Thursday, September 29, 2016

Dividend Reinvestment – Automatic versus Manual

There are two schools of thought when it comes to dividend reinvestment. One of the options is to automatically reinvest dividends, whereas the other option is to selectively reinvest dividends received.

The automatic dividend reinvestment is the easiest one to do. Once you purchase a dividend paying stock, you essentially check the “dividend reinvestment” box. As a result, your dividend income is reinvested into more shares of the same stock, and you start the income compounding process. The set it and forget it type of action is particularly appealing to income investors who are just starting out and have small amounts to invest in the beginning,

Because of the fact that it is free, automatic reinvestment into more stock is most efficient for those investors. Otherwise, even at $4-$5/trade, reinvesting anything less than $800-$1000 in dividend income would be prohibitively expensive. In addition, some companies offer DRIP discounts for shareholders who automatically reinvest distributions back into more stock. Unfortunately, even if you reinvest dividends back into the same stock that paid them in a taxable brokerage account, you still owe taxes to the IRS, depending on your income level.

If you are investing in a retirement account, where contribution amounts are limited, it may also make sense to reinvest automatically, regardless of valuation. This is because it would be more cost efficient to do so, rather than accumulating cash until it makes sense to make another investment from a cost standpoint.

Tuesday, September 27, 2016

Common Misconceptions about Dividend Growth Investing

There are many misconceptions about dividend investing. I have tried itemizing several of them, outlining them, and providing a brief commentary. Dealing with viewpoints that are different from yours is very important, because it opens you up to new ideas, and tests your strategies against scenarios that you might not have thought about. Unfortunately, most of the time I deal with viewpoints which are against dividend investing, I often find the authors are only providing their opinions, without ever bothering to examine any factual evidence on the subject. It is very dangerous to have an opinion on a subject, without knowing it inside out, but sticking to your original viewpoint, even if the evidence refutes your original ideas.

As Charlie Munger says " “I never allow myself to have an opinion on anything that I don’t know the other side’s argument better than they do.” 

The misconceptions are summarized below:

Thursday, September 22, 2016

Frequently Asked Questions (FAQ) About Dividend Investing

I have highlighted below several frequently asked questions about dividend investing. This is not an all inclusive list, but more of a running total of questions I am usually asked about dividend investing, dividend growth stocks and my strategy. The answers pertain to my investing, strategy and experience, and I have tried to respond to the best of my knowledge and intentions. As I get new recurring questions asked, I would add them to this list.

Why should you focus on dividends?

A company that pays dividends is less risky than a company that has never paid a dividend. A company that pays dividends pays with actual cash, which cannot be easily manipulated like earnings. Dividends are a more stable part of total returns, and are always positive, which is what makes them ideal for retirees who want to live off their nest egg. Paying a dividend imposes discipline on management, that makes them evaluate the cash flow impacts of new projects and make them only focus on the best ideas. This dividend payment makes management less likely to engage in empire building, and less likely to simply hoard cash or mindlessly expand/acquire companies which are not accretive to returns. Few US managements are willing to cut a dividend – doing so sends signals that the company is weak financially.

Tuesday, September 20, 2016

Key Ingredients for Successful Dividend Investing

There are four key attributes that need to be considered, in order to be successful at dividend investing. These ingredients include focusing on quality, earnings growth, entry price and sustainable distributions. In this article, I would focus in more detail behind each of these four items.

While investors could argue that one cannot put success in a pre-packaged recipe for achieving it, I have found the four ingredients above to be essential for my income investing strategy.

Quality

I believe in purchasing quality dividend paying companies. This means that I try to focus on companies with strong competitive advantages, strong brand names and/or wide moats. Companies like that offer a product or service which customers desire, and are willing to pay a price which would deliver a fair profit. In addition, companies which offer products which are perceived to have quality characteristics, which typically translates into repeated purchases of the goods or services. In addition, companies that offer a unique product or service are able to compete based upon the added value they bring to the marketplace, and avoid costly price wars with competitors. Furthermore, the company would be able to have pricing power and pass on costs to customers, which will be much less likely to switch to another product. I understand that quality lies in the eyes of the beholder, but through experience, dividend investors should be able to uncover quality dividend paying gems.

Thursday, September 15, 2016

Dividend Champions - The Best List for Dividend Investors






Investors who are looking for quality stocks that regularly raise dividends have several lists available as a starting point in their research. The typical lists include the S&P Dividend Aristocrats index, which consists of 50 constituents of the S&P 500 which have raised distributions for over a quarter of a century and also have certain capitalization, liquidity requirements. Another popular list includes the Dividend Achievers Index, which includes almost all companies traded on US exchanges which have consistently raised distributions for over one decade, and which also meet a certain liquidity threshold as well. The third list, the dividend champions, is maintained by Dave Fish. This is by far the most comprehensive list of dividend growth stocks available for free. It breaks down the dividend growth universe into dividend champions, dividend contenders and dividend challengers. The list could be obtained from this link.

The dividend champions list includes all stocks traded in the US, which have raised dividends for at least twenty-five consecutive years. I prefer the dividend champions list than the dividend aristocrats index, since it is more complete and does not have artificial requirements such as index membership or minimum trading volume. These requirements are typically irrelevant to long-term dividend investors, who focus on fundamentals that could support a growing distribution, not on day to day market fluctuations. Currently there are 110 dividend champions, which yield 2.46% on average.

