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Means to a Dividend

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A Look at My Investment Preferences

dividendsWhen I first started in the investment game I was walking into a world of wonders well beyond my knowledge.  I had dabbled in mutual funds and GICs beforehand.   It wasn’t until I opened a self-directed investment portfolio that I really started to pay attention to dividend investing.  That was 2013 and I’ve been hooked since.  At 32 I was late to the game, but it is never too late to start.

 The High School Project

In high school I remember our class did a stock market competition online.  You were given an imaginary balance and access to a few markets to purchase away.  Over a period of 30 days the competition was to see who could make the most fictional money.  The market was tied to the real exchanges.  Essentially a class of 16 year olds became an ultra-competitive group of day traders.  This was a world with nothing to lose and everything to gain.  Our performance didn’t equal a grade and since this competition was with other classes in other schools throughout the province there was actually a cash prize for the winner.

Looking back on that competition it was certainly fun; working with play money and dreaming of turning a huge profit.  There were two major problems with the competition.  The first problem was that it only lasted 30 days.  This meant that the competition was more geared towards volatile markets and active trading.  The second was that with no possibility of loss, there was no reason to be responsible.  This wasn’t a realistic way of teaching us investing – it was however a way to get us excited about the markets.

Where Did I Place?

The excitement I gained, and the very basic knowledge that did come out of this competition did translate some into my adult life.  What I didn’t pull away was the benefits of long term investments – specifically those with dividends.  In fairness, if I had gone the same route in grade 11 that I do now, it would have been the most boring 30 days in my school life.  After 30 days, my portfolio may have grown by a couple points.  I would have finished somewhere in the middle of the pack.  Well above a bunch of bankruptcies, but well below a bunch of lucky dice rollers.  I don’t remember what place I ended up in, but I didn’t win and I remember making a bunch of fake money so I think I did fairly well.

What I Learned From The Project

So, given all that – how do I pick my investments now?  Before I go into that, I am not a financial advisor and don’t recommend for or against any of the strategies that I use.  Now that we have that bit of business out of the way – here is what I do.

First of all, I don’t have a single stock or ETF (Exchange-Traded Fund) that doesn’t come with a dividend.  I look for something with steady growth, not only for the stock/ETF but in yearly dividend growth.  Bank stocks are a great example of this, and a lot of my portfolio is tied up in the financial market.  I also refuse to purchase a stock if I don’t like the company, regardless of its performance.  This might seem like an emotional response to what should be a very logical process.  I also wouldn’t work for a company I didn’t believe in just for a higher salary though so I see these very much the same way.

Where Do I Find My Picks

There are plenty of resources available to find stocks with great dividends.  I personally invest through a self-directed investment tool through my financial institution.  This involves an annual fee, and a flat rate charge for any transactions.  The fees don’t change based on my choice of purchase or profits.  It is better for me to focus on a select few to avoid multiple transaction fees.  So I usually start by hitting up a combination of a Google search and/or Moneysense magazine when there are applicable articles.  This stage is really just to gather a list of symbols or ideas for some companies.  But I am not nearly impressionable enough to just go with whatever a few articles tell me.  I need to be okay with my decisions.

Google Finance

The next stop for this train is Google Finance.  There are lots of other resources available for stock research – I just like the platform and it has all the information I’m generally looking for.  When I buy a stock, I’m not looking for a quick fix – I’m playing the long game.  When I look at the 52 week range, I’m looking for timing.  I think about the cliche of buy low sell high, except I’m only concerned with the buying part.  I don’t wait for it to hit rock bottom, but if it is right near the top of the range I’ll wait it out for a bit.

Next I look at the yield.  The yield is the dividend of the stock expressed as a percentage of the current stock price.  Since my goal is to get a good flow of dividends, yield is a good representation of value for my dollar.  As it is, my average yield is around 3.5% so I look to maintain that target as much as possible when picking my investments.

DRIP (Dividend Reinvestment Plan)

With my choice of investment tool, another important thing is if the fund is DRIP (dividend reinvestment plan) eligible.  I don’t have this feature activated on all of my stocks, but it is a very useful tool.  As I mentioned, I have to pay a flat rate fee every time I make a transaction – with a DRIP, the dividends from a fund are used to automatically purchase more of that fund instead of being put into my cash account.  Only whole shares are purchased, so you need to make enough of a dividend to have this work for you.  This allows me to grow my portfolio without having to pay the transaction fees.  The more of a stock that I have, the higher the dividend payout, the more stocks get purchased for me and the cycle continues.

With the stocks that are not DRIP eligible, or if they are but I am not purchasing enough to get a full share purchase from the dividends I look at the actual dividend payout.  Again, there are plenty of resources to get this information but generally I go right to the financial statements for the company to get this information easily.  The reason why I love dividends is that I can look at it as a form of income, and while I’m a very long way from having it be a replacement for income that would be the dream so seeing how much I get paid on an annual basis for investing in the company.  The companies I invest in pay out monthly, quarterly or even semi-annually.

Dividends Are Amazing

Dividends are my favourite part of investing, by a long shot.  I’m a logical person but I would take a stock that has a good dividend over a solid history of growth even if the latter would give me a higher profit.  A big part of that is that I don’t need to sell the stock to start garnering profits from my stock picks.

How important are dividends to you?  What tips do you have for the budding investor to start on the path to success?

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“Do you know the only things that gives me pleasure? It’s to see my dividends coming in” – John D. Rockefeller

 

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