Dividend stocks and DRIPs as a long term investment vehicle

Curious as well. I like the idea of building on top of building

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

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.

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ThaBigFella

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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?

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....

DRIPs dont charge usually.....do they charge in an IRA? On etrade you pay for the purchase then all DRIP shares are free

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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ThaBigFella

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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?