Money Reasons

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Posts Tagged ‘dividends’

Hidden Value In Owning Dividend Paying Stocks

January 31st, 2011

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.

18 comments »

Posted in Investments

Tags: dividend dividend benefits dividend stocks dividends hidden value in owning dividend stocks hidden value of dividends stock dividends

Dividend Stocks, Free Lunch Experiment #7

January 12th, 2011

Dividend Stocks, Lunch Experiment Update:

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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Posted in Experiment

Tags: dividend stocks dividends free lunch Lunch Experiment

Getting Wealthy By Swimming to Shore

November 5th, 2010

Getting Wealthy By Swimming to Shore.

Yesterday’s post: Defend Your Financial Fortress Against Spending Temptations!, prompted Sandy from First Gen American to ask the following question: “I’m interested which budget categories you beefed up since your mortgage got paid”? So in this post, I attempt to explain my position and answer Sandy’s question!

Originally, I wrote: Stop Drowning in Debt, Start Swimming To Shore. In that post, I compared being deep in debt to being underwater trying to breathe.

When you are underwater, you only focus on one thing, and that is to get our head above water so you can breathe again! In the financial world, you try to get out of debt so that is your goal and what you primarily focus on!

When you are deep underwater, it’s a battle to get to the surface to breathe air! When you are in massive debt, your primary goal is to claw yourself back to the financial free air.

I broke the surface of the water, but instead of getting wealthy by swimming to shore, I’ve been treading water, trying to catch my breath, and then determine which direct to swim.

Getting Wealthy

Now that I’ve caught my breath, I’m going to start to swim towards the financially independence island/goal by going after the expenses that are like debt!

So I decided to start swimming by buying stocks with dividends, so someday the dividends could cover my Real Estate taxes and homeowner’s insurance payments. I think the key is to start swimming and stop just treading water!

I’m going to start to research which stock(s) to purchase, and then in a later post, I’ll identify which one(s) I have chosen.

The Decision

While I haven’t saved a lot of money since paying off my house, I still have a few thousand to play with, and that enough to start to swim towards shore.

So to answer Sandy’s question above, I’ve been putting the extra money from the payment from my former mortgage into cash, fixing things and a mild lifestyle inflation spending. I’ll probably purchase the investments partially through a Roth IRA and partially through my regular online brokerage account.

Other than retirement, what ways are you planning on using to getting wealthier?

-MR

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Posted in Wealth

Tags: debt-like expenses dividends rich swimming Wealth

Dividend Stocks, Lunch Experiment Update #5

November 1st, 2010

Not much has happened since my last Dividend Stocks, Lunch Experiment #4 update, at least from a dividend yield perspective!

For a background on how I’m going this experiment and why it’s free, click this article: A Lunch Experminent

Actually the weekly dividend amount I get for lunch dropped a bit because ANH dropped their dividend payout amount, again (they have done so for the last few quarters).

On the gains/losses in stock values, EVEP continues to tear up the market by now appreciating up to 60%! I wish I had more in this stock and less in ANH. The newest stock purchase, CIM, has performed very well and I’m fairly happy with it.

I made the purchase in CIM over 3 months ago, and over a year ago for ANH and EVEP! I don’t know if I would buy that same stocks today…

Here is the latest numbers from my spreadsheet:


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	$7.01	$37.46	$4.10
Orig Cost	$2,038.14	$1,046.25	$2,404.80
Curr. Value	$1,822.60	$1,685.70	$2,460.00
Annual Yield	13.12%	8.08%	17.56%
Quart. Dividend	$59.80	$34.07	$108.00
		Total Dividends	$807.48
		52 weeks	52
		Dividends / week	$15.53

		Total Gain in
		Stock Increase	$479.11

		% Change	8.73%


		Amt owed to me:	$1,726

I borrowed $2,000 from myself to purchase CIM, but it’s been whittled down to $1,726.

Other than the money I borrowed from myself (which at this point I could easily pay back by selling the stocks I have in the experiment), I don’t have any other money contributed to this experiment, so that means that it’s like free money!

So how did money get into the fund?

