Category Archives: Investing

Is Diversification Important in the Accumulation Phase?

One of the common themes that is included in most investment books is the need to maintain a properly diversified portfolio. Most recommend that you hold a minimum of 5-10 stocks in your portfolio and that no sector account for more than 20% of your total portfolio. A lot of other dividend growth investors prefer to maintain a portfolio size of at least 35-50 stocks so that if any holding cuts or eliminates their dividend, the loss in annual income will not be so great that it isn’t made up by dividend raises from other stocks.

If you have seen my portfolio page, you will see that not only do I not have that many positions but that I also am not very diversified by sector either. REIT’s and oil stocks make up a disproportionate amount of my portfolio and I have received many questions since starting this blog in regards to my diversification. Right now, being in the very early years of the accumulation phase I am comfortable not being diversified.

Instead of adding new positions just for the sake of diversifying into new sectors and balancing out my portfolio more right now I am content to continue adding whatever company presents good value at the moment and fits with my current goals. For example over the past year wanting to increase the overall yield of my portfolio and jumpstart my dividend income I invested a lot in oil companies, adding to my positions in Chevron, BP and Exxon Mobil. With the oil majors all trading at fair and undervalued prices due to the decline in oil prices I was able to both increase the yield of my portfolio while also getting great companies at a fair price.

Personally I believe diversification only becomes truly important as you get closer to actually living off of your dividends. Obviously I wouldn’t want REITs and oil stocks to continue to make up such a large percentage of my portfolio once I’m actually ready to retire early. My tentative goal right now is to be equally balanced in a few years after I have the chance to start some more positions. In the meantime though, I plan on continuing to load up on stocks that present good value and worry about becoming completely balanced out later down the road.

So what do you think? Do you think it is necessary to have a diversified portfolio when starting out or do you think diversification is something you can ignore for a while you build up your portfolio?

Time to Go Christmas Shopping

For stocks that is!  🙂

I recently came upon some new capital to be added to my portfolio via the sale of an old mutual fund account that I plan on putting to work in DGI stocks soon. First, some back story.

While I didn’t get into individual stock investing until last year, I actually started out investing in mutual funds back when I was around 14 years old, kind of by accident. Growing up I always worked during my summer vacations from school and by this point had amassed a nice little amount of cash in my savings account (I think around $4K) from a lot of lawn mowing and odd jobs over a couple year timeframe. Knowing that I didn’t know what to do with it, besides put most in the bank and spend the rest on pizza and soda at the variety store after school, my Dad forced strongly encouraged me to invest it in a mutual fund through our family’s financial advisor/insurance salesman. I ended up putting all of my hard earned cash into a utility sector stock mutual fund that I remember promptly dropping in price shortly thereafter. Between “losing” a lot of money right off the bat and then getting interested in a whole host of other things as a teenager  😉 , I pretty much forgot about the account, just letting capital gains and dividends reinvest since then. Plus since 14 year olds can’t legally have these types of accounts on their own, it was set up as a joint account with my Dad who has paid the taxes on it in the meantime. Thanks Pops!

During my recent vacation home, my father had the account transferred over to my name. The account transfer was completed a couple days ago. After taking a look at the fund’s low yield and lack of consistent dividend growth, I decided to sell all the shares. While I’ll end up possibly having to pay capital gains taxes on it, I plan on reinvesting the cash received into dividend growth stocks which is my preferred method of investing, allowing me to get that much closer to financial independence.

So what to buy?

With the price of oil dropping lately, and sending all the major oil stocks down with it (anyone else see the crazy swings on oil stock prices on Black Friday?), I’ll be turning my attention to that sector first to add to my stake in BP, Chevron, and initiate one in Exxon Mobil. Even though this will put my portfolio very overweight in the energy sector, I’m comfortable not being too diversified right now in the very early years of the accumulation phase of investing. Over time, things will start to balance out. Until then, it makes sense to just buy whatever presents good value.

Looking at the rest of my portfolio, IBM has pulled back quite a bit since the last time I purchased shares back in 2013 so it makes sense to average down on that position which quite a few other DGI bloggers have also been doing lately. While the company is currently struggling with revenue growth, I like the long-term prospects and the company’s commitment toward transitioning for the future into cloud and big data.

