Over the last couple years of reading the articles and blogs of other financial writers, I have learned to keep a grain of salt nearby. It's not that the bloggers are wrong in their assessments of certain stocks and funds, it's that they really don't have any more insight than you or I. I admire the authors who do extensive research or who watch a special list of investments with far greater detail than I am willing to do.
I can't tell you how many times a blogger has written, "this stock can't get any lower, so now is the time to invest." I let that opinion slip into the back of my head and often begin to see what he sees...and then act upon that thinking. About half the time that thinking was wrong. After seeing this happen several times, I have been able to give myself more credit for my gut feeling and sticking to my principles. While I am still sometimes wrong, I usually know why and what I had intended to do about it if I was wrong...not why someone else was wrong.
Admire the research done by these writers and capitalize on their insight...but use it as a basis to make your own decisions.
Thursday, May 10, 2012
Friday, February 10, 2012
ETF's: Best of the Bad
Don't get me wrong, I really like ETF's. For a dividend investor, though, most ETF's make you take the Bad with the Good. In a fairly diversified portfolio, you can take a few of the best, good-paying dividend stocks, and ignore the ones you don't like, or the ones that pay less.
For example, you could own 3 of the largest US Telecom stocks, say AT&T(T), Verizon(VZ) and CenturyLink(CTL). Your yield at today's prices would average 6.3%. But if you bought an ETF that contained those and other Telecom stocks, say iShares Dow Jones U.S. Telecomm ETF (IYZ), you would only get a 3.1% yield.
You could expand your choice to include International Telecoms with the iShares S&P Global Telecommunication ETF (IXP) and get a 5.5% yield, or, instead, add a couple foreign Telecoms to above stocks, like Telefonica(TEF) and China Mobile(CHL), and get a nearly 6.5% yield.
If you just don't know what to choose, you could settle for a good overall high-dividend ETF, say SPDR S&P International Dividend ETF (DWX) which is paying well over 6%, and go fishing. But those kinds of funds don't give you as reliable a payout as an AT&T(T) by itself, which has increased its dividend regularly for many years. ETF's can't do that because there's always a laggard in their portfolio.
What's the difference? Risk. However, I find it easier to watch a dozen stocks, than trust the unwatched contents of an ETF. Prefer the devil we know over the one we don't.
*I'm not recommending any of these specific stocks, only using them as examples.
For example, you could own 3 of the largest US Telecom stocks, say AT&T(T), Verizon(VZ) and CenturyLink(CTL). Your yield at today's prices would average 6.3%. But if you bought an ETF that contained those and other Telecom stocks, say iShares Dow Jones U.S. Telecomm ETF (IYZ), you would only get a 3.1% yield.
You could expand your choice to include International Telecoms with the iShares S&P Global Telecommunication ETF (IXP) and get a 5.5% yield, or, instead, add a couple foreign Telecoms to above stocks, like Telefonica(TEF) and China Mobile(CHL), and get a nearly 6.5% yield.
If you just don't know what to choose, you could settle for a good overall high-dividend ETF, say SPDR S&P International Dividend ETF (DWX) which is paying well over 6%, and go fishing. But those kinds of funds don't give you as reliable a payout as an AT&T(T) by itself, which has increased its dividend regularly for many years. ETF's can't do that because there's always a laggard in their portfolio.
What's the difference? Risk. However, I find it easier to watch a dozen stocks, than trust the unwatched contents of an ETF. Prefer the devil we know over the one we don't.
*I'm not recommending any of these specific stocks, only using them as examples.
Wednesday, January 25, 2012
How Commissions Affect Purchases
In buying stocks and funds, we need to keep the commission in mind. First, it affects your cost. Make sure you increase your purchase price in your spreadsheet to show the actual price paid. Fortunately, my brokerage does this for me in my cost basis.
Next, you need to determine how much the commission affects you in purchasing new shares from the dividends you have received over time. I was using $2,000 as a threshold before a purchase made sense in figuring in the commission. I recently noticed 2 dividend-investor bloggers that reinvest at the $1,000 level. My commission is $9 and at $1,000, the commission is just less than 1% per purchase. That isn't too much, but if you were making a high-priced purchase like TLT (today @ $116/share), that cost would be close to $1 per share. My $2,000 threshold cuts that in half.
The advantage of making purchases more often might be the effects of dollar cost averaging, the results of which we won't really know until later. So, I'm still leaning more toward a $2,000 minimum. If there is a bargain staring us in the face, the commission is immaterial.
Always think long term: A lot of commissions add up, but they aren't as important as buying at the right price.
Next, you need to determine how much the commission affects you in purchasing new shares from the dividends you have received over time. I was using $2,000 as a threshold before a purchase made sense in figuring in the commission. I recently noticed 2 dividend-investor bloggers that reinvest at the $1,000 level. My commission is $9 and at $1,000, the commission is just less than 1% per purchase. That isn't too much, but if you were making a high-priced purchase like TLT (today @ $116/share), that cost would be close to $1 per share. My $2,000 threshold cuts that in half.
The advantage of making purchases more often might be the effects of dollar cost averaging, the results of which we won't really know until later. So, I'm still leaning more toward a $2,000 minimum. If there is a bargain staring us in the face, the commission is immaterial.
Always think long term: A lot of commissions add up, but they aren't as important as buying at the right price.
Tuesday, January 24, 2012
The Dividend "Bubble"?
