Time and time again on this blog we’ve proven that we sometimes don’t know we can do something until we ask for it. That was exactly the case this week when I learned that I can DRIP stocks with my broker. Until now I didn’t think that my account had this feature, but I was glad to find out that it does and I will certainly be putting it to use.
For those of you who don’t know, DRIP stands for dividend reinvestment plan (or program). It is also sometimes abbreviated DRP. When people say you DRIP stocks, they are usually referring to some system you enroll in where instead of receiving your dividend payments by check or cash each quarter you instead automatically buy more shares of that same dividend paying stock. There are a lot of really strong reasons as to why this is a big advantage to you.
As part of my love affair over the last year with investing in dividends, I’m going to continue to introduce posts that focus on one particular aspect of evaluating a particular stock prospect. So this week, we’ll be looking specifically at the dividend yield formula and what it can tell us about the stock or company.
What a wild ride the last 4 months have been! It’s been a while since I’ve done a dividend stock portfolio update, and I thought this would be a great time to report (i.e. celebrate) my earnings.
In this month’s issue of Money Magazine, I came across an article entitled “When the Wilder Ride is Worth It”. The article was addressing how sometimes a company’s stock and dividend payment can be a better prospect for stable income than its bond. To make this comparison, they looked at the return of the bond against the dividend appeal (which was largely based on it’s payout ratio) and any inherit stock risk based on the company itself.
Whenever I find an article like this about semi-guaranteed income, I tend to pay extra special attention to it – and with good reason. Strategies such as taking advantage of dividend payouts will be important to my financial situation because it will be one of the key elements that helps me to achieve a successful early retirement.
I wanted to try something different on My Money Design and throw a question out to my readers to debate. I’m very interested to see what the outcome will be.
The inspiration for this topic comes from a stellar comment that was left on my “How Much Money Would I Make If I Rented Out A House?” post. The commenter, Richard, laid out some great plans for how he was going to build his wealth empire. Essentially, he was going to borrow money to put together a real estate portfolio. This is the classic old mantra of using “other people’s money” to get rich, and it is certainly a path where a lot of people seem to have found great success.
Unfortunately I’m far too much of a weenie to invest in real estate (… yet). I prefer to invest in stocks and mutual funds because these are things I know and understand; a quality I think is very important before you engage in any sort of investment.
But quickly I see there is a big difference between my strategy and his:
One thing you will learn in investing is that nothing is ever absolute and that rules are made to be broken. With that said, I’ve been giving a lot of thought as to what stocks to buy this year and my previous declaration to use the Dogs of the Dow strategy.
As I get closer to actually making a purchase, I’m starting to reconsider my initial plan and may have an alternative solution that would make more sense. Here’s is where my mind is at:
Category: Stocks & Investing
/ Tags: CNN Money
, Dividend Aristocrats
, dividend stocks
, Dividend Yield
, Dogs of the Dow
, Google Finance
, Hewlett Packard
, Joel Greenblatt
, Pitney Bowes
, Return on Assets
, The Big Secret for the Small Investor
, what stocks to buy