With whatever cash is left over, I’ll put into Loyal3 and continue dollar cost averaging into Disney, Unilever, etc. Speaking of Disney, has everyyone else seen the new Star Wars movie trailer yet? Check it out below. Can’t wait until December!

Hope everyone had a great Thanksgiving!

 

Disclosure:  Long BP, CVX, IBM, DIS, UL, and have a current buy order placed for XOM.

What do you think of investing in the oil sector today? Any other stocks on your watchlist?

October Recap

Wow, what a crazy month! Huge market swings, lots of earnings reports, and major negativity surrounding the markets. Even after all the crazy (often irrational) market movements, the Dow closed October by hitting an all-time high of 17,390. Good thing I’m an investor and not a trader, and can ignore short-term market noise like this past month and instead just focus on continuing to save a large amount of my income and purchase income producing dividend growth stocks.

On a personal note, I am back home after taking a cross country road trip and visiting family and friends for the past three weeks. I had a great time as I was able to see people back home for the first time in several years. Nothing like a little time off once in a while to be able to relax. Now its time to get back to work and get back to some regular blogging updates as well.

Today I’d like to highlight some of the recent news from companies in my portfolio and watchlist.

Kinder Morgan (KMI)

The energy giant announced a 2.3% increase to its quarterly dividend from .43 to .44 per share. With expected 10% dividend growth moving forward as the Kinder Morgan companies consolidate under one umbrella, KMI, I really like the stock as a long-term holding and recently added some more shares to my portfolio.

Visa (V)

The global payment processing company reported strong 4th quarter earnings that has since sent the stock soaring to new highs. Glad I managed to add some more shares in September around $213 a share and didn’t wait. 4th quarter EPS of $2.18 beat estimates by $0.08 while revenue jumped 8.8% year over year. Payment volume grew 11% to a staggering $1.2 Trillion dollars. With China announcing recently that they are opening their market for clearing domestic bank card transactions, Visa looks primed to continued growing revenues, EPS, and dividends at a strong pace going forward.

Realty Income (O)

The monthly dividend paying company announced 3rd quarter Funds from Operations of .64 per share which missed estimates by .01. Revenue beat estimates and showed 16.6% growth from last year. If I wasn’t so heavily weighted in O (accounts for 23% of my projected annual dividend income), I’d probably pick up at some more shares here in the low $40’s.

International Business Machines (IBM)

What a month for IBM. And not in a particularly good way. Revenue growth continues to stagnate as the blue chip technology company reported a 4% decline in revenues for the 3rd quarter and abandoned their previous goal of $20 in EPS for 2015. In all fairness, the EPS was established by a previous CEO. However, EPS growth continues, albeit at a slower than expected pace as the company has begun focusing on improving and growing its business in key segments with an eye towards the future. From CEO Ginni Rometty on her company’s results, “We again performed well in our strategic growth areas cloud, data and analytics, security, social and mobile-where we continue to shift our business. We will accelerate this transformation.”

IBM also provided guidance for 2015 EPS which falls in  a range of $15.97 to $16.30. Applying a P/E of 13 which is where IBM has traded historically, we can come up with a fair value of $207.61 based on the low end of guidance. IBM also added another $5 Billion to their share buyback plan. While the lack of revenue growth is disappointing, I like that the company is aggressively buying back stock, cutting costs, and increasing margins in order to continue growing profits. IBM is a company in transition as they shed old businesses and focus their efforts in faster growing segments like the cloud. While it won’t happen overnight, I think IBM will turn things around and get revenue growing again in the future. Since the dividend is still well covered by earnings, I’m content to just collect the dividend and let it reinvest at low share prices in the meantime.