In looking for inspiration for our flavor of dividend-based investing, I tripped over a few bloggers who discuss whether or not we are facing a dividend "bubble." Just what happens when the dividend bubble bursts? Prices drop? People stop buying dividend stocks? Our only fear is that our funds or stocks actually reduce or suspend their dividend. A rare event, indeed.
If you have done your homework, the vast majority of your income investments have a known history of their dividends. Take the Dividend Aristocrats. They have not only continued to pay dividends for over 20 years through good and bad times, they have actually increased them each year as well. What will they do in a "bubble?" Probably nothing different. Also consider that while dividend investing may be hot today, buyers may soon flee to the next hot investment, keeping the bubble from forming. Greed is exciting, dividends are not.
If you are lucky enough to have some of your dividend income left over each quarter (I'm living on mine), any "bubble" reflected in a drop of stock prices is nothing more than a buying opportunity. With a well-constructed portfolio, you have very good protection from most bubbles.
If you have done your homework, the vast majority of your income investments have a known history of their dividends. Take the Dividend Aristocrats. They have not only continued to pay dividends for over 20 years through good and bad times, they have actually increased them each year as well. What will they do in a "bubble?" Probably nothing different. Also consider that while dividend investing may be hot today, buyers may soon flee to the next hot investment, keeping the bubble from forming. Greed is exciting, dividends are not.
If you are lucky enough to have some of your dividend income left over each quarter (I'm living on mine), any "bubble" reflected in a drop of stock prices is nothing more than a buying opportunity. With a well-constructed portfolio, you have very good protection from most bubbles.
Wednesday, November 16, 2011
Don't Watch the Price
If you're like me, you can't help but watch the price of the stocks in your portfolio. You need to stop. If you have built a successful Dividend portfolio, you only need to watch your stocks' dividends, and that can be done just a few times per year.
When you buy a car, the price is critical to the decision, but once the transaction is complete, the price becomes immaterial. Why would the price of your stocks be any different? Of course, you check the prices of stocks and funds you're about to buy or sell, but in between, watch the dividends instead. For example, today, CenturyLink (CTL) announced they will not increase their dividend. They have decided to stay with their .725 per share dividend. This suddenly drops them from the list of Dividend Achievers. No longer can we rely on CenturyLink to raise their dividend each year as they have for the last 24 years. If you already hold the stock, you can still enjoy their juicy 7.7% yield, but there is little reason to add to that holding. That decision may depend on the price you can get for it. Now the price is relevant.
Way too many investors feel richer or poorer based on the price of their stocks...today. Quick. Go to your spreadsheet and look at your dividend income, instead. It usually doesn't change very often...or much. There, now isn't that better?
When you buy a car, the price is critical to the decision, but once the transaction is complete, the price becomes immaterial. Why would the price of your stocks be any different? Of course, you check the prices of stocks and funds you're about to buy or sell, but in between, watch the dividends instead. For example, today, CenturyLink (CTL) announced they will not increase their dividend. They have decided to stay with their .725 per share dividend. This suddenly drops them from the list of Dividend Achievers. No longer can we rely on CenturyLink to raise their dividend each year as they have for the last 24 years. If you already hold the stock, you can still enjoy their juicy 7.7% yield, but there is little reason to add to that holding. That decision may depend on the price you can get for it. Now the price is relevant.
Way too many investors feel richer or poorer based on the price of their stocks...today. Quick. Go to your spreadsheet and look at your dividend income, instead. It usually doesn't change very often...or much. There, now isn't that better?
Friday, November 4, 2011
Get Free Research
I gave you some ideas on how to set up your own dividend portfolio, and there are some great ways to watch that portfolio. By setting up a portfolio report outside of your broker's accounts you get the benefits of thousands of stock writers and researchers. I happen to like Yahoo's financial pages the best, but you can choose your favorite, Google, Motley Fool, or one of many others. The idea is not to watch the daily price fluctuations, but to get the benefit of research done by others on the stocks you own.
Right beneath my Yahoo portfolio are dozens of stories and news releases relating to just my stocks. Here's where you need to be careful. Some of these reports are very one-sided opinions by bloggers with an agenda, others are very thoughtful investigations by people who have in interest in the same stock as you. Also streaming in will be press releases and news articles that have a lot of factual content. I get about one good tip a week this way, and I actually take action on one of them about once a month.
This assumes you are watching your stocks as closely as I am. You don't need to unless you're building your portfolio over a fairly short period of time. Among message boards and contributor articles you can also benefit from those who have already made the mistakes you can now avoid. A 'watch list' can be quite beneficial on stocks you are considering. Don't overlook the fact that an absence of stories about your holdings are just as useful as many.
Right beneath my Yahoo portfolio are dozens of stories and news releases relating to just my stocks. Here's where you need to be careful. Some of these reports are very one-sided opinions by bloggers with an agenda, others are very thoughtful investigations by people who have in interest in the same stock as you. Also streaming in will be press releases and news articles that have a lot of factual content. I get about one good tip a week this way, and I actually take action on one of them about once a month.
This assumes you are watching your stocks as closely as I am. You don't need to unless you're building your portfolio over a fairly short period of time. Among message boards and contributor articles you can also benefit from those who have already made the mistakes you can now avoid. A 'watch list' can be quite beneficial on stocks you are considering. Don't overlook the fact that an absence of stories about your holdings are just as useful as many.
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