Tag Archives: dividends

Compounding Is The Best And Least Time Consuming Strategy

Guest Article By Gregory Neil Smyth

Time in a Compounding strategy is your biggest friend. The longer your investment is allowed to Compound, the bigger your Account becomes.

If you have a ‘super’ busy life, and have a lump sum to invest, after making the initial investment there is nothing more to do. Get on with your life and watch your dividend reinvestment strategy build up.

Compounding involves adding to your original capital invested every year, and then that new balance to be added to in the next year, and so on. Buy solid dividend paying companies, like the Dividend Aristocrats, and you are assured of the best Compounding strategy available.

Not only do Dividend Aristocrats pay dividends every year, their dividend history through all sorts of market upheavals, their dividends also Rise every year. This means a Growing dividend Yield for the Compounding strategy, and when coupled with dividend reinvestment, you have 2 strategies in one!

Most pay Rising dividends 4 times a year, so no matter the current state of the market, reinvestment is taken care of by these companies for you. No temptation to sell in a big drop, just let the reinvestment strategy take care of itself, and LET IT COMPOUND.

Your Time is your own, after the original investment is made, just ‘put it in the bottom drawer’ and watch it Compound for as long as you like.

In the last big ‘drop’ in the market (2008-2009), 10 Dividend Aristocrat stocks were delisted from the Dividend Aristocrat Index because of changes to their dividend policy(they cut their dividend), so make sure to only invest in the ‘biggest and best’. The longer they have paid rising dividends and stayed in the Index the better.

Companies like McDonald’s, Johnson & Johnson, 3M, Wal Mart, who have paid rising dividends for decades, through all sorts of economic shock/upheavals, are the ones to invest in.

If you are investing through a savings plan, you are probably adding to your investment once a year, so again your Time is yours.

Even if you have 10-20 years to go till retirement, don’t ‘put off’ this strategy, as Compounding is the best ‘hands off’ strategy there is. Even if only your bills in retirement are taken care of, that is a huge bonus, the alternative is not pretty.

The best holding period for this strategy is ‘forever’, but when you eventually need the money, there is no need to sell, just change the reinvestment part to cash dividends, and everything ‘is sweet’. No capital gains tax, as no shares have been sold, you are receiving a ‘GROWING’ income stream for ever!

Time is your FRIEND in a Compounding investment strategy, so start NOW.

For a website dedicated to creating wealth by compounding, and creating long term wealth, go to [http://www.wealthbycompounding.com] This article has been written by Gregory Neil Smyth, who has just released an eBook ‘How To Create Wealth By Compounding’ and is available for purchase at the above website.

Article Source: https://EzineArticles.com/expert/Gregory_Neil_Smyth/2345474

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Income Investing Fantasyland: High Dividend Equity ETFs and Mutual Funds

Guest Article By Steve Selengut 

Several years ago, while fielding questions at an AAII (American Association of Individual Investors) meeting in Northeast NJ, a comparison was made between a professionally directed “Market Cycle Investment Management” (MCIM) portfolio and any of several “High Dividend Select” equity ETFs.

  • My response was: what’s better for retirement readiness, 8% in-your-pocket income or 3%? Today’s’ response would be 7.85% or 1.85%… and, of course, there is not one molecule of similarity between MCIM portfolios and either ETFs or Mutual Funds.

I just took a (closer-than-I-normally-would-bother-to) “Google” at four of the “best” high dividend ETFs and a, similarly described, group of high dividend Mutual Funds. The ETFs are “marked-to” an index such as the “Dividend Achievers Select Index”, and are comprised of mostly large capitalization US companies with a history of regular dividend increases.

The Mutual Fund managers are tasked with maintaining a high dividend investment vehicle, and are expected to trade as market conditions warrant; the ETF owns every security in its underlying index, all of the time, regardless of market conditions.

According to their own published numbers:

  • The four “2018’s best” high dividend ETFs have an average dividend yield (i.e., in your checkbook spending money) of… pause to catch your breath, 1.75%. Check out: DGRW, DGRO, RDVY, and VIG.
  • Equally income unspectacular, the “best” Mutual Funds, even after slightly higher management fees, produce a whopping 2.0%. Take a look at these: LBSAX, FDGFX, VHDYX, and FSDIX.