Aflac (AFL)

The insurer and dividend champion reported so-so numbers for its 3rd quarter report, earning $1.51 in profits missing estimates by 8 cents a share. Revenue beat estimates but still came in slightly lower than last year by 2.5%. Aflac also announced a 5.4% increase in their quarterly dividend to $0.39 a share and increased the size of their buyback plan from $1 billion to $1.2 billion which I like since it shows management is being smart when it comes to buying back stock on cheap valuations. The company also announced it plans to have a $1.3 billion buyback plan for 2015. Currency issues continue to hamper the company but with a low payout ratio, Aflac is set up to weather times like this without risks of dividend cuts or freezes. With the stock hitting 52 week lows, now may be a good time to add to or initiate a position in the company.

Disney (DIS)

Disney is a stock I’ve been looking at recently after reading a write-up by fellow blogger Brian over at Long Term Mindset. Disney recently announced a large slate of new Marvel movies that are expected to be released over the next 4 years.

Check out the list:
The Avengers 3-split into 2 parts in May 2018 and May 2019
Captain America: Serpent Society in May 2016
Doctor Strange in November 2016
Guardians of the Galaxy 2 in May 2015
Thor: Ragnarok in July 2017
Black Panther in November 2017
Captain Marvel in July 2018
Inhumans in November 2018

Pretty impressive, especially since this doesn’t even include the Lucasfilm Star Wars movies (the third trilogy of Episodes 7, 8, and 9 plus spinoff movies) which I am looking forward to as both an investor and Star Wars fan. Although DIS seems to always trade at a premium valuation, I’ve been coming around lately to the idea that this premium is deserved due to their strong growth prospects. I may start dollar cost averaging into a position via Loyal3 soon.

BP

Announced a 2.6% increase to their quarterly dividend to $0.60. While a relatively small increase, I’ll take it as BP’s high starting yield helps make up for it. The stock continues to trade at an attractive valuation compared to their peers and is on my shortlist for portfolio purchases after its recent pullback to the low $40’s. While its easy to get caught up in all the negativity surrounding the company regarding lawsuits over their oil spill, the company is still generating large profits and remains committed to steadily increasing their dividend.

J. M. Smucker (SJM)

Announced a 5 million share increase to their buyback program, bringing their total authorized buyback plan to 10 million shares which will retire about 10% of the company’s outstanding stock if fully executed. How cool is that? Another stock on my short list (I feel like I’ve said that a lot today, so many great stocks, so little capital! 😉 ), I’d prefer to buy it near the 17 P/E mark but may initiate a position sometime during the last quarter of this year or early 2015 if shares continue to trade around 19 times earnings.

 

Disclosure: I am long KMI, V, O, IBM, AFL, and BP and may initiate positions in DIS and SJM in the coming weeks/months.

How about your portfolio and watchlists? Any important news or events this month?

How to Narrow Down Candidates for Your Dividend Growth Portfolio

This is a guest post from Ben Reynolds, founder of Sure Dividend.  Sure Dividend is dedicated to high quality dividend growth stocks suitable for long-term investing using quantitative analysis.

There are 2,315 publicly listed stocks that pay a dividend on the stock screener Finviz.  That is a lot of stocks to choose from!  Obviously, you don’t have the time to analyze each business individually and determine its long-term investing merits.  So what is a dividend growth investor to do?  This article shows how to narrow down the investible universe of dividend growth stocks to find stocks suitable for long-term holdings.

What is a Dividend Growth Stock, Anyway?

I suppose technically any stock that has increased its dividend from the previous year is a dividend growth stock.  When I think of a dividend growth stock, I think of businesses that have a history of raising their dividend payments year after year.  I think the minimum amount of annual dividend increases to really be certain a company is committed to raising the dividend payment year after year is 5 years.

Looking only at businesses with 5 years or more of historical dividend increases greatly reduces the number of businesses to analyze, and gives you a view of only businesses that are committed to raising their dividends year after year.  David Fish has an excellent (and free) spreadsheet that details many businesses with 5 or more years of dividend increases.  All in all, there are 553 businesses with 5 or more years of consecutive dividend increases.

Demand Proof of a Strong Competitive Advantage

A company that has 5 years of consecutive dividend increases may not have a lasting competitive advantage.  Five years is a relatively short period of time in the business world.  The forces of creative destruction will eat up the margins of businesses that do not have lasting competitive advantages.  It can be very difficult to identify companies with lasting competitive advantages beforehand.

