Tag Archives: stock dividends

Paying Expenses From Dividends

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Paying normal expenses is a lot like renting, you never really get ahead and may even be living paycheck to paycheck for your entire life, just barely getting by.

Or perhaps you are hording away money living like a miser until it’s time to retire.  The problem with that approach is retirement may never come, after all, accidents happen…

Maybe your plan is to just spending everything, going into massive debt figuring that you can always declare bankruptcy and start overall someday in the future.

All of these are ways to handle expenses and spend money, but what if we tried paying our expenses from dividends instead of money from our paychecks?

In fact, what if from the beginning of adulthood we started paying expenses from dividends?

If from the start, we took our salary or wherever you get your income, and bought stocks that provide a stable dividend, we could have a level of freedom that most people don’t have after 10 or 20 years!  I’m sure you are thinking that it wouldn’t be possible, and you would be right!  It would have to be a gradual process, buying some dividend stocks at the beginning, but slowly using that dividend money to pay your expenses.

Using the graph above, the red would be the money we bleed from our paychecks, whereas the green would be the dividend money that would continue to grow over time.  Eventually we would be paying all of our expenses from dividends!

You wouldn’t have to directly use the dividend money, instead you could have the money automatically reinvest back into the stock (let’s say a DRIP), while paying from your paycheck as normal.  it might take decades for your expense to totally be handled by your dividends, but it’s worth a try!

Much like the line in the graph above isn’t straight, neither would the stream of dividends.  At the end, it would dividend money would grow more quickly, so it would be slightly parabolic.

So I’m going to try this approach, but more importantly, I’m going to teach my kids early when they are young.  If they could incorporate such a system into their lifes, I think they would be well provided for in the future!

Bests,

-MR

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.

Buying Dividend Stocks For Christmas Expenses

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Christmas Fund

Christmas is just around the corner (lol), so I thought I’d prepare now just to get a small jump on my Christmas expenses.

Okay, I’m buying dividends for Christmas expenses but most likely I won’t use it until year 2012 or maybe even 2013…

I’ve had such great success with My Lunch Experiment, that I decided I wanted to do something similar with another source target for the stock dividends to be allocated for.  The beauty of the Lunch Experiment is that the money was free in some respects, since its money that would have been spent if I didn’t come up with the idea for the lunch experiment in the first place.

The money for a Christmas Fund is a bit tougher since the money for my lunch experiment was supplied by the money that I would have spent on lunch out at work.

I ended up gathering up money from sources where my paper money was just sitting doing nothing at home.

Money Sources included the following:

  • Cash that was sitting in a drawer in my office.  This purpose of this money was used for cash gifts for Birthdays (mainly for the kids).
  • Cash that was sitting in a small firebox in the basement.
  • Money that I had stashed in my car for “on the road” emergencies
  • A few small piggy banks around the house
  • And finally 100 dollars I had in between a few pages of a book.

All told, I was able to collect about $1,200 for the purchase of the dividend stock(s) that will be used in the Christmas Fund purchase today.  I’m tempted by some high stock yields, but I’m probably going to settle on less risky dividend yields(shooting for the 3% to 5% range).

After I get money back from income taxes, I think I’ll add in $1,300 to the amount in the fund, bringing the total to $2,500.  This should be a great base for such a fund!

I think after a number of years, once I get to $12,000 in the fund, I will only contribute $500 per year.

I know it seems like I’m really focused on dividends lately, but I really want to get these funds established early this year!  I’ve learned thought previous experience if I don’t start them early when it’s still solidly on my mind, the task may get put off, sometimes for years.

-MR

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Multiple Purpose Stock Dividend Investment Funds

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All of my stock dividend investment funds are multiple purpose investments!

By multiple purpose, I mean that while the dividends from funds may be primarily designated for one specific purpose (like paying for lunch out with the guys at work) in good times, if bad times come along (say suddenly I’m laid off), those same dividends could be used for a second or third purpose, depending of the magnitude of the bad times.

I don’t talk much about my regular dividend investments, but eventually I would like to have dividends funds that could pay for the following purposes: vacations, Christmas gifts, eating out, etc.

Now I know what people are thinking.  If I spend all the dividend money on the entertainment list above, the fund would be never grow and lose ground to inflation eventually.  That’s true, but I’m still going to be investing the money from my job into them; I want the funds to continue to grow!

So while currently the purpose of most of my stock dividend funds are for entertainment, they also have at least one other purpose that I keep in back of my head at the same time.  It’s my “Oh crap, that happened” fund purpose, where I can use the funds for the unforeseen events and emergencies!

I also have other “special designated” levels for my dividend funds, but you get the basic idea…

So if an emergency does hit, I can use these “specific target” dividend fund for the following:

  • Vacation Dividends Fund – would go for real estate taxes and groceries
  • Christmas Gifts Dividends Fund – would go for groceries
  • Eating out Dividends Fund – would also go for groceries
  • At Work Lunch Dividends Fund – would go for gasoline for my car commute

As I create more and more dividends funds, they too, would have multipurpose roles.

Ideally, I’ll be able to fix the issue that’s causing me to deviate from the intended purpose of my dividend funds.  But being able to use these funds for an emergency backup purpose give them a great degree of flexibility!

Do you have multiple purpose investments?

-MR