Now really, how could anyone hope to live on this level of income production with less than a five or so million dollar portfolio. It just can’t be done without selling securities, and unless the ETFs and funds go up in market value every month, dipping into principal just has to happen on a regular basis. What if there is a prolonged market down turn?

The funds described may be best in a “total return” sense, but not from the income they produce, and I’ve yet to determine how either total return, or market value for that matter, can be used to pay your bills… without selling the securities.

Much as I love high quality dividend producing equities ( Investment Grade Value Stocks are all dividend payers), they are just not the answer for retirement income “readiness”. There is a better, income focused, alternative to these equity income production “dogs”; and with significantly less financial risk.

  • Note that “financial” risk (the chance that the issuing company will default on its payments) is much different from “market” risk (the chance that market value may move below the purchase price).

For an apples-to-apples comparison, I selected four equity focused Closed End Funds (CEFs) from a much larger universe that I have been watching fairly closely since the 1980s. They (BME, USA, RVT, and CSQ) have an average yield of 7.85%, and a payment history stretching back an average 23 years. There are dozens of others that produce more income than any of the ETFs or Mutual Funds mentioned in the “best of class” Google results.

Although I am a firm believer in investing only in dividend paying equities, high dividend stocks are still “growth purpose” investments and they just can’t be expected to generate the kind of income that can be relied upon from their “income purpose” cousins. But equity based CEFs come very close.

  • When you combine these equity income monsters with similarly managed income purpose CEFs, you have a portfolio that can bring you to “retirement income readiness”… and this is about two thirds the content of a managed MCIM portfolio.

When it comes to income production, bonds, preferred stocks, notes, loans, mortgages, income real estate, etc. are naturally safer and higher yielding than stocks… as intended by the investment gods, if not by the “Wizards of Wall Street”. They’ve been telling you for nearly ten years now that yields around two or three percent are the best they have to offer.

They’re lying through their teeth.

Here’s an example, as reported in a recent Forbes Magazine article by Michael Foster entitled “14 Funds that Crush Vanguard and Yield up to 11.9%”

The article compares both yield and total return, pointing out pretty clearly that total return is meaningless when the competition is generating 5 or 6 times more annual income. Foster compares seven Vanguard mutual funds with 14 Closed End Funds… and the underdogs win in every category: Total Stock Market, Small-Cap, Mid-Cap, Large-Cap, Dividend Appreciation, US Growth, and US Value. His conclusion:

  • “When it comes to yields and one-year returns, none of the Vanguard funds win. Despite their popularity, despite the passive-indexing craze and despite the feel-good story many want to believe is true-Vanguard is a laggard.”

Hello! Time to get your retirement readiness income program into high gear and stop worrying about total returns and market value changes. Time to put your portfolio into a position where you can make this statement, unequivocally, without hesitation, and with full confidence:

“Neither stock market volatility nor rising interest rates are likely to have a negative impact on my retirement income; in fact, I am in a perfect position to take advantage of all market and interest rate movements of any magnitude, at any time… without ever invading principal except for unforeseen emergencies.”

Not there yet? Try this.

*Note: no mention of any security in this article should be considered a recommendation of any kind, for any specific action: buy, sell, or hold.

My articles always describe aspects of an investment process I have been using since the 1970’s, as described in my book, “The Brainwashing of the American Investor”. All the disciplines, concepts, and processes described therein work together to produce (in my experience) a safer, more income productive, investment experience. No implementation should be undertaken without a complete understanding of all aspects of the process.

Article Source: https://EzineArticles.com/expert/Steve_Selengut/12786

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Accumulating cash

I’ve been very quiet on my blog so far because there’s nothing happening for me in the investing world. I’m holding my current positions and I have recently received dividend payments on some of my stocks. Those payments I’ve taken and re-invested into the same stocks. At this point I am waiting for the rumored stock market crash so that I can pick up some bargains and to increase my positions on the stocks that I currently own.

In the meantime, as my funds for investments come in I’m just accumulating them into my investment cash account. My focus is to acquire additional dividend stocks, primarily, and to increase my current positions when the opportunity presents itself. This is my sub-strategy for the next 8-12 months. Then I plan on changing gears to focus more on increasing my current positions, primarily, and then to acquire additional dividend stocks when the opportunity presents itself.

But so far all I have been accumulating has been investment funds. I’m looking to find stocks or ETFs that pay dividends on a monthly basis. All of my other criteria still are in place whenever I research where I should invest.

