left to do is 1) collect the dividends and 2) decide when to buy more stocks in the company. This last part is for another post in the future dealing with buy on the DIP (drop in price). After buying the stock and the dividend yield drops, you may want to just hold onto the stock shares you have. If the yield increases that may be a good time to increase the positions you hold. Again, other factors come into play here.
But back to the original premise of the initial dividend yield and how it is a factor in deciding to buy. As I stated before the dividend yield is the key factor for me. I want to get the maximum dividends for the least cost (i.e. stock price). The only time that share price is important is when I am looking to buy more shares. I’m not looking to sell my shares any time soon. As long as the stock price stays fairly stable, I am happy. As long as the dividend keep growing, I’m happy. As long as the company doesn’t reduce the dividend payout 2 periods in a row, I’ll hold on to them shares. My whole focus is to own the maximum number of shares for the least amount of money.
In discussing investments with others I am asked what is my investment strategy? I am going to try to outline my strategy here but you must remember that the strategy is a bit broad and in special cases I will make exceptions to certain criteria.
I only invest in:
1. Long standing, existing businesses. I tend to avoid emerging/startup companies and IPO’s.
2. Companies that pay dividends. This is the rule that is pretty much set in stone. No dividend then no investment from me.
3. Companies that have a dividend yield of between 2.5 to 5%.
4. Companies that have at least a 5 year history of dividend payouts.
5. Companies that show a positive dividend growth.
6. Companies that are rated at Average or below in risk and Average and above in returns.
7. Companies whose stock price allows me to maximize the quantity of share that I own.
The above points are all relative. Such as the dividend yield. If a company is paying out a dividend of $6/share and it’s stock price is $200, this gives me a yield of 3%. This passes my criteria.for dividend yields but does not pass my ability to maximize the number of shares that I own because I am limited by my investment budget. If I have only $200 to invest each month, buying the one stock for $200 only gets me that 1 share. But if I can buy another stock that sells for $50/share and pays 3% dividend yield I can get 4 shares. The dividends I can get will be the same for both at $6 but when I re-invest the $6 I can only get 0.03 shares of the $200/share stock but 0.12 shares of the $50/share stock. I try to maximize shares owned and maximize dividends earned.
I am focusing on the growth of my stock investments based on share growth in addition to any increase in stock price value. Share growth is more critical to me than share price growth. I will increase my position with a specific stock if the share price drops or increases no more than 10%. If the share price increases more than 10% I will just hold and wait for the next DRIP.
I’ll be detailing my different strategy points in later postings.
These are the the stocks that I currently hold in my portfolios: