Dividend stocks and DRIPs as a long term investment vehicle
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Dividend stocks and DRIPs as a long term investment vehicle
Posted by saintforlife1 on 6/23 at 11:02 am
I have been reading up on this a bit lately and also ThaBigFellas' posts on the subject. Seems like a solid conservative investment strategy.

Let's say I pick 5 dividend stocks for this portfolio and I allocate $500 to it every month. So should I try to buy shares of each of the company in my portfolio every month? Sometimes that can mean just 1 or 2 of each and I feel that is kind of low. Or should I buy $500 worth of one stock every month, the second stock the 2nd month, the third stock the 3rd month and so on....that way you buy once every 5 months (not really good for DCAing, I think).

Looking for some advice here on how to go about this. Also what 5 dividend stocks would you start off with?


This post was edited on 6/23 at 11:42 am

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Posted by mach316 on 6/23 at 11:06 am to saintforlife1
I was hitting up Big Fella in another thread about the same thing. I've always been more of a try to knock it out of the park type trader, but this more conservative dividend play is looking better and better the older i get. Anxious to see whats posted...


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Posted by jimbeam on 6/23 at 11:21 am to saintforlife1
Curious as well. I like the idea of building on top of building


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Posted by rmc on 6/23 at 11:32 am to saintforlife1
From a practical standpoint, I'm not sure if DRIPS let you invest more money in anything other than monthly intervals. Computershare does a lot of the larger DRIPs and I'm sure you can find the answer there for a particular company.

$500 every couple of months could subject you to wilder swings as far as the entry point goes (and this could be a good or bad thing depending on timing) whereas monthly contributions will you averaged out if that's the correct term.



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Posted by ThaBigFella on 6/23 at 11:56 am to rmc
I mean dividend growth investing is phenomenal but you won't hear much about it bc money managers would be in trouble if they couldn't explain to you why you need them to help you buy a basket of stocks on your own.You don't wanna buy less than $1000 of any stock bc of fees involved, but if its holding forever, $500 should be fine. Make your basket, and buy which ever one is trading at the best valuation at the time you have new money....some will be at high's, some will be beaten down.

It's pretty simple, dividends of healthy companies grow every year well in excess of inflation so your income is protected and in a drip you collect more share which payout more of that income every quarter. Every 3 months you will make more "income" than you did in the previous 3 months.

If share prices go up, great, you made some unrealized capital gains and if share prices go down, fantastic, your dividend buys you more shares at a lower price thus boosting future income

Do you know how many people have become millionaire just by buying, holding, reinvesting dividends in some of these bluechips around you?

I promise you that if you buy something simple like coca cola and add $500/month to it you will be a millionaire in 30 years. You will have at least $1M of stock which will be paying you a ton of dividends. Now what will a million dollars be then? Who knows, but I know your income stream will always be ahead of inflation

Personally I feel there are much better dividend growth stocks out there today but exxon,chevron,coke,ATT,Pepsi,Altria any of these companies are going to be around long after you and I are gone so I really don't see how you can go wrong with any, but I personally chose PM bc

1.I know world governments rely on cigarette taxes
2.growth in world population
3.massive growth in its dividend every year. The dividend is up over 84% in the last 5 years....did you collect an 84% raise in your income at work? Really if you were getting $50,000/yr in dividends in 2008 you're making $90,000/yr today without buy 1 new share
4.basically a hedge on a falling US dollar, which will happen at the rate we're printing
5.little to no regulation outside the US on things like lawsuits or cigarette advertising which targets children( joe camel and marlboro man were key in the cigarette boom in america before they were banned)


Here's a few pieces on DRIP's over time

LINK

LINK

Of course swinging for the fences is nice, but I make my money from work not stocks, I use stocks to build my side business today that will grow its income to me every year, this business is "dividends" which will be my full time business in 20 years funding my lifestyle without working


This post was edited on 6/23 at 12:07 pm

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Posted by windshieldman on 6/23 at 12:07 pm to ThaBigFella
Dumb question I asked in another thread. Does the vanguard total index pay good dividends in your mind?


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Posted by ThaBigFella on 6/23 at 12:18 pm to windshieldman
VTI? It's like 2.4% that's decent but look at all these companies....would you consider those risky? I know people buy ETF's bc they don't want the "risk" of individual stocks right? Well look at these yields...

coke - 2.8%
chevron - 3.4%
Altria - 5%
PM - 3.9%
Exxon - 2.8%
Shell -5.42

according to dividata, the site i use look at VTI dividend history LINK

now look at phillip morris' history since spinoff LINK

VTI dividend is all over the map, I guess it goes up and down per quarter, I really have no knowledge on it to tell you. I can tell you all those companies listed above the dividend rises every 4 quarters and if it doesn't it would be major news, there is not fluctuation. So those dividend you see will rise barring unforseen circumstances, but if you look at their balance sheet the dividend payout ratio is low for most, the oil companies are like 20% of income so even a horrible year or 2 and the companies are still able to boost the dividend. When a blue chip cuts dividends its a major event. Hence, it's very rare to say the least

Dividends are tied to income and typically pay x amount per year based on how much the company earned, the lower the payout ratio the more wiggle room the company has to raise dividends and/or withstand a rough patch. So as income rises, the dividend will too.