One way to find businesses with lasting competitive advantages is to look for businesses that have proven they can thrive through a variety of economic, political, and competitive environments.  The Dividend Aristocrats are a group of businesses that have increased their dividend payments for 25 or more consecutive years in a row.  There are currently only 54 Dividend Aristocrats stocks due to the exacting standards for inclusion.

Many Dividend Aristocrats are household name stocks; companies like Coca-Cola, Wal-Mart, and McDonald’s (if you haven’t heard of these, you must live on mars).  Not surprisingly considering the durable competitive advantages these businesses possess, Dividend Aristocrats have outperformed the market by 2.29 percentage points per year over the last decade.  Dividend Aristocrats make excellent DRIP candidates as well.

Invest for Quality and Value

The Dividend Aristocrats index has performed very well over the last decade.  Each individual Dividend Aristocrat should be analyzed based on its own merits.  Of the 54 Dividend Aristocrat stocks, only 2 have dividend yields above 5% (AT&T and HCP,Inc.).  There are several Dividend Aristocrats with dividend yields above 3%; companies like McDonald’s, Target, Clorox, and Chevron.

Instead of looking solely at yield, one can also look for undervalued Dividend Aristocrats based on their P/E ratios.  In this analysis AFLAC is the cheapest Dividend Aristocrat, with a P/E ratio of just 9.45.  AT&T, Chubb, ExxonMobil, and Chevron all have P/E ratios under 13, which is especially cheap in today’s market where the S&P500 has a P/E ratio over 19.

Pulling It All Together

Hopefully, some of the information in this article gives you a good starting point for finding high quality dividend growth stocks.  Sure Dividend uses the 8 Rules of Dividend Investing to systematically rank 132 businesses with 25 or more years of dividend payments without a reduction over several quantitative metrics including yield, volatility, and growth.  Investing in high quality dividend growth stocks is an excellent way to build your passive income over time, as these businesses tend to raise their dividend payments year after year because they have strong competitive advantages.

 

Note from SFZ:  Thanks Ben for writing an excellent post here on Starting From Zero!  For more information, be sure to check out Ben’s site and his Seeking Alpha articles.

Switching to Drips

For the last two years I’ve been dripping only stocks in my Roth IRA. In the taxable brokerage account I’ve been taking them as cash and combining them with fresh capital every few months to make a separate stock purchase or use it towards paying off my credit card bill by buying stock through Loyal3.

Well that changed a few days ago as I’ve decided to start dripping all my dividends in both my Roth and taxable brokerage accounts. Due to the service being unavailable, dividends received from Loyal3 will continue to be selectively reinvested.

So why the change?

First off, I haven’t been making as many regular large purchases as I originally planned on doing so, meaning it sometimes goes several months between even touching my taxable account. Since I prefer to keep my commission costs less than .5%, I like to save up around $1400 before I buy more stock. By automating how I handle dividends and choosing to drip all of them, this puts the capital to work instantly, buying more shares which in turn will produce more dividends. Nice way to keep growing the account even when fresh capital for purchases is limited.

Second, I’ve been reading a lot of articles and blog posts recently that show just how much of a stark difference there is in total returns when you take dividends as cash vs. reinvesting them in the stock. Dividend growth is also accelerated a lot as well. Granted, I’ve always reinvested dividends by doing so selectively but it usually took a long time to do so. Looking through my Roth IRA transactions I can see that when I initially bought 15 shares of Realty Income I was earning $2.73 a month in dividends. Now, fast forward to today, I am earning $2.86 per month. There has been a few small dividend increases (less than 1 cent) from Realty since then. Everything else has been the result of dripping. Now that’s a small increase on a pretty small position in that account. Not a big deal, right?

Now imagine if I had done this with the 109 shares of O I have in my taxable account. The $19.92 I am currently earning each month in that account could buy almost another 1/2 share per month. Over the course of the year, that is almost 6 additional shares that I didn’t have before.

But what about valuation?

