Investing In Dividends
Growing Your Wealth in the Long Run
By Clayton Kurtz
Dividends are a powerful stock asset that can enhance your portfolio. Instead of relying on solely trading for profit, you can invest certain companies that will actually pay you to own their shares!
Now before I go any further, let me give you some background on why I started trading. As a 21 year old that didn’t go to college, I was working full time plus overtime, I was trying to think of alternative ways to generate income aside from my day job. One of my friends invited me to be in an investment group with a few other guys our age, and of course, I loved the idea since I have been kicking it around myself.
I was looking for an alternative to a savings (losing) account and quickly discovered that everyone in this investing group had their own vision on how we should invest. The group really opened the door to investing, however, I was looking for more than a $25/month contribution to jump start my investing career.
I always had a savings account I would put my money into but I was disappointed at the infinitesimal amount of interest I was receiving on my life savings. I knew what dividends were since I was young but I never actually knew why everyone I know who invests talks about them.
I took the first stock I every bought, Ford (F), and started putting my high school math skills to work. I worked out the amount of money that I would need to invest in Ford for the dividend payout to equal that of my life savings monthly earned interest, and I couldn’t believe how little I needed to invest in matching the interest to dividend return.
After realizing how much I was losing out on by having so much in savings and discovering the Robinhood app, I began buying my first few stocks. Now, this brings me back to why I love dividends and why you should as well.
In savings accounts right now (3/28/17) you will earn between 0.65 – 0.85% interest. In stocks that pay dividends, even small dividends, you can expect above a 1% minimum annual payout. Many stocks, like Ford (F), and BlackStone Mortgage Trust Inc (BXMT) can have anywhere between 4.5 – 8.2% dividend yield!!!
The mindset I have behind loving dividends is simple. Imagine that instead of having some of your savings in your local bank, you transfer some of your funds to a new bank in town, Ford (F). The bank of Ford (F) pays a much higher interest rate than your old bank does. As of this article being written, the bank of Ford (F) pays you an interest rate of 5.15% (yearly) for having your money with them, whereas your old bank paid you 0.85% (if you were lucky).
Now of course Stocks are NOT bank accounts, but for the sake of my example, I think you understand what I’m trying to get at. When wanting to buy dividend stock you don’t want something extremely volatile, you want something that you can put money into and forget about and not worry about the share price dipping and diving all over the place. When buying a stock or ETF with the intent to rake in the dividends for the long term, remember that it isn’t all about how high the dividend yield is or what the current share price is. Some companies pay a special, one-time dividend that is likely much higher than what the normal dividend yield is.
Special one-time dividends are a pleasant surprise if a stock you own announces one. It’s almost like getting a Christmas bonus from your work. Some companies will announce them for publicity, which is where I learned how such things work.
I bought into SPDR Jones International RelEst ETF (RWX) because I saw in my Robinhood app that their yield was 25%!!! I made an impulse move to buy some shares and ended up losing money and sold because it was not the stock I wanted. I bought solely on the dividend amount I saw without doing research and thankfully got out with just a slap on the wrists.
Long story short, do your research! Don’t make the same mistakes I did early on. Reputable companies like Ford (F) are typically very reliable with their payouts. Study the history of the dividend for any stock you’re planning on purchasing for the intent to harvest the dividends. There’s many websites out there where you can find this information. Ford (F) is viewed as a great long term dividend stock in almost every regard. Some negative news has come out lately on the company and stock price expectations have dropped so the current share price is hurting. Ford could be a bargain buy in the near future, especially if Trump keeps tweeting about it!
As you’re now aware of, I have an obvious love affair with Ford. Not only are their trucks better than whatever GM can glue together, but their stock is also preferred by many.