The Dividend Project - learn with me!
I have recently got my hands on a copy of Derek Foster's book and I wanted to take this opportunity to explore how to invest for dividend income again. But I have to admit that my 21st century attention span kicked in and I haven't been able to read the book straight through yet.
Part of the difficulty in reading the book is that I am looking for an explanation that might not be in there, so I'm skimming a lot. For some reason understanding dividend investing is still a mental block for me. I can understand that stocks that pay consistent, rising dividends have good underlying fundamentals. But I can't get past the puny 3.16% yield that RY (Royal Bank) has at market close today to see how that could ever get me retired early.
So I have a plan now for myself and anyone out there who is in the same boat. The simple version of The Dividend Project is:
- Learn
- Invest
- Make lots of money :)
Hooray! However, it is very important to note that I am not rushing into this dividend thing. I think I want to be there, but I'm not quite sure when. So we are going to start the learning phase. Here is what I did today...
I took a list from Million Dollar Journey that I bookmarked last month, and I put those stocks into a spreadsheet. I then went into my RBC Direct Investing account and put them all on watchlists so that I can follow them. Finally, I entered the current price and dividend yield for each stock into the spreadsheet. Here is the result:
Now, we are going to watch. I will update this list every week or two to see where the numbers are going. Each time I check in on the list, I will try to expand on some concepts so that I (and hopefully others) can gain some understanding. I am going to visit other blogs, including The Dividend Guy Blog to see if I can pick up some pearls of wisdom there and I will keep trying to read this book. Let The Dividend Project commence!
8 comments:
I have also been thinking about dividend paying stocks lately. In fact, I was also looking at the Royal Bank because the stock price has been travelling on jet fuel for a few years. Not sure if I will ever buy stocks directly. Perhaps there are dividend stock mutual funds.
I understand that part of the attraction is that one pays a lower tax percentage on dividend income compared to other forms of income such as bank interest income.
The downside is that one has to buy real expensive stocks to get in the game.
CM, You bring up a good point that many investors will not want to pick individual stocks. Perhaps I will incorporate some research on other options into this project!
Well the dividend is only part of the total return, hopefully the stock price goes up and the absolute value of the dividend too. By comparison a bond pays a higher yield but the price will only go up if interest rates fall and the coupon (interest) won't change.
The idea is that total returns for dividend paying stocks would be better than any randomly chosen stocks. There are a bunch of US ETFs that select stocks based on dividend yields. If you can buy US stocks do a Google search on ETF dividend.
I just completed my draft post about the Royal Bank. I also included some info about mutual funds that contain only stocks that pay dividends.
There is an excel plugin that will update stock prices automatically called "MSN MONEY STOCK QUOTES". After installation, you type in a stock symbol in a cell, and click "update" and it will do daily updates for you automatically. You can even program the cells to tell you when the yield of a stock reaches a certain point for you to buy. Let me know if you have any questions.
FT
moom,
While you are absolutely right about the underlying value of the stock, it is primarily the income portion that I am interested in for the purposes of retirement. Derek Foster states that by buying dividend paying stocks and holding them for the income he was able to retire at 34. He explicitly mentions that selling is not part of his strategy. But my question is, how do you manage that on such low yields (income only)? I think that there is still some mystery to be solved through this project.
CM,
I will check out the post. Thanks!
FT,
Thanks for the tip on the excel add-in. I will need to get some computer issues resolved before I can use it but hopefully next week I can try it out!
MD
There is no particular rationale to only living off the dividend and not also selling some of the stock. However, for usual stock only or balanced portfolios the advice is not to spend more than 4-5% of the value of the portfolio each year. So the dividend is going to cover a good chunk of that distribution.
I read this book and had the same questions about the low annual yield.
The conclusion I've come to is that you have to come up with a list of eligible companies that you would be happy investing in. You then keep an eye on the stock price for a sudden drop that won't have a long term affect on the health of the company. When the price drops the yield goes up and that's the time to buy.
Another idea is to determine the average dividend growth for the last 5 years. Assuming the same rate of growth, how long will it take for that investment to reach a yield of 8% annually? If a stock currently yield is 3% now but is growing at a rate that will make it 8% in 10 years then that's a much better buy than another company that will take 20 years to get that level of return.
I suppose the best approach would be a blend of the two.
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