Modifying Your Investment Strategy

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.

What is my investment strategy?

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.

Is General Dynamics a Good Stock To Own?

For some reason General Dynamics caught my eye. I looked at it through my criteria filter to see if it would fit within my investment strategy. The first thing I noticed that $GD was paying a very nice dividend payout of $4.40/share. How did this compare to the share price? The dividend yield is 3.03%, which is better than the industry average. So far so good. I wasn’t too happy with the share price of $144.62/share at the time I am writing this. Ten shares would cost me $1446.20 and yield me $44.00. This would give me another 0.30 shares of stock, if the share price remained the same for a year.

I also noticed that the stock was trading at around the mid-point of its 52 week range and the trend looks to be heading down. This stock may go down a bit more. Earnings look strong. As a matter of fact, the fundamentals for the company look very good. The stock looks like it would be a good one to invest in. But for me I’ll take a wait and see approach. I’ll wait to see if the stock price continues its downward journey and wait for a buying opportunity.

Seriously Considering Shares of Intel Corporation

Since the beginning of the week I took notice of Intel Corp ($INTC) stock price. Seeing as my investment funds are limited, I was hesitant in putting this stock on my watchlist. Upon careful review I think that this would be a prime candidate for my dividend portfolio.

What am I seeing? I’m seeing a stock trading at the low end of its 52 week range while at the same time paying out a very decent dividend of 2.67%. That’s something that I look for. Higher dividend payout relative to its share price. Its revenue growth is above the industry average, and there’s room to grow the dividends because it is below the industry average.

So, I’ll add this company’s stock price to my watchlist and see what happens. If the share price drops further than the dividend yield goes higher and makes this stock more desirable for me. I prefer a dividend yield that is high relative to its price. To me it is more important to have a high, sustainable payout per share than just high share price. Dividends are paid on a per share price so I’m interested in picking up as many shares as I can.

I also have certain criteria for choosing specific dividend stocks. As I mentioned before, a high dividend yield. I like my yields around 5% or higher but based on the company, its dividend history and growth, I can tolerate around 2% or higher. If the company pays out a decent dividend payout but the yield is below 2% then I’ll wait for the share price to drop. There are a few companies out there that pay a very decent dividend but their share price is too high for what I would get in dividends, as noted by a low (under 2%) dividend yield. To me that would be like paying a premium price.

When Do I Sell?

I haven’t been investing for that long of a time. I’ve acquired a few company stocks and ETF’s. But my sales have been few. Right now I’m looking for sell all of my Obalon (OBLN) stock because it is one of the first ones that I bought when I was first starting out. At that time I really didn’t have a clear idea of what I wanted to do. I didn’t have a strategy. I bought Obalon and and a couple of others because they were companies that were in the healthcare industry. That was it. None of them paid any dividends and there wasn’t any real growth with them.
After developing my own investment strategy I decided that the money I had invested in those companies could be better used with other investments. I sold the others at a bit of a profit but held Obalon because it was trading under what I paid for it. I decided to wait to see if the price would come back.

When I first started investing I opened an investment account with Robinhood. When I did that I received a free stock for Lyft. I decided to hold that one for a little while. When I was given that share of stock the price was around $42/share. It also wasn’t paying any dividends. I held that stock for a little while and the price dropped down to the low $30’s per share. The stock fluctuated in that neighborhood for a while. I finally decided to sell my share and put the money to better use.

Now I have developed my own investment strategy and I feel confident that I know more than I did when I first started. I now invest in dividend stocks. If a company doesn’t pay dividends then I don’t have a real interest in investing my money with them. Am I missing out on windfall returns? Maybe. But I’m also missing out on catastrophic losses. I’m at an age when I can ill afford to lose money because I don’t have as much time to recover from major losses. Also, if I am going to be investing in a company for the long term then I want to get paid for my time that I am waiting for the stock to grow, thus the dividend payout. The dividend payout is the company’s payment to me for being patient and sticking it out with them.

So, based on all of the above when do I sell my stock? I will only consider selling my stock when either of the two conditions below are met:
1. The company drastically cuts their dividend payout 2 times or more in a row.
2. The stock price increases 200%+.

So far I’ve been lucky in that none of my investments have had their dividend payouts cut. But I will tolerate 1 such payout cut but if they go to 2 in a row, they’re history.