Monday, June 9, 2014

7 Dividend Paying Stocks I Purchased Without Paying Commissions

Several months ago, I opened an account with Loyal3, which is a commission free stock brokerage. The nice part about this brokerage was that one could buy shares in companies with as little as $10 per transaction, and not pay any commissions. In addition, one can use a credit card to purchase shares in some of America’s greatest brands. The issue was that there are only 50 or so companies that are available to be purchased directly using Loyal3. On the bright side however, there are several world-class dividend champions, which are core holdings for many dividend growth investors. Those strong brands will likely grow dividends and enhance shareholder value for decades to come.

Once I signed up for the service, I decided to put about $50/month in several of those companies, which had increased dividends for a set number of years and met some basic valuation guidelines. The appeal of not paying commissions, and obtaining a 1% credit card rebate was attractive. For one of the companies, Target (TGT), I put more than $50 using Loyal3. For a few others, I played around and increased or decreased contributions. In one case, I stopped contributions to Wal-Mart Stores (WMT) after they announced the lowest dividend increase in their history. Currently, I am putting $50/month in the following companies:

The Coca-Cola Company (KO), a beverage company, engages in the manufacture, marketing, and sale of nonalcoholic beverages worldwide. This dividend champion has consistently raised distributions for 52 years in a row. Over the past decade, the company as managed to boost dividends by 9.80%/year. Currently, the stock is trading at 19.50 times forward earnings and yields 3%. Check my analysis of Coca-Cola for more details.

Dr Pepper Snapple Group, Inc. (DPS) operates as a brand owner, manufacturer, and distributor of non-alcoholic beverages in the United States, Canada, Mexico, and the Caribbean. This dividend stock initiated dividends in 2009 and has been raising them annually ever since. Currently, the stock is trading at 16.70 times forward earnings and yields 2.80%. Check my analysis of Dr Pepper for more details.

Kellogg Company (K), together with its subsidiaries, manufactures and markets ready-to-eat cereal and convenience food products primarily in North America, Europe, Latin America, and the Asia Pacific. This dividend stock has managed to raise distributions for ten years in a row. Over the past decade, the company has managed to boost dividends by 5.90%/year. Currently, the stock is trading at 17.30 times forward earnings and yields 2.70%. Check my analysis of Kellogg for more details.

McDonald'’s Corporation (MCD) franchises and operates McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. This dividend champion has consistently raised distributions for 38 years in a row. Over the past decade, it has managed to boost dividends by 22.80%/year. Currently, the stock is trading at 17.80 times forward earnings and yields 3.20%. Check my analysis of McDonald's for more details.

PepsiCo, Inc. (PEP) operates as a food and beverage company worldwide. This dividend champion has consistently raised distributions for 42 years in a row. Over the past decade, it has managed to boost dividends by 13.70%/year. Currently, the stock is trading at 19.30 times forward earnings and yields 3%. Check my analysis of PepsiCo for more details.

Target Corporation (TGT) operates general merchandise stores in the United States. This dividend champion has consistently raised distributions for 46 years in a row. Over the past decade, it has managed to boost dividends by 19.80%/year. Currently, the stock is trading at 15.50 times forward earnings and yields 3%. Check my analysis of Target for more details.

Unilever PLC (UL) operates as a fast-moving consumer goods company in Asia, Africa, the Middle East, Turkey, Europe, and the Americas. This international dividend achiever has consistently raised distributions for over 19 years in a row. Over the past decade, Unilever has managed to boost dividends by 9.90%/year. Currently, the stock is trading at 19.90 times forward earnings and yields 3.50%. Check my analysis of Unilever for more details.

If any of those companies sell for more than 20 times forward earnings 1 - 2 days prior to purchase date, I would cancel the recurring transaction however. Several of the companies on that list are interesting, but I would only consider them at better valuations. Hershey (HSY), Yum! Brands (YUM) and Starbucks (SBUX) are examples of such ideas.

I view this as an experiment than anything else. If you put $50/month in several individual dividend paying stocks, and you do this for a long period of time, you could end up with a lot of money in the future. This mass of enterprises could deliver tens of thousands of dollars in annual dividend income decades down the road. The only things you need to do is make sure to not overpay, diversify and then let the capital compound over long periods of time. If you think that $400 is nothing, you definitely need to spend more time learning about investments, time value of money, and the power of compounding. There are plenty of examples of successful dividend investors, who have turned small amounts of capital into multi-million dollar bequests to their favorite charities after their death. Therefore, do not despise the days of small beginnings.

The one thing that surprised me is how effortless automatic dividend investment could be. Over the course of 5 – 6 months, regularly putting money in several companies has resulted in a balance of several thousand dollars without much effort. The annual dividend income from this portfolio is now in the hundreds of dollars per year. This income will keep increasing over the next 30 – 40 years. This growth would be further compounded by selective dividend reinvestment.

The other lesson to learn is to start investing as early as possible, and try to put as much capital to work as possible. Consumption today is expensive from the lens of what the capital could generate if you let it compound for 30 – 40 years. For those who say that they do not have money to invest today, there is no absolutely no excuse to avoid investing, given that Loyal3 allows commission free investing with as little as $10.

Full Disclosure: Long KO, DPS, K, MCD, PEP, TGT, UL, WMT, YUM and short HSY puts

Relevant Articles:

How to buy dividend stocks with as little as $10
How to become a successful dividend investor
Warren Buffett – A Closet Dividend Investor
The Most Successful Dividend Investors of all time
Living off dividends in retirement

14 comments:

  1. Merrill Edge offers 30 free trades per month IF $25K in Bank of America savings account. Do the same with your wife and you get 60 free trades a month. I have had 60 free trades for the past three years. I rarely use all 60 trades in a month.

    ReplyDelete
    Replies
    1. That sounds pretty nice. However, that $25K in cash could be generating a nice stream of dividend income instead. I read somewhere that Merrill Edge would also provide free trades if you hold at least $50K in investments there. Does anyone know if that is true?

      I only opened my Merrill Edge account last year, so I am a few years before I reach $50K there.

      Delete
    2. I have Merrill Edge accounts, IRA/Roth IRA and Taxable. You are correct as long as if you hold at $50K in total across all investment accounts you don't need $25K in BoA account. I only have $50 in BoA savings account, since my total investments account is > 50K I get 30 free trades, i like these free trades, I use them to buy stocks with dividend income.

      Delete
  2. Very cool stuff here. I also have an account with Loyal3 and I like their free trading / 1% cash back by using my credit card.

    Out of curiosity, what "day" of the month have you chosen for your auto-invest? To me, that is the hardest choice to make. I have gone back and forth with this, and I guess there is no "real" answer....

    Any thoughts on this?

    ReplyDelete
    Replies
    1. Hi Ray,

      I have most in the first half of the month, and a couple in the third week. However, I think it all averages out over long periods of time.

      Good luck in your dividend investing journey!

      DGI

      Delete
  3. Also check out Interactive Brokers. You only pay around $0.0037/share - min $0.7/transaction. That is dirt cheap (unless you buy penny stocks). A 40*$50=$2000 transaction would cost $0.7, the minimum.

    ReplyDelete
    Replies
    1. I have been eyeing IBKR for quite some time. I have also heard that if you have $100K there, they won't even charge you a $10 monthly fee. This is pretty neat.

      However, I am mostly putting money to tax-deferred accounts these days, with the rest going into existing brokerage accounts. IBKR is high on my list though.. I am also on the waiting list for Robinhood, which would charge you $0 commissions. I just hope it doesn't turn out to be the next Zecco.

      Delete
  4. DGI,
    I recently started an account with Loyal3, and had a few questions I could not easily find the answers to on the website. As there is a waiting period for "Buys", do you know at what price the trade will be locked in at?

    Also, unde the FAQs, it states they will take care of reinvesting dividends. I did not see an option to turn this feature "on/off". As my first purchase was today, perhaps this will become more clear when I actually own the positions, but any insight you could offer would be great. Thanks, and keep up the good work.

    ReplyDelete
    Replies
    1. Hello,

      When I set up to buy say Target shares on day 6 every month, they end up taking the money from my bank account or credit card on that day ( unless it is a holiday/weekend), and the transaction is executed within 2 business days or so. They usually execute it around 2 PM ET, and you get the price at that time.

      I don't think they reinvest dividends right now. However, if you earn $10 in dividends, you can select to manually reinvest it into whatever stock they have available or you can decide to withdraw the money. If you have $10 in dividends sitting in cash in your account, and you have say a $50 purchase for say Coca-Cola, Loyal3 would only end up taking $40 from your credit card/bank account.

      Best Regards,

      DGI

      Delete
  5. I had also signed up with Loyal3 a number of months ago. So far it has been pretty good, I started with all the companies that you have listed, even the SBUX, HSY, YUM and a few others just for shits and giggles. I haven't sold any. I am hoping it will get to be self sufficient pretty soon, i.e. I'll have dividends routinely earned of >$10/mo where I can then reinvest into whatever company looks good at the time. I'm hoping this doesn't go the way of Zecco like you mentioned above with Robinhood. Loyal3 has already changed something with the credit card purchases (I don't remember at this time, but received an email about it a week or so ago).
    Disadvantages: It takes forever to pull money from bank account or credit card. If I start a buy on Monday, unless the money is already in the account, it might be Friday when it gets bought. If you have cash sitting there it is quick, same day if early enough or next day if after market hours.
    They must make money on the float, if I have $6 in dividends and start the buy on Monday (for $10 worth of stock) the $6 is gone from my account immediately, but the buy doesn't happen till Friday when it has the other $4 from bank or credit card, even though it gets pulled from my bank by Tues/Wed. The showing up of dividends takes an extra day or so. In my TradeKing account if the dividend is paid on 6/9 I'll get an email on 6/10 saying I have a dividend that was paid and if I log in it shows the dividend as being paid on 6/9. Loyal3 if it is paid 6/9, it shows up on 6/11 or so.

    I like the idea of free trades, will have to look at Merrill Edge, I missed out on the 100 free trades a year from Wells Fargo when they had their deal going on, don't want to miss anymore ;)

    ReplyDelete
    Replies
    1. Well, Loyal3 buys/sells shares directly from the companies, rather than buying them from the stock market directly. So a better comparison would be comparing Loyal3 to any of the DRIP Investing Services. If you are putting $10,$50, $100/month in a stock, Loyal3 is totally worth it. If you are a beginner investor, Loyal3 is totally worth it. If you invest $1000 or more per stock, and you are not a beginner, then a broker like Tradeking might be better for you.

      They used to let you spend up to $2500 per stock using a credit card, but they changed that last month. Now the most you can spend is $50 with a credit card per transaction.

      When I withdraw money, it takes 3 business days, which probably has more to do with settlements and banking rules ( plus your account is not a margin account at Loyal3)

      The website itself also discussed how it makes money:

      "How does LOYAL3 make money?
      LOYAL3 receives fees from companies that have a Social Stock Plan on our platform and will be compensated in its role in IPOs. For other stocks on our platform, LOYAL3 does not receive fees."

      Source: https://loyal3.secure.force.com/support/articles/FAQ/How-does-LOYAL3-make-money/?l=en_US&c=Categories%3ANew_to_LOYAL3&fs=Search&pn=1

      Delete
    2. Don't get me wrong, I really like Loyal3, what I listed were some pet peeves. I love the fact you can invest as little as $10 into a company. If you had to pay $4 or even $1 for tansaction fees it would be cost prohibitive to do that.

      I think it is cool that if I decide to pack my lunch for the day instead of going out or saving a few bucks on buying the store brand groceries instead of the trade name, I can click on buy a stock for the $10 that I saved that day. I can do it on the side while still using my full service discount broker for larger transactions.

      I also like how I can invest in companies I might or might not normally invest in as a DGI: Berkshire, Nike, Apple, Time Warner, etc. It has been fun with some fun money, but I am really looking forward to the point where my account will be on auto replenishment. When I have dividends of $10+ per month and just buy as I see fit.

      Delete
  6. Is there anything stopping you from placing multiple $50 buys in one day with your credit card to get around the $50 max CC purchase?

    ReplyDelete
    Replies
    1. Ken i've tried doing 2 x $50 of TGT and it didn't let me. Gave me a warning that is was a duplicate purchase. I was able to place a $10, $25 and $50 in one day. I did that for a few days in a row when TGT was dropping.

      Delete

Questions or comments? You can reach out to me at my website address name at gmail dot com.

Popular Posts