How to Crush Dividends In 2018

If you are reading this then you almost certainly know what a dividend is. A dividend is a distribution of funds paid to shareholders (investors) based on company profits. These payments are typically made quarterly and are generally in the range of 2%-4% annual. These stocks are classified as income stocks because they provide a steady stream of to the shareholders.

 

Higher Yields Tends to Higher Risk

Investors like to own higher yield income stocks in their fixed-income portfolios in order to get a higher yield that what they can get from other fixed-income products such as CD’s or bonds. The higher yield from the income stocks comes at a cost as the stocks are inherently a bit more risky than the bonds or CD’s.

 

There is a lot to get excited about when considering what dividend stocks can do to your portfolio as many people use these payments as a significant portions of their income. You can use a dividend growth model in order to help you create a solid stream of passive income AND build a sold growth portfolio. Mike at Dividend Stocks Rock (DSR) has put together one of the best models that I have come across to achieve this goal.

 

DSR Model

The DSR model centers around 7 principles that will get to the core which stocks to buy, how long do you hold them, how to diversify them, how to these fit in with my investment goals, etc. The principle help to focus on building a rock solid portfolio.

 

DSR Model Principles

Principle #1: High Dividend Yield Doesn’t Equal High Returns
Principle #2: Focus on Dividend Growth
Principle #3: Find Sustainable Dividend Growth Stocks
Principle #4: The Business Model Ensure Future Growth
Principle #5: Buy When You Have Money in Hand – At The Right Valuation
Principle #6: The Rationale Used to Buy is Also Used to Sell
Principle #7: Think Core, Think Growth

They are succinct in nature but reflects a lot of value and thought consideration. Mike’s dividend growth model is clear, simple, and a home run if your looking to expand your fixed-income portfolio.

 

This was a Guest Post

5 Dividend Paying Stocks You Should Have in Your Portfolio (Dividend Aristocrats)!

If you are saving and investing money and you like the idea of receiving a safe dividend payment at the end of each quarter, then you should certainly consider the below stocks. Dividends are great for a variety of reasons, but they are not all created equally.

 

Dividend Aristocrat??

Many people are not aware of this but there is a list of companies known as Dividend Aristocrats who are recognized for paying (and increasing) dividends for at least 25 consecutive years. While steady paying out a consistent dividend year after year, the companies also routinely outperform the S&P 500. Most of the companies below are on the dividend aristocrats list and should have a place in every investors portfolio.

 

1. Coca-Cola (KO)

Coca-Cola is one of my favorite dividend paying stocks. They are one of the companies that helped make Warren Buffet wealthy. Heck, they helped make Santa Clause’s image recognizable everywhere. Coca-Cola is known for being marketing geniuses and will continue to innovate and grow their company.

Coca-Cola has paid a dividend since: 1893
They have 54 years of consecutive dividend increases
Their current dividend yield: 3.5%

 

2. Exxon Mobil (XOM)

Exxon Mobil is one of the most profitable companies in the world and a leader in the energy industry. They have the ingenuity (and cash) to leaded the worlds energy market for years to come.

Exxon Mobil has paid a dividend since: 1882
They have 34 years of consecutive dividend increases
Their current dividend yield: 3.6%

 

3. General Mills (GIS)

General Mills is a staple in the US economy. Their products are recession proof and a beloved favorite among many.

General Mills has paid a dividend since: 1898
They have 13 years of consecutive dividend increases
Their current dividend yield: 3.1%

 

4. Procter & Gamble (PG)

With the longest steak of consecutive years with dividend increases, Proctor & Gamble is the dividend aristocrat King! With their vast variety of products and consistent performance, it is hard not to have this stock in your portfolio.

Proctor & Gamble has paid a dividend since: 1891
They have 60 years of consecutive dividend increases
Their current dividend yield: 3.0%

 

5. Vanguard High Dividend Yield ETF (VYM)

Although, technically not a stock but rather an ETF and not a dividend aristocrat, I am a big fan of Vanguard funds. With their experienced and talented fund managers and their extremely low fees, Vanguard provides the best results for the money.

Vanguard High Dividend Yield ETF has paid a dividend since: 2007
They have 10 years of consecutive dividend increases
Their current dividend yield: 2.84%

 

Saving at a Young Age? How about Investing at a Young Age?

I have a bone to pick with people who are always saying “start saving young” or “begin saving when your little”. Now it’s not that that it is wrong to tell people to begin saving when they are young, its just incomplete.

Saving vs. Investing is a Mindset

I’m all for teaching children to begin saving when their young but I think that we also need to emphasis begin investing when they are young too. My son, though he is only 1 and a half right now, is going to be taught that saving for the future can be short sighted if your not investing. Granted, saving $50 to go on a date in a few weeks is somewhat different that saving $50 per month for college, but we can begin to start thinking about this concept.

To Save $50 or to Invest $50

Take the saving $50 to go on a date example. What if I were to offer my son (who is now a teenager) a return on his money if he were to let me hold his money and use it while he were saving it? Let say I would offer him a 10% return on his money if he were to let me hold on to his money until he was ready to use it. I think this is a good way to begin to differentiate the difference between saving and investing at a young age.

Too Early to Invest??

While were at it, why not begin sooner? Is it ever to early to learn the lessons of investing? Let say, I give my son (who is now 8) a bi-weekly allowance. Let say I give him $10 every two weeks and he could do what ever he wanted to do with it. Matter of fact, I’ll offer to take him to the store and spend it on whatever he wants. But I’ll also make him a second offer. Since I’m Bank of Dad, I offer to hold his $10 and for every day that he lets me hold it, and not spend it, I’ll give him $1 extra per day (up to a week). First, I wish someone would offer me these rates! Second, I think it’s never too early to begin the first lesson of savings vs. investing.

 

 

2017 Investment Summary

2017 Highlights

*17.33% return for 2017! Great, however, considering the S&P 500 returned 18.74% in the same time period means that everyone did well in this time frame, thus my 17.33% (although good) was merely average for the year.

*BitCoin was the big story for 2017. An amazing 1197% return is incredible. Unfortunately I only had one bitcoin at the beginning of the year and sold it (in increments) early on. Again, I think bitcoin is the modern day 17th century TulipMania. I’ll expand on that later..

How I View Investment Returns

Albert Einstein is said to have called compound interest “the most powerful force in the universe.” Because I’m not nearly as smart as Mr. Einstein nor do I have the luxury time to test his theory, I’m inclined to believe him. My goal in chasing solid returns is to utilize the power of compounded interest by seeking different (high-return) investment ideas.

There are two key that everyone must understand when considering investments.. risk and time.

Investment Returns  =  Time + Risk

Everyone should understand that investment returns are inversely proportional to the risk of the investment.. meaning that the higher your returns are the higher risk your investment is (in most cases).

Everyone should also understand the time effect on returns. For instance, if you purchased a house in 1990 for $100,000 and you sold it 10 years later for $180,000 well you made a cool $80,000 and 80% on your money. That’s great, however, your annual return on your money is only 6.05%! And that’s if you paid cash and no fees have been included. In the same time period the S&P 500 index returned about 13% annually. More on this later, back to time and risk..

Given this, I tend to favor investments that have higher returns per my time invested. For instance, if I were to invest in rental property, I would prefer to invest in a REIT that returns 12% rather than buying my own rental and becoming a landlord and earning a 15% return. I value my time as I believe everyone should. Even going to work you make a certain wage per hour, week, day, year, etc. Thus, your job is an investment that pays a certain return and has a certain amount of risk. So again, my goal is to capitalize on the power of compounded interest by getting the highest returns possible, with the shortest time frame possible, and the lowest risk possible.

It’s 2018! Happy New Year!

A new year means a new project. This blog is to document my personal journey on seeking good investment returns, creative investment ideas, risk-taking, personal motivation, and some other random ideas. I’m not much of a writer so this is going to be interesting. So, here we go..