One of the many questions I receive from readers relates to time spent managing my dividend portfolio. The truth is that I have multiple short-cuts, which I utilize to get the right information for me. The other truth is that I try to be efficient with my time.
There are several resources I utilize for doing research.
- My broker
My broker Interactive Brokers is a very helpful tool I utilize. I receive notifications about upcoming dividend payments, which essentially provides a signal when dividends are raised. In addition, I receive notifications of upcoming dividend payments and upcoming quarterly releases on the companies I own. A very helpful tool is the fact that I receive my paper annual reports mailed to me. The months of March through May are characterized by receiving a lot of paper annual reports.
The most helpful thing I learned about monitoring companies, I learned from studying Warren Buffett. The Oracle of Omaha essentially purchased a few shares in many companies, in order to receive their annual reports and significant shareholder correspondence. When you own a small piece of a company, it is much easier to monitor that business. This knowledge will accumulate over time, and would make you ready to act when the right opportunity presents itself.
Monday, September 14, 2015
Thursday, September 10, 2015
Is time spent learning dividend investing worth it? (Part 2)
This is the second and final part on the article from Tuesday. Please refer to the first part that was posted on Tuesday.
I believe that most of the accumulation of knowledge with dividend investing is upfront. This means that the time spent learning about a company such as Johnson & Johnson (JNJ) is in the initial phases of the research process. Time spent updating the story should not take nearly as much time as the time to learn about the company initially, Dividend investing is appealing, because after spending time accumulating knowledge about a company, and building a portfolio of good ones at cheap prices, I am essentially getting paid a growing amount of dividend for decades afterwards, even if I don’t lift my finger after that.
With a passive portfolio of dividend paying stocks, you are going to save a ton on annual management fees. If you bought mutual funds, even low cost index ones, you can end up paying tens or hundreds of thousands of dollars in fees. Even a 0.10% annual fee could be a lot when you manage say $1 million today or $10 million one day. As discussed above, if you use a financial adviser, you would end up paying at least 1% for the "advise" and the high fee mutual funds that go along ( or maybe even pick up some costly annuity) But if you learn how to invest your own money, and devise a plan to accomplish your goals, you will save a ton in costs. If you stick to your plan through thick or thin, you will be able to accomplish your goals. For the do it yourself dividend investor, there are ways to minimize commissions to the minimum, so theoretically it is possible today to buy blue chip stocks for practically no cost and hold them for decades. This is essentially what an index fund on the S&P 500 index fund does. It holds stakes in well-known companies such as Exxon Mobil (XOM), Apple (AAPL), Johnson & Johnson (JNJ), Coca-Cola (KO), but it charges an annual fee for this service. Since those companies are well-known, I have found it easier for me to just buy them outright and avoid paying the annual management fee. The only place where I actively invest through index funds is in my workplace 401 (k) plan. For the majority of workers out there, who confine their investing to their workplace 401 (k) plan, low cost indexing is possibly the best approach due to tax efficiency and employer match. Even then, learning about types of contributions and plans, minimizing fees, investment options available, and asset rollovers, can be tremendously beneficial.
I believe that most of the accumulation of knowledge with dividend investing is upfront. This means that the time spent learning about a company such as Johnson & Johnson (JNJ) is in the initial phases of the research process. Time spent updating the story should not take nearly as much time as the time to learn about the company initially, Dividend investing is appealing, because after spending time accumulating knowledge about a company, and building a portfolio of good ones at cheap prices, I am essentially getting paid a growing amount of dividend for decades afterwards, even if I don’t lift my finger after that.