Some notable dividend champions include Colgate-Palmolive (CL), Procter & Gamble (PG) and Coca-Cola (KO). Colgate-Palmolive (CL) has consistently raised dividends for 53 years in a row, but for some strange reason was not included in the dividend aristocrats index until 2012. This is a great example why focusing on the dividend champions list could provide a more comprehensive selection of elite dividend stocks. Another dividend champion is Altria Group (MO). The only reason why the company is not on the dividend aristocrat list is because its dividend payment is lower due to the spin-off of Phillip Morris International (PM) in 2008 and Kraft Foods (KFT) in 2007. Other than that, the tobacco company has managed to increase dividends for 47 years in a row.

Tuesday, September 13, 2016

Create Your Own Dividend ETF With Motif Investing

Update: I believe that Robinhood is a better alternative for investors than Motif Investing

Motif Investing is an established brokerage which lets investors create their own portfolios, and purchase them for a set commission. Each investor can build a portfolio of up to 30 individual securities, and then purchase that portfolio for a single commission of $9.95. This works out to 33 cents per trade on 30 securities, which is cheaper than Interactive Brokers on a per-trade basis. If you were making 30 individual stock trades at Scottrade, you would have to pay $210. At Tradeking, you would have to pay $148.50 for purchasing those 30 individual securities. At Schwab, it would cost $268.50 to assemble a portfolio of 30 individual stocks.

There are no monthly fees and no account minimums, which makes Motif Investing a good broker for new dividend investors. Motif Investing also offers single stock purchases for a low price of $4.95/trade, which is relatively cheap as well. They do require a minimum investment of $250 to purchase a Motif. You can buy or sell Motifs for $9.95 or you can re-balance also for $9.95/trade. The brokerage is SIPC insured, which means that securities up to $500,000 are protected in case the brokerage firm goes under. They do not reinvest dividends yet, but this is not really an issue for me, since I reinvest dividends selectively.

Thursday, September 8, 2016

The List of All Articles From the Dividend Growth Investor Blog

I have been writing about dividend growth investing since January 2008.

I often get asked questions by readers. Many of those questions inspire me to write articles, that address them.

However, I also constantly get a lot of questions which have already been addressed before. This is why I maintain a list of all articles written since I started this site in 2008. I try to update this list at least once per month. I just updated it through the end of August.

Please feel free to browse through the articles. I believe that this list of articles will likely address a large portion of questions.

Below, you can find the complete list of all articles that were published to Dividend Growth Investor site since January 2008. Thank you for reading!

▼ August 2016 (12)

▼ July 2016 (10)

▼ June 2016 (14)


▼ May 2016 (12)

▼ April 2016 (11)



▼ March 2015 (14)
▼ September 2014 (14)
▼ August 2014 (15)
▼ July 2014 (16)
▼ June 2014 (16)
▼ May 2014 (16)
▼ April 2014 (16)
▼ March 2014 (21)
▼ February 2014 (17)
    ▼ January 2014 (16)
    ▼ November 2013 (16)
      ▼ October 2013 (16)
        ▼ September 2013 (16)
          ▼ August 2013 (17)
            ▼ July 2013 (20)
              ▼ June 2013 (22)
                ▼ May 2013 (20)
                ▼ April 2013 (17)
                ▼ March 2013 (15)
                ▼ February 2013 (14)
                  ▼ January 2013 (16)
                  ▼ 2012 (153)▼ December 2012 (12)
                  ▼ November 2012  (11)
                  ▼ October 2012 (15)
                  ▼ September 2012 (12)
                  ▼ August 2012 (14)
                  ▼ July 2012 (12)
                  ▼ June 2012 (13)
                  ▼ May 2012 (12)
                  ▼ April 2012 (13)
                  ▼ March 2012 (13)
                  ▼ February 2012 (13)
                  ▼ January 2012 (13) 
                  ▼ October 2011 (16)

                  ▼ September 2011 (13)

                  ▼ August 2011 (14)
                  ▼ July 2011 (13)
                  ▼ June 2011(16)
                  ▼ May 2011 (17)
                  ▼ April 2011 (15)
                  ▼ March 2011 (13)
                  ▼ February 2011 (12)
                  ▼ January 2011 (13) 
                  ▼ December 2010  (13)
                  ▼ November 2010 (11)
                  ▼ October 2010 (13)
                  ▼ September 2010 (13)
                  ▼ August 2010 (14)
                  ▼ July 2010 (13)
                  ▼ June 2010 (15)
                  ▼ May 2010 (13)
                  ▼ April 2010 (13)
                  ▼ March 2010 (14)
                  ▼ February 2010 (12)
                  ▼ January 2010 (13) 
                  ▼ 2009 (201)▼ December 2009 (12)
                  ▼ November 2009 (11)
                  ▼ October 2009 (13)
                  ▼ September 2009 (14)
                  ▼ August 2009 (18)
                  ▼ July 2009 (16)
                  ▼ June 2009 (17)
                  ▼ May 2009 (17)
                  ▼ April 2009 (20)
                  ▼ March 2009 (23)
                  ▼ February 2009 (21)
                  ▼ January 2009 (19) 
                  ▼ December 2008 (17)
                  ▼ November 2008 (21)
                  ▼ October 2008 (22)
                  ▼ September 2008 (21)
                  ▼ August 2008 (23)
                  ▼ July 2008 (22)
                  ▼ June 2008 (19)
                  ▼ May 2008 (20)
                  ▼ April 2008 (22)
                  ▼ March 2008 (22)
                  ▼ February 2008 (21)

                  ▼ January 2008 (18) 

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