Looking through the stocks in my portfolio there isn’t a single one that is so overvalued that I wouldn’t consider buying more shares out right, if those were my only investing choices. With a long-term investing timeline, I’m comfortable overpaying a bit for shares in quality companies like those in my portfolio since there is plenty of time for earnings to increase and “grow into the valuation.” Besides paying up for at most, half a share in a company per month isn’t that big of a deal. It just allows the compounding snowball to grow that much quicker.

Simplifying Things

Dripping dividends and automating that part of your investing activity also makes it much simpler. No more transferring money around to take dividends from one account to use in another account toward a purchase. Just let everything run on autopilot and add more stock through fresh capital when it’s available. It also takes away the temptation to spend those dividends as you can’t spend money you don’t have.

Going Forward

Like most things, I imagine my thoughts on this topic will change as the years go by. That’s all right and what makes this fun. Can’t just do the same thing all the time, right? Gotta mix it up every once in a while and try new ways of doing things. I could see myself switching back to selectively reinvesting dividends, combining them with fresh capital each month to make a purchase once (1) I have the income necessary to make a normal sized purchase each month and (2) once my account is producing a significant amount of dividends. An extra 50 bucks or so doesn’t really help me out getting the required amount to invest each month. Once that figure climbs to be several hundred, maybe I’ll rethink this strategy.

 

Disclosure: I am long O. Please see my portfolio page for a complete list of my holdings.

So what are your opinions on the subject of dripping vs. selectively reinvesting? Or do you not reinvest dividends and simply use them to supplement your current income? Sound off in the comments and let me know what you think! 🙂

Mulling Over Investment Options

After not investing any new capital in May for a variety of reasons, I’ve now built up a decent little stash of cash ready to be deployed into quality dividend growth stocks that will provide me with a reliable source of passive income going forward.

So what to buy? Looking over my watch list, I struggled to come up with any ideas for a while. Seems like the majority of them are overvalued. Can we please just have a market correction already? 😉

But I figured I’d find some candidates eventually and after going through my list again and looking at other blogs and investing sites, this is what I came up with.

J. M. Smucker Company (SJM)-This dividend contender with 16 years of dividend growth was founded in 1897 and operates in the consumer staples sector. Although a name like Smucker makes you think of grape jelly, the J.M. Smucker Company’s largest business segment is in the brew at home coffee industry which was bolstered by their acquisition of the Folger’s brand in 2008. Smucker is the market leader in the brew at home coffee industry here in the United States and also holds the number one brand in the $2 billion a year peanut butter industry, Jif. Coffee makes up 48% of sales, which is way ahead of their number two product, peanut butter, at 13%. The company’s namesake fruit spreads only account for 6% of all product sales as of 2013, but are the market leader in that category.

Although not undervalued by any means, I think the stock is trading at fair/possibly slightly overvalued price right now with a current P/E of 19.5 and a forward P/E of 16.8. Looking back over the last ten years, SJM has traded between a P/E of 11.45 and 23.95.

Dr. Pepper Snapple Group (DPS)Thanks to Brian over at Dividend Mongrel for giving me this idea. DPS is a manufacturer and distributor of non-alcoholic beverages that are sold in the United States, Canada, and Mexico. The company’s brands include its flagship Dr. Pepper and Snapple drinks, Sunkist soda, 7UP, A&W, Canada Dry, Crush soda, Hawiian Punch, Mott’s, Schweppes, and my personal favorite as a kid, Yoohoo. Unlike its main competitors, Coca-Cola and Pepsi, both of which are trading at P/E’s of 19+, Dr. Pepper’s P/E comes in at 17.5 with a forward P/E of 15.2, both of which are less than the S&P 500’s current and forward P/E ratios of 18.3 and 17 respectively. Although they have only been growing their dividend for 5 years, the stock does sport dividend growth rates of 10.4% for the past year, and 22.8% average for the last three years while still keeping the payout ratio at 47%. While their current P/E of 17.5 is above their 5 year average of 14.9 since being spun off from Cadbury in 2008, I think we have to take in to account that the P/E stood at a low of 13.01 at year end 2009 due to the recession and bear market which skews the average.

Exxon Mobil (XOM)-I remember reading on The Conservative Income Investor a while back something to the effect of, when in doubt buy Exxon stock. 😉 In all seriousness though, the global oil giant and dividend champion is currently trading at a P/E of 13.9 with a forward P/E of 13.2. What most attracts me to a potential buy of Exxon right now though is the PEG ratio is currently at .9. The PEG, which was popularized by Peter Lynch compares the P/E ratio of a company to its growth rate. A PEG of 1 which is considered fair value by most investors indicates a stock is selling at a P/E equal to its growth rate. Exxon appears slightly undervalued here going by that metric. While not the flashiest of stock picks, Exxon has been and should continue to make for a great long-term dividend growth investment.

Deere & Company (DE)-Another stock that looks undervalued based on the PEG ratio. Although earnings are expected to decrease in the coming few years, I like the long-term growth story of this company which is summed up nicely at their investor page. After keeping their dividend static for five quarters, Deere recently announced a 17.6% increase, bringing the quarterly payout up to $0.60 from $0.51. Sweet. 🙂 Even after the recent run-up in price the stock continues to trade at an attractive valuation with a P/E of just 9.9.

And for some stocks I already own that I would consider adding to at current levels.

Target (TGT)-The dividend champion with 47 years of dividend growth continues to trade at a depressed share price due to the fallout from their data breach and difficult roll-out in Canada. After a very impressive 20.9% increase to their dividend announced last week, shares now trade at with a froward yield of 3.66%.

Visa (V)-Even though shares have run up a bit since my first purchase in April, the company is still trading at an attractive valuation, in my opinion, for those seeking to open a long-term position.

Disclosure: I am long TGT, V, and may initiate a long position in SJM, DPS, XOM, and DE in the coming weeks. Please my portfolio page for a full list of my holdings.

What do you think of these stocks? Are there any others you are looking to buy right now?

Why I Invest in Retirement Accounts

One of the interesting debates around the early retirement/financial independence blogging community is whether to invest in retirement accounts like IRA’s and 401k’s or just focus on taxable investments since there are no restrictions on when you can withdraw money. After all, why would you want to invest your money in accounts that are designed to not be withdrawn from until you are in your 50’s? I personally invest in retirement accounts and wanted to share my reasoning behind this today.

In addition to my two taxable accounts, a regular brokerage account and my Loyal3 account, I also invest in a Roth IRA and the Thrift Savings Plan (TSP). In my Roth I invest in dividend growth stocks. In my TSP, which is a 401k type plan for federal employees, I am limited to a small variety of index funds so I split my monthly contributions to a S&P 500 index fund and a small-cap index fund. Even though these funds don’t pay dividends they do have probably some of the lowest expense ratios that you’ll find in the mutual fund industry. My TSP makes up a relatively small percentage of my overall portfolio, my primary focus is on accumulating shares in high quality dividend growth stocks.

Since a Roth is funded with after-tax dollars, meaning you pay tax now on your income and then all withdrawals in retirement are tax free, you can withdraw your contribution principle at any time without penalty. Earnings on your investment cannot be withdrawn penalty free until you reach the age of 59 1/2. The beauty of this arrangement is that it doesn’t actually matter what you withdraw, as long as the withdrawal amount doesn’t exceed what you’ve contributed. Meaning, when I start withdrawing from my Roth once I reach financial independence, I’ll only be taking out dividends that are produced from my stocks, and won’t be selling off any of my stocks a.k.a. principal. As long as the amount I take out in dividends doesn’t exceed the past contributions I’ve put in I don’t have to pay a penalty. This will allow me to reduce my taxes in early retirement.

With my TSP, contributions are pre-tax meaning I can deduct them from my income taxes today and then pay normal income tax rates when I begin withdrawing. My plan is to roll the funds accumulated in this account over to a Traditional IRA once I leave my current job so I can have a bit more freedom in how I invest the money. If I wanted to take it one step further, I could rollover a traditional IRA into a Roth so I would be able access that money before normal retirement age and save money on taxes. The only downside to this strategy though is that contributions from a traditional to a Roth aren’t available to be withdrawn for 5 years. Obviously this strategy wouldn’t be an optimal one for those that are able to invest in dividend growth stocks in their 401k or can’t fund a Roth due to income requirements since this would involve selling your stocks in order to rollover or convert. Check out this great article by the Mad Fientist for more information about a traditional to Roth strategy which as he points out saves you more money in taxes over the long-term.

What type of retirement accounts, if any do you use? For my fellow financial independence seekers, have your goals changed the way you view and use retirement investment accounts?

Credit/Debit Card Policy Change for Loyal3

Good evening everybody! Sitting here watching the NFL draft (come on Bill, we need a TE for my Patriots 😉 ) and I saw the following e-mail pop up on my cell. Since it relates to investing here on the blog, I figured I’d share it with all of you.

CaptureIf you’ve been reading me for a while here, you’ll know I’m a fan of Loyal3’s commission free brokerage service. Since January, I’ve been using it to dollar cost average into positions in Coca-Cola (KO), Target (TGT), and McDonald’s (MCD). This e-mail highlights a policy change regarding using credit/debit cards for purchasing stock which has been one of the nice perks with this service. With no commissions, if you use a credit card you can literally be paid to buy stock with cash back rewards.

So now you’ll be limited to only buying stock with a credit/debit card in the amounts of $10, $25, and $50 which have always been the default options on the site with previously an option to set your own amount. Since I usually make buys in purchases above $50 and always use my credit card to harvest those cash back rewards, I guess I’ll now have to make those buys in smaller batches. Since it looks like you’ll still be allowed to buy more with a card, you’ll just need to split up your purchases into amounts of $50 (or $10/$25). The $2500 maximum total investment each month will still be in place.

I asked a Loyal3 rep through their chat feature on their site and they said making multiple small purchases of those preset amounts will be allowed. However they recommend you waiting at least a few minutes in between placing orders so the system doesn’t think the same order is being sent multiple times.

Kind of a pain, and not really sure why they would made the switch, but I’ll still continue to use them as long as the trades remain commission free. Still one of the better brokerages to slowly build up a dividend growth portfolio.

What do you think of Loyal3’s new policy? Will this affect your use of the service?

 

New Dividend Champions List

A new Dividend Champions list has been released!

This list is one of my main research tools to find and get an overview of new dividend growth investments. It breaks down companies into three basic categories: Champions with 25 and more years of dividend growth, Contenders with 10-24 years, and Challengers with 5-9 years of dividend growth. In addition the CCC includes a Near-Challenger list with companies having at least 4 years of dividend growth and a Frozen Angels list which consists of companies that have frozen their dividends for one year within the last 5 but since resumed annual raises.

There is a huge amount of information on these documents which are maintained by David Fish including dividend growth histories and other important metrics such as earnings and free cash flow payout ratios, earnings growth, and dividend growth projections. I download the Excel version each month that way I can edit it as I screen the list for stocks that meet my investment criteria. The latest CCC list can be found here at the Drip Investing Resource Center.

What I Like about Dividend Investing

“Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”-John D. Rockefeller (American Industrialist and Philanthropist, founder of the Standard Oil Company, 1839-1937)

I saw this quote on twitter (follow me @startingfrzero) recently and thought it would make for a great post on dividend growth investing. The greatest thing about dividend growth investing, as opposed to other strategies, is that its results are obvious right from the start.

What do I mean by that? With dividend growth investing, after a relatively short period of time owning these stocks you get to see the results when the dividend checks start coming in (or depositing in your online account nowadays). Once you receive them they can’t be taken away. Contrast that to a growth based, total return strategy where although you may see large gains on paper quickly, they can disappear quickly in a market downturn. In a market downturn those with a total return strategy are more inclined to sell low to limit future losses and preserve capital.

Dividend growth investors on the other hand welcome market downturns so they can pick up more income producing shares in some of the most successful companies in the world. As long as the earnings power behind the companies is not negatively affected by economic downturns, bear markets just give us the opportunity to pick up more shares at bargain prices.

Then you can sit back, stop worrying about things like the Fed’s interest rate policy and which hot stock is going to the best performer over the next year and just enjoy watching those dividends come in.