By skipping on going out to eat with friends at work, I was able to fund this experiment with lunch money! So I took my lunch money from myself (lol).

So, in my eyes, the money in this experiment is literally just play money, because it would have been money that I would have wasted by going out to eat with my friends at work everyday (which they still do, by the way!).

I’m now at the point where I can go out with friends at work at least twice a week. And since I telecommute once a week, I’m really able to go out with friends half of the days that I’m at work!

Not bad considering it hasn’t been a full year that I’ve run the experiment yet! Nov 12, 2010 will have been 1 year of doing this experiment!

What do you think? Is it crazy that I”m in such high yield risky stocks?

Related:

The post that started this experiment is A Lunch Experminent
My previous update is here: Dividend Stocks, Lunch Experiment #4, click here?

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Posted in Experiment

Tags: dividends stock dividends

Lunch Budget Experiment Update

November 23rd, 2009

Hurray!

This past friday, I’ve accumulated my first $1,000 by cutting back on my lunch expenses…

Now , I’m looking at stocks that will pay at least a 5% dividend (and preferable around 6 or 7%). After the fourth quarter passes (I get my first dividend after the fourth quarter), I’ll be able to go out to lunch 1 extra day each month. Then after 25 more days, I’ll have another $1,000. After I have $2,000 dollars invested in dividend yielding stocks, I’ll be able go out ever other week. After another year passes, I’ll have enought money saved up to go out and entire extra day per week. That’s all I need, going out 3 time a week is plenty. If I keep the experiment up past 2 year, I’ll just keep saving the money in the lunch fund.

I’m kind of excited about this, I’ve always wanted to have a dividend fund like this since I was 19 years old. Of course, I’m not considering taxes, but I’m hoping that if I get a 6% or 7%, that will make up for my lack of tracking the tax.

Lunch Savings to date:

Savings from		int. rate:	5%
Lunch Budget
	Amt	Cumultive	Yearly	Monthly	Weekly
6/5/2009	40	40	2.00	0.17	$0.04
6/12/2009	40	80	4.00	0.33	$0.08
6/19/2009	40	120	6.00	0.50	$0.12
6/26/2009	40	160	8.00	0.67	$0.15
7/3/2009	40	200	10.00	0.83	$0.19
7/10/2009	40	240	12.00	1.00	$0.23
7/17/2009	40	280	14.00	1.17	$0.27
7/24/2009	40	320	16.00	1.33	$0.31
7/31/2009	40	360	18.00	1.50	$0.35
8/7/2009	40	400	20.00	1.67	$0.38
8/14/2009	40	440	22.00	1.83	$0.42
8/21/2009	40	480	24.00	2.00	$0.46
8/28/2009	40	520	26.00	2.17	$0.50
9/4/2009	40	560	28.00	2.33	$0.54
9/11/2009	40	600	30.00	2.50	$0.58
9/18/2009	40	640	32.00	2.67	$0.62
9/25/2009	40	680	34.00	2.83	$0.65
10/2/2009	40	720	36.00	3.00	$0.69
10/9/2009	40	760	38.00	3.17	$0.73
10/16/2009	40	800	40.00	3.33	$0.77
10/23/2009	40	840	42.00	3.50	$0.81
10/30/2009	40	880	44.00	3.67	$0.85
11/6/2009	40	920	46.00	3.83	$0.88
11/13/2009	40	960	48.00	4.00	$0.92
11/22/2009	40	1000	50.00	4.17	$0.96

For those of you who might not have seen the earlier post about my Lunch Budget Experiment (I called it an Adult Allowance Experiment for the initial post), this is what I”m doing:

I’m cutting $40 out of my weekly lunch expenses by packing cheap (but still health) lunches. Then after the savings amount hit over $1,000 dollars, I taking the money saved and investing it into a stock that pays a dividend. I then use the dividend money to pay for the lunches I use to pay directly out of pocket. IMHO, the beauty of this is I don’t actually carve extra money from my earned income to pay for lunch. I’m just spend the dividend money I would have spent on lunch anyway. So after the first 2 years, I get a free weekly lunch via the dividend payments.

The next dividend producing funds that I’ll try to start are: