Tag Archives: dividend stocks

Hidden Value In Owning Dividend Paying Stocks

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With non-dividend yielding stocks, you have to sole depend on capital appreciation of the stock price to get ahead.  Admittedly, you could latch onto a great stock and ride it up to the moon, but more than likely, this will not be the case.

So today, I’m going to talk about the advantages of stocks that do yield a dividend.  Perhaps a good example would be McDonalds (MCD), it has a decent yield (3.3%) and a chance for stock price appreciation to boot.

In Volatile Markets

When there is scandal or a major concern in the country (or world), stock prices get pummeled.  This can create stress and even temporarily depress investors.  Currently, there is instability in Egypt that has caused the stock market to decline by 166 points this past Friday.  While I’m very concerned about this, having dividend yielding stock takes some of the edge off of the stress about the stock market.

Why, you might ask?

Because for the most part, dividends that stocks pay out aren’t determined by current events.  Temporary drops in the stock market do not affect the dividend payout by the companies that elect to pay a dividend.  Mainly profits and executive decisions are what determine what the company will pay out as a dividend (at least at the better companies).  Some companies (like REITs) are required to pay out around 90% of their profits for the year to be classified as a REIT (Real Estate Investment Trusts).

Since most dividends are paid out quarterly, current news is immaterial and may have resolved by the time that the dividend payout amount is determined.

Another positive value is that fact that the dividend payouts reduce the downward action of the dividend yielding, stocks price.  People are less apt to give up the juicy dividend, so the decline of the price of the stock moves slowly.  The reason for the slow downward movement of the stock price is because if there is a drop in the stock price, the dividend yield become more appealing because the payout percentage will be higher.  This naturally motivates people to jump in and grab hold of that great percentage yield before the stock price starts to go up again!

Caveat!

Just because a stock pays a dividend, doesn’t mean that they are still viable!  Do the proper research to make sure that the dividend paying stock is a solid investment (don’t by any typewriter stocks!).

As an alternative to purchasing individual dividend paying stocks, Nicole at “Grumpy Rumblings of the Untenured” suggests and go out and buy a mutual fund that is oriented towards paying out a dividend or actually only purchases dividend paying stocks (watch out for high fees though).  This way you reap the rewards while a professional manages your dividend portfolio.

-MR

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Disclosure, I do own a very small position in McDonalds stock.

Paying Allowances From Dividend Stocks

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Paying Allowances From Dividend Stocks:

First let me start by saying that I wish I had thought of this 10+ years ago!  The following is an idea that I would have liked to pursue for my kids, and while it’s still possible, the upfront investment for such a dividend stream is a bit steep for me right now.  So instead, I will introduce the idea to see if others may find value in such simple idea.

What I wish I would have done was buy some solid, reliable dividend stocks each year and have the dividend payout from the stock go to my kids as an allowance instead of me paying for their allowance out of my wallet each and every week.  Of course, the earlier years of the dividend payout would go directly back into the dividend paying stock during the ages when the child was too young to receive such an allowance.

I might even have the kids receive the payout once a quarter, just to get them use to quarterly payouts instead of weekly ones.

The following chart calculation is a very simplified table that will give a ballpark number.

             
        Div Payout Div Interest  
  Year 1 Contribs. Principle Percent Amount  
  1 1200 $1,200 0.05 $60  
  2 1200 $2,460 0.05 $123  
  3 1200 $3,783 0.05 $189  
  4 1200 $5,172 0.05 $259  
  5 1200 $6,631 0.05 $332  
  6 1200 $8,162 0.05 $408  
  7 1200 $9,770 0.05 $489  
  8 1200 $11,459 0.05 $573  
  9 1200 $13,232 0.05 $662  
  10 1200 $15,093 0.05 $755  
             
          52  
          $14.51  
             

So using the table above, the payout in a childs 10th year could be $14 dollar based on a 5% dividend payout rate.  The table above doesn’t take into account taxes, so the actual dividend payout will be a bit lower that the number suggested in the table, but not enough to discount the value of the information!

Yet Another Stealth Emergency Fund:

Recently, I wrote about my stealth emergency fund, and these stocks could be used as yet another form of an emergency fund.  Would I be tempted to use these dividend stocks for an emergency first?  No, only after the regular savings from an emergency fund has been depleted would I consider these stocks.  That said, it’s still definitely a consideration!

Conclusion:

I was considering trying this idea, but after writing about it, I think I may have missed the boat on the implementation of this concept.  It would have be easier to implement the idea earlier while your kids are very young!  So while I really like this idea, I will put my money in dividend yielding stock for other purposes than and allowance fund.  If I have the other ideas fully funded, I make come back to this one and give it a try.

Have you consider creating such an idea for your kid allowance needs?  It’s kind of a win-win if you think about it.  You get to pay your kids an allowance, and at the same time you have a portfolio of dividend stocks that may continue to grow!

-MR

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Dividend Stocks, Free Lunch Experiment #7

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Dividend Stocks, Lunch Experiment Update:

Dividend Experiment

Dividend Experiment Update #7

This month, capital appreciation in the value of the stocks in the experiment has overall risen because of EV Energy (EVEP).  Ironically, EVEP is also the stock that I bought the least amount of.  Surprisingly, the market value of EV Energy has just surpassed the market value of ANH.  This is surprising because ANH cost me double the amount as EVEP did.  In fact, the share price of EVEP is starting to worry me a bit; it’s starting to look frothy so I’ll probably review the financial stats to make sure it’s still solid and not overbought.

The other two stocks in the experiment have remained close to the market values that they were last month.

Background:

The Free Lunch Experiment, which invests in dividend stocks so that I can use the yield to pay for my weekly lunches, is my first true experiment here at MoneyReasons.com and was started with the article called: “Paying An Adult Allowance, A Lunch Experiment”.  As explained in the article link in the preceding sentence, the money used in this experiment is free money because I would have spent it on eating lunch out with friends at work anyway (and yes my friends still go out everyday).  This means that if I were to lose all the money in this experiment tomorrow (very unlikely), I would really be out nothing!

By having free money fund this experiment, I’m able to take additional risks that I normal wouldn’t consider.

In some perverse way, one could consider the experiment money a form of emergency money, but I prefer not to make that claim…

Stock Name Anworth EV Energy Chimera
Stock Ticket ANH EVEP CIM
# of Shares 260 45 600
Orig. Price $7.84 $23.25 $4.01
Curr. Price $6.95 $42.33 $4.07
Orig Cost $2,038.14 $1,046.25 $2,404.80
Curr Value $1,807.00 $1,904.85 $2,442.00
Annual Yield 13.24% 7.15% 17.69%
Actual Dividend $59.80 $34.07 $108.00
Total Dividends $807.48
52 weeks 52
Dividend / week $15.53
Total Gain in
Stock Apprec. $664.66
% Change 12.11%
Amt Loaned to myself: $1,726
Amt paid back to date: $1,299
Amt Still Owned: $427

Priming the Pump:

While the money involved in this experiment is technically free money, to expedite the stock purchase funding I’ve borrowed money from my checking account a few times just to speed up the process (thus priming the pump so to speak).  Of course I paid myself back too though.  Currently, I still owe myself $427.

Evolution of the Experiment:

Now that the experiment is established and generating a decent dividend stream, after I pay off my loan to myself in mid-March 2011, I may cut back on the amount that I borrow from my checking account or not borrow any more from myself at all.  This would mean that I would just save the money by not eating out first, then purchase additional stock after I save up enough to make a decent buy.  I many use some of my dividend money to help purchase future shares too.

Hopefully, by the next monthly update I’ll be able to provide more details about the specific of the future changes to this experiment.

-MR

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Dividend Stocks, Free Lunch Experiment #6

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Well, it’s time for another update!  The dividend payout rates have not changed and the overall appreciation of the stocks has raised!

The Free Lunch Experiment, which invests in dividend stocks, is my first true experiment here at MoneyReasons.com and was started with the article called: “Paying An Adult Allowance, A Lunch Experiment”.

In a nutshell, the experiment is that I want focused investments in certain dividend stocks to pay for my lunch when I go out to eat at work.

The real advantage is that the money I’m investing in, is money that I would have spent for lunch anyway.  In my opinion, this make this money free because it would have been spent!  So if I were to lose all of the money tomorrow, I would be sad, but it’s money that I wouldn’t have had anyway had I not started the experiment.  In other words, the first dollar saved was a 100% gain on what I had previously, which was a spent dollar.

So much like the reference in the movie “Blade“, the Lunch Experiment has all of the advantages, and not of the disadvantages of being an stock dividend investment.

Stock Name Anworth EV Energy Chimera
Stock Ticket ANH EVEP CIM
# of Shares 260 45 600
Orig. Price $7.84 $23.25 $4.01
Curr. Price $7.14 $38.25 $4.13
Orig Cost $2,038.14 $1,046.25 $2,404.80
Curr Value $1,856.40 $1,721.25 $2,478.00
Annual Yield 12.89% 7.92% 17.43%
Actual Dividend $59.80 $34.07 $108.00
Total Dividends $807.48
52 weeks 52
Dividend / week $15.53
Total Gain in
Stock Apprec. $566.46
% Change 10.32%
Amt Loaned to myself: $1,726
Amt paid back to date: $1,139
Amt Still Owned: $587.00

Previous Update:  Dividend Stocks, Lunch Experiment Update #5

Thanks for following me and my “free lunch” experiment!

-MR

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