What a great time of the year to receive the next installment of my “truly” passive income. By luck, it just so happens that my next series of payments from my dividend paying stocks was scheduled to be paid in December. Couldn’t we all use a little extra cash right before Christmas as the bills start rolling in?
Over on the left are the results of my third batch of quarterly dividend payments received for Quarter 4 (Q4).
Performance Report of My Stocks with High Dividends:
The fourth quarter had a few surprises. Eaton (ETN) finally made a comeback and got back up (and over) my initial purchase price. Unfortunately, Chevron (CVX) fell pretty good between quarters. She went down from $120 all the way down to $105 (below my initial purchase price), but then thankfully rebounded. Johnson and Johnson (JNJ) is still holding strong well above my initial purchase price. McDonalds (MCD) is still the biggest loser of the group.
Overall, both the change in capital and partial dividend gain is netting a positive return!
The Time is Almost Near:
In January, I plan to make my stock picking life easy and implement the Dogs of the Dow strategy for my next purchase of stocks with high dividends.
As a quick recap, the idea here is to invest in high quality stocks with higher dividend yields. The theory is that a higher dividend yield will indicate that the dividend paying stock is under-valued, and may potentially go up in price as investors flock to it to capture the attractive yield. The rationale behind this trend is well laid out in the book “Dividends Still Don’t Lie” by Kelley Wright.
My only question going forward is:
1) Do I go with “the Dogs” (top 10 stocks)? – or
2) Do I go with the “Small Dogs” (top 5 stocks)?
Looking at dogsofthedow.com, the Small Dogs have tended to beat the regular Dogs over the long haul by 1.7% annually. However, I’m sure that also means a higher Beta (measure of fluctuation in price). Since I don’t need the money right away and have many years to invest, this may be an acceptable trade-off between risk and return.
More Stocks with High Dividends for Us:
My current goal over the next 3 years is to get my dividend income payments up to $100 per month. That would be $300 per quarter or $1,200 per year. However, it would take a portfolio of over $30,000 in dividend paying stocks (assuming a 4% dividend yield). Because of the structure of my income, I should be able to make a substantial contribution to this effort in January.
In addition, I have also given strong consideration to the choice to purchase taxable stocks with high dividends versus maxing out our tax sheltered 403b retirement plan. I believe that doing so will help us structure our assets in a way that will enable my family to reach early retirement much sooner.
If all goes well, we’ll work towards my larger goal to go from $100 to $1,000 per month in dividend stock income!
Readers – Who’s joining my plan to buy some stocks with high dividends using the Dogs of the Dow strategy? Do you have any other investment plans for the New Year?
1) My Dividend Paying Stocks Income Report – September 2012
2) Using the Dogs of the Dow to Buy the Best Dividend Paying Stocks
3) Book Review: “Dividends Still Don’t Lie” by Kelley Wright
Image Credits: MMD
[email protected] says
I personally don’t buy individual stocks so I wont be joinifng you. I will be watching though!
No problem. I hope my luck continues and I have good news to report!
[email protected] says
I will probably be a watcher for a while, but if I can get my business sold and some more debt paid down, maybe. The other option is to get another rental. Decisions, decisions.
For you I think the writing is on the wall. Get another rental! By jumping into the first one, you already know 95% more about what to do / not to do than the rest of us.
Financial Independence says
The other thing with the small dogs, as obviously a lot of them have a shorter life span. So you do need to watch them very closely.
It is OK when you have invest under $1 K but what about $100 K in one stock?
Potentially it could be very rewarding, but also scary and risky. Risk is not just a word…there is a chance to loose or not gain.
I invested in emerging market mutual fund and over 4 years it brought me nothing buy tears and loss of almost $ 10K.
If i will get any bonus this year, I want to invest it as well.
Good point! If there is anything the Great Recession taught me, its that Risk is a very real and damaging thing we take on when we invest. As the pot grows, I may spread my asset allocation out a bit beyond the Dogs. I really don’t want more than a few thousand invested on any one stock.
Glen @ Monster Piggy Bank says
I used to really like dividend stocks until the GFC, now I am all about trading the penny dreadfuls of the market and making lots of small yet quick capital gains.
So far it’s working a treat and we are making record progress on our home loan because of it.
Good for you Glen! I had a bad experience with penny stocks so I avoid them like the plague. That’s a smart move using the gains to payoff your mortgage. From one pot to the other – all to your benefit!
I’ll definitely be watching as well because I don’t believe in buying individual stocks and I’m still skeptical of this strategy.
Why are you such a big fan of this strategy when it only made you 5% this year whereas the S&P made 11%? That’s not to discredit it…I’m just curious because I’m sure I’m missing something. Are the historical averages that much better than the S&P or other well-diversified portfolios?
You’ve got to remember that that’s only one years worth of data. Consider the long term history:
My main attraction to this strategy is that my history with picking individual stocks is pretty hit and miss. I see this as being not a sure thing but rather a smarter move than just blindly buying any-ole stock.
The stocks in the Dow strike me as quality because they are the biggest and best run companies. Sure some names have come and gone, but where else can you find a collection of such giants? The theory goes that by buying the ones with the highest dividend yield you are buying the most under-valued of the bunch. This is a stock picking fundamental that people spend hours trying to find when the Dow just serves them up for you.
Also, the strategy forces you to buy low and sell high by re-balancing each year. Depending on the size of your investment, this can be much cheaper than owning a typical mutual fund.
And also – the dividend payments! Getting a guaranteed 3 to 4% for your troubles is not too bad either!
The portfolios we use automatically rebalance so there isn’t much of a cost associated, however those returns are pretty impressive.
Do you have other mutual fund portfolios or is this where you keep a majority of your assets? What percentage of your investments would you say you put in this dividend plan?
The grand majority of our assets are in mutual funds through our employer’s plans. We’ve got a good mix of large-cap, bonds, and foreign funds. Our IRA’s are also mutual funds through Vanguard. Only about 2-3% of our whole portfolio right now is in individual stocks (which at the moment are all dividend stocks). Even with the increases I have planned, I don’t intend on letting them get past 10% of the overall portfolio.
I hope you get whatever is needed to reach that $30,000 figure and beyond. Thanks for sharing your investments and best of luck to you.
Thanks A BLINKIN. I’m hoping my bonus this year accelerates the process for me!
Dustin Small says
I’ll be interested to watch your progress towards your goal moving forward! I am more of a value investor myself, but get involved with dividend stocks as well.
Thanks Dustin! I hope my portfolio proves to be promising! Funny: I’ve always considered investing in large cap, well paying dividend stocks to be value investing.
Do you buy straight from the companies or do you use a brokerage account?
hi,I had a bad experience with penny stocks so I avoid them like the plague. That’s a smart move using the gains to payoff your mortgage. From one pot to the other – all to your benefit!