Exxon/Chevron I believe are around 20% of income
Phillip Morris is 65% of income
Altria is near 90% of income

So altria has a big dividend but it can't grow much from here bc they're basically paying out all the make in dividend, now if and when phillip morris gets to that 90% payout their dividend will rise 25% from here, that's why the dividend is growing rapidly.

The big oil companies have staggering room to pay bigger dividends, but their business models require tons of Capital expenditure for oil rigs,R&D, etc that they have better use for that cash. Cigarette companies pay massive dividends bc there isn't much for them to do with all that cash like say exxon or chevron.

Hope I've explained it all to you in an easy to understand manner.


This post was edited on 6/23 at 12:26 pm

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Posted by windshieldman on 6/23 at 12:22 pm to ThaBigFella
VFINX is the one I have

Gotcha, thanks for answering


This post was edited on 6/23 at 12:24 pm

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Posted by saintforlife1 on 6/23 at 12:23 pm to ThaBigFella
quote:

ThaBigFella

as always.

What you do think of this initial list for a 5 dividend stock portfolio?

1.KO - Coke - 2.86%
2.PM - Phillip Morris - 3.92%
3.MO - Altria - 5.13%
4.CVX - Chevron - 3.39%
5. KMI - Kinder Morgan - 4.19%

As you can see, the dividend yield varies for the above companies. Does the higher percentage mean better rate of return? Should you always go for the ones with the high yields?

You linked to the divdata.com site a few days ago. Here is a list of top stocks they recommend, but I don't see your usual favorites in the top 20-30 stocks in their list, except may be JNJ. What are your thoughts on their top dividend stock list?




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Posted by ThaBigFella on 6/23 at 12:37 pm to saintforlife1
quote:

1.KO - Coke - 2.86%
2.PM - Phillip Morris - 3.92%
3.MO - Altria - 5.13%
4.CVX - Chevron - 3.39%
5. KMI - Kinder Morgan - 4.19%


I mean listen, there's a million more dividend stocks out there that are going to grow faster bc they're smaller, those ones you listed minus Kinder Morgan are all over $70B companies.

They aren't going to grow as quickly as a small cap.It's all about what you want. I have a big portfolio so to me collecting 3-4%/year in dividends is incredible and I seek a growth in income which those provide in the form of new shares which pay me more. If you are seeking a home run, these are not companies that will double or triple anytime soon.

If I was under 25 and had 30-40 years till retirement and had to buy 5 I would buy in this order

1.Visa
2.Phillip Morris
3.Chevron
4.Altria
5.McDonalds or Coke, I chose MCD bc yield is little higher

I listed them in terms of how they would grow, to me visa is the slam dunk of the next 20,30,40 years but I'm nearing the age where I want to retire and live off dividends and visa' s dividend is so small in dollar terms, but it has tripled from .11/quarter to .33/quarter in the last 2 years which is insanity. Who knows though, if marijuana becomes legal, Altria might become a home run too if we're selling weed in every gas station in america in 10 years.

Those 5 are solid,I know altria and PM are staples of the operating budget of governments all over the world, I know we're moving to a cashless society and visa is the leader, I know we will need oil and chevron or exxon are great(chevron yield is higher), and I know fast food and soda aren't going anywhere and actually growing rapidly all over the world outside of america.

KMI I like too, but they're very interest rate sensitive, and a rise in rates will hurt their expansion, I read a 1% uptick will cost them $55M/year more. It looks like higher rates are near....

as for the companies they recommend, some I know JNJ is nice, its a little overvalued today, but its a great company, the rest I really don't know too much about, doesn't mean their bad, I just stick to what I know. As long as you do your research, read their balance sheets, and feel they have a bright future you will be fine.


This post was edited on 6/23 at 12:43 pm

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Posted by Volvagia on 6/23 at 1:00 pm to ThaBigFella
quote:

If share prices go up, great, you made some unrealized capital gains and if share prices go down, fantastic, your dividend buys you more shares at a lower price thus boosting future income


Eh?

The percentage yield is the yield.




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Posted by ThaBigFella on 6/23 at 1:06 pm to Volvagia
the yield rises as the price drops

Take Phillip Morris, the dividend is currently $3.40/yr

Last week phillip morris was $93 so the yield was 3.65%

After a big market sell off this week PM hit $86.75 the other day and the yield went to 3.91%

So you were locking in a higher rate of return on your money by buying at $86.75 vs $93 a few days earlier

Let's say you had $10,000 to invest

@$93 you bought 107 shares
@$86.75 you bought 115 share

107 shares = $363.80 annual dividend
115 shares = $391 annual dividend

That price drop allowed you to accumulate 8 extra shares which gave you an extra $27.20 in dividend. Now imagine you have $100k or 1100 shares

1100 x .85/quarter in dividend = $935/quarter in dividend

@93 you get 10 shares in a drip
@86.75 you get 10.77 shares in a drip

that extra .77 shares per quarter comes out to over 3 shares a year boosting your income more and more, thats why i say a decline in price is a great thing as long as the dividend is in good shape

now imagine those extra shares growing their dividend over time, with 30-40 years behind it, especially when you consider one $48 share of coke when I was born in 1979 is worth $1,908 today. Every share counts for a long time holder. 8 extra shares of coke 34 years ago would be an extra $16,000 today....


This post was edited on 6/23 at 1:16 pm

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Posted by LSUtoOmaha on 6/23 at 1:32 pm to ThaBigFella
Is there a way to get a DRIP in an IRA without having to pay $7.00 a pop for each purchase?


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Posted by ThaBigFella on 6/23 at 1:36 pm to LSUtoOmaha
DRIPs dont charge usually.....do they charge in an IRA? On etrade you pay for the purchase then all DRIP shares are free

This post was edited on 6/23 at 1:37 pm

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Posted by LSUtoOmaha on 6/23 at 1:39 pm to ThaBigFella
I get that the reinvested dividend transactions are free, but you are still paying the brokerage payment every time you buy more shares. So if you buy 1,000 of Coke in an IRA, you would be essentially paying 0.7 percent on that purchase.



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Posted by Chris Farley on 6/23 at 1:39 pm to ThaBigFella
Why not just set up a DRIP on a high div yield ETF and mitigate all the risk of only owning 5 stocks? Also BigFella, there's more to investing than getting paid dividends, especially for most of the younger folks that seem to be interested in these threads. Having a balance between value and growth is important. I know that you think your strategy is flawless, but it's not for everyone and most the people taking your advice certainly aren't qualified or knowledgeable enough to be reliant on individual securities as a large portion of their portfolio.


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Posted by ThaBigFella on 6/23 at 1:44 pm to Chris Farley
Chris Farley while I respect your opinion, I don't see how there is risk in what I'm saying? All I advocated was merely going after $100B+ market cap companies that have a solid dividend history and are typically inelastic to market conditions.

Care to tell me the risk in that? I've said many times I like cigarettes,soda,consumer products that aren't hurt by reductions in consumer spending and aren't affected by market prices like oil.I've laid out how to determine value based on forward earnings and what P/E does and doesn't mean.

What strategy would you suggest the average person employ? A fee based ETF or mutual fund

Let me guess you work in asset management?

Some people aren't sheep and can do their own homework and analyze their own investments, ETF's,bogleheads are for the sheep. Sorry, I have an MBA and probably know just as much if not more about finance after working in banking for years. I don't need a financial advisor to "teach me", I love their ideas, respect their work, and think it's great they can help the uninformed invest.

You let me know how that high dividend ETF is working out for you when your portfolio is $3M and you're paying $500/month to an advisor to inform you that coca cola,cigarettes, and toilet paper are still in demand because thats what XLP does and they seem to agree with my strategy by making it their top 3 holdings and 33% of their portfolio. Until the world population stops growing exponentially we will need more sodas, more cigarettes, and more toilet paper to wipe more asses.

I don't pay anyone a fee to help me run my business, why should I pay a fee to someone to help me make my investments? You should be on top of your money always, and if you can't, then don't invest in the market.


This post was edited on 6/23 at 1:56 pm

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Posted by Azazello on 6/23 at 1:49 pm to ThaBigFella
quote:

ThaBigFella





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Posted by RidiculousHype on 6/23 at 2:13 pm to ThaBigFella
Big Fella, I know you said you look for stocks with a history of increasing yields, but you are referring to the increasing of the dividend amount, not the dividend yield. Because PM has actually seen a decrease in the yield over the last 5 years, but that is only because as their dividend has increased, the stock price has increased even faster:



I just wanted to clarify that for the rest of the board who might be looking for increasing dividends.




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Posted by AUtigerNOLA on 6/23 at 2:14 pm to ThaBigFella
Got another question for you big fella:

Do you use etrade for your portfolio? Could you or do you use a Roth IRA that way the earnings can be not taxed after 59 1/2?



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