With a passive portfolio of dividend paying stocks, you are going to save a ton on annual management fees. If you bought mutual funds, even low cost index ones, you can end up paying tens or hundreds of thousands of dollars in fees. Even a 0.10% annual fee could be a lot when you manage say $1 million today or $10 million one day. As discussed above, if you use a financial adviser, you would end up paying at least 1% for the "advise" and the high fee mutual funds that go along ( or maybe even pick up some costly annuity) But if you learn how to invest your own money, and devise a plan to accomplish your goals, you will save a ton in costs. If you stick to your plan through thick or thin, you will be able to accomplish your goals. For the do it yourself dividend investor, there are ways to minimize commissions to the minimum, so theoretically it is possible today to buy blue chip stocks for practically no cost and hold them for decades. This is essentially what an index fund on the S&P 500 index fund does. It holds stakes in well-known companies such as Exxon Mobil (XOM), Apple (AAPL), Johnson & Johnson (JNJ), Coca-Cola (KO), but it charges an annual fee for this service. Since those companies are well-known, I have found it easier for me to just buy them outright and avoid paying the annual management fee. The only place where I actively invest through index funds is in my workplace 401 (k) plan. For the majority of workers out there, who confine their investing to their workplace 401 (k) plan, low cost indexing is possibly the best approach due to tax efficiency and employer match. Even then, learning about types of contributions and plans, minimizing fees, investment options available, and asset rollovers, can be tremendously beneficial.
Wednesday, September 9, 2015
Is time spent learning dividend investing worth it?
I believe that time spent learning the ropes behind dividend growth investing is worth it. In this article I will discuss why I believe that to be the case. As usual, I will use my experience as a successful dividend investor for this article. In my case, learning about investing has provided me with tangible benefits of being three years away from achieving financial independence, after starting my journey in the middle of 2007. I also have gained intangible benefits to learning such as using knowledge acquired in investing to advance in my work or to find a better paying job. An even better intangible benefit has been the ability to connect with other investors, through this online community called Dividend Growth Investor.
As a person I enjoy learning. When you learn a skill there is never a guarantee that you will earn anything from that knowledge. But there is never a guarantee for anything in life either.
The time you spend learning is not wasted – knowledge accumulates like compound interest. When I spent four years obtaining a college degree I didn’t know if I would find a job afterwards. I paid money to obtain that degree, spent time acquiring knowledge and worked hard to achieve and maintained a high GPA. At the same time I worked 40 - 60 hours/week at several minimum paying jobs in order to pay for my degree, and in order to avoid getting any debt in the process. Would I have been better off spending 40 - 60 hours/week only working those minimum paying jobs and investing the difference? No way I would have been better of this way – this is the reason I decided to study hard, so that I have the opportunity to earn more than a minimum wage salary. While I had no idea whether anyone would hire me after graduating, I decided to make a calculated bet, and take the plunge. This investment in knowledge paid off for me. I believe that it can help anyone who is willing to invest in themselves.
As a person I enjoy learning. When you learn a skill there is never a guarantee that you will earn anything from that knowledge. But there is never a guarantee for anything in life either.
The time you spend learning is not wasted – knowledge accumulates like compound interest. When I spent four years obtaining a college degree I didn’t know if I would find a job afterwards. I paid money to obtain that degree, spent time acquiring knowledge and worked hard to achieve and maintained a high GPA. At the same time I worked 40 - 60 hours/week at several minimum paying jobs in order to pay for my degree, and in order to avoid getting any debt in the process. Would I have been better off spending 40 - 60 hours/week only working those minimum paying jobs and investing the difference? No way I would have been better of this way – this is the reason I decided to study hard, so that I have the opportunity to earn more than a minimum wage salary. While I had no idea whether anyone would hire me after graduating, I decided to make a calculated bet, and take the plunge. This investment in knowledge paid off for me. I believe that it can help anyone who is willing to invest in themselves.
Friday, September 4, 2015
The value of dividend growth in retirement planning
Some regular readers might remember that in my retirement planning, I estimate that I will be able to allocate my capital at yields between 3- 4% and dividend growth between 6 – 7%. If I am lucky, the above numbers will result in roughly doubling of dividend income every seven years or so. This means that if I had a dividend portfolio that generated $1000 in annual dividend income today, I could reasonably expect that through meticulous and opportunistic reinvestment of dividends and through the power of dividend growth, I will be able to double this to $2000/year in seven years.
In order to generate $1000 in annual dividends, one needs anywhere from $40,000 invested at 2.50% to $25,000 invested at an yield of 4%. Of course, in a somewhat efficient marketplace for common stocks, investors who require higher current yields today tend to forego some of the expected dividend growth. On the other hand, some are fine sacrificing some current yield today, in order to capture estimated dividend growth in the future. As discussed previously, there is a trade-off between dividend yield and dividend growth. The balance is determined based on investors reasonable expectations against the realities of opportunities available at the time.
I buy dividend growth stocks, because I want to earn dividend income that grows over time. When this annual rate of dividend growth is above the annual rate of inflation, this means that I have maintained purchasing power of my income. However, I have heard arguments that one could maintain the purchasing power of their dividend income, provided they reinvested the dividend back into securities that pay high dividend yields. Therefore, if you own a stock yielding 4% that never increases dividends, but you reinvest dividends at same or other security yielding 4% at the moment, your income will increase by 4% for the year. If inflation is below 4%, you would have essentially slightly increased purchasing power.
In order to generate $1000 in annual dividends, one needs anywhere from $40,000 invested at 2.50% to $25,000 invested at an yield of 4%. Of course, in a somewhat efficient marketplace for common stocks, investors who require higher current yields today tend to forego some of the expected dividend growth. On the other hand, some are fine sacrificing some current yield today, in order to capture estimated dividend growth in the future. As discussed previously, there is a trade-off between dividend yield and dividend growth. The balance is determined based on investors reasonable expectations against the realities of opportunities available at the time.
I buy dividend growth stocks, because I want to earn dividend income that grows over time. When this annual rate of dividend growth is above the annual rate of inflation, this means that I have maintained purchasing power of my income. However, I have heard arguments that one could maintain the purchasing power of their dividend income, provided they reinvested the dividend back into securities that pay high dividend yields. Therefore, if you own a stock yielding 4% that never increases dividends, but you reinvest dividends at same or other security yielding 4% at the moment, your income will increase by 4% for the year. If inflation is below 4%, you would have essentially slightly increased purchasing power.
Wednesday, September 2, 2015
Preventing Blind Spots in Dividend Investing
In a previous article I described why dividend investors should look beyond typical dividend growth screens. I am basically finding that investors who take the time to study the numbers for every individual business one at a time, are much more likely to uncover hidden gems. I believe that investors who rely on pure quantitative screens, might develop blind spots that would prevent them from identifying hidden opportunities.
For example, investors who blindly followed the S&P Dividend Aristocrats index in 2007, would have sold their shares of Altria (MO), right before it more than tripled in value. The index committee erroneously thought that when a company splits in three, its past record no longer matters, even if original shareholders were earning higher dividend income from the shares of companies they received. For any smart dividend growth investor, this would not have caused them to sell, but to simply hold on and enjoy the growing stream of cash dividends every year.
In another example, I have the list of stocks in my portfolio input into Yahoo! Finance. When I have spare funds to invest in dividend stocks, I might go to Yahoo! and look at valuation metrics of companies I own. As I was reviewing the valuation of my portfolio holdings, I noticed that some of the companies I own seem very overvalued on the surface.
For example, investors who blindly followed the S&P Dividend Aristocrats index in 2007, would have sold their shares of Altria (MO), right before it more than tripled in value. The index committee erroneously thought that when a company splits in three, its past record no longer matters, even if original shareholders were earning higher dividend income from the shares of companies they received. For any smart dividend growth investor, this would not have caused them to sell, but to simply hold on and enjoy the growing stream of cash dividends every year.
In another example, I have the list of stocks in my portfolio input into Yahoo! Finance. When I have spare funds to invest in dividend stocks, I might go to Yahoo! and look at valuation metrics of companies I own. As I was reviewing the valuation of my portfolio holdings, I noticed that some of the companies I own seem very overvalued on the surface.
Subscribe to:
Posts (Atom)
