Get Started Dividend Investing…Today!
I started investing in dividend stocks in 2006. That’s only six years ago. I could tell you a story about my mothers astronomical gains she got investing in ExxonMobil over 30 years. But, that’s old news, right? Does dividend investing still work?
Let’s look at my results so far for just one position.
I bought Altria (MO) at the end of 2005. At the time, Jim Cramer said that Altria was going to 100 because they were going to break up the company to “unlock” the value of their Philip Morris International stake (Altria was trading at 70 at the time). This argument sounded good to me. So I bought 200 shares.
At that time, this position was earning about $600/year or as I like to look at it, $50/month. Since that time, I’ve invested about twice as much money as the initial investment into the company. From that point of view, this would result in dividends of about $100/month if it was invested in 2005.
But, the investment actually earns almost $250/month now. That’s a 150% increase in just 6 years. How? Dividend reinvestment. It works.
These specific actions made this happen:
- The company increased the dividend each year. Total over this timeframe was 90%. If you had moved your Kraft (KFT) spinoff shares to Philip Morris (PM), like I did, you got an even higher increase.
- Buying more shares by reinvesting the dividend.
- Adding more shares along the way at opportunistic pricing, which was the money that was added to the investment.
Don’t make the mistake of thinking that you can’t make money either because you don’t have a lot to invest or because you think that your small change won’t amount to anything. It takes time, and you will be surprised how quickly your investment will grow.
For many people, even making $50/month to start is a lot. It’s all relative, I’ve seen many investors in the dividend blogosphere who make a lot more as well as a lot less. My mother was ridiculed for only owning a few shares in the very beginning of her path to dividend investing.
My recommendation to you is to establish small goals along the way to keep you motivated and to track your progress. For example, here’s a path that gives you a clear idea of what you can accomplish. I like to look at my dividend income in terms of a monthly payment even though the income I earn doesn’t actually come to me as smoothly as a consistent monthly payment. This is really just a device to track it easily.
Some attainable monthly goals. This is what you can do with each goal amount:
|Monthly Dividend Amount||Goal|
|$5||Fancy Starbucks Coffee|
|$10||Fast Food Meal|
|$25||Casual Restaurant Meal|
|$50||Fill Gas Tank|
If you invest in quality companies, you will earn each amount in perpetuity. So, if you make it to the $50 level, you will earn this amount and hopefully more over time as long as you hold your shares. As you add money and reinvest, the goal amount will snowball.
How To Get Started
To get started, invest money in stocks that earn you a dividend. If you don’t know where to find investments, a good place is the Dividend Aristocrats. You can buy the whole basket of Aristocrats at once using the ETF: SPDR S&P Dividend (Ticker:SDY). In order to earn the first goal, $1/month, you would need to invest about $400 at the dividend rate of SDY (which is currently about 3%). Here is a short summary of the first (3) goals at different dividend yields.
|Dividend Yield||Goal Amount||Amount Required To Invest|