Rss Feed Tweeter button Facebook button
Home > Investing > Get Started Dividend Investing…Today!

Get Started Dividend Investing…Today!

February 25th, 2012 Leave a comment Go to comments

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.

Start Somewhere

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
$1 Candy bar
$5 Fancy Starbucks Coffee
$10 Fast Food Meal
$25 Casual Restaurant Meal
$50 Fill Gas Tank
$100 Electric Bill

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
3% $1/month $400
4% $1/month $300
5% $1/month $240
3% $5/month $2000
4% $5/month $1500
5% $5/month $1200
3% $10/month $4000
4% $10/month $3000
5% $10/month $2400
Categories: Investing Tags:
  1. February 25th, 2012 at 10:19 | #1

    Thanks for sharing your personal story SFI. When you experience the benefits of dividend investing first hand, you only wish you had started earlier! That’s how I felt when I saw the compounding effects of dividend reinvesting!

  2. February 26th, 2012 at 14:54 | #2

    Thank you for sharing this story. I’m just starting on the dividend path and last year was my first year. It was motivating to see those dividends adding up and I’m looking forward to growing the income even more this year. Hopefully I will have a story like yours to tell in five more years!

  3. February 26th, 2012 at 16:53 | #3

    Thanks for stopping by moneycone. Yes, earlier is better but there is always time to get started.

  4. February 26th, 2012 at 17:08 | #4

    @The Stoic
    Thanks for stopping by stoic. Welcome to the dividend community, please add a RSS subscription option for your site so we can subscribe.

  5. The Stoic
    February 27th, 2012 at 12:09 | #5

    Thanks for the welcome SFI and the suggestion. Still trying to make the site a better experience for visitors. Slowly, but surely…

  6. February 27th, 2012 at 22:42 | #6

    Nice análisis here SFI. I like your charts and the point about getting started.

    Once the ball start rolling it gets better and better.

    When you were looking at MO did you give any thought to RAI?

  7. February 28th, 2012 at 18:33 | #7

    jlcollinsnh, I didn’t really put much effort into it, I bought what Cramer recommended at the time. I was familiar with Altria because of the previous lawsuit problems they had 10 years ago. Reynolds has performed as well as Altria when you compare just the domestic business, but when you factor in the PM spinoff it has underperformed.

    You would have made money either way, can’t complain too much if you picked RAI.

  8. February 28th, 2012 at 20:56 | #8

    Interesting. when I took the position in RAI back in Oct 2010 I looked at the others. I forget now why RAI got the nod but it’s worked well.

    Overall I was playing the boom in div stack interest. My gurus that will be waning this year. I’ve take my profits in the other positions and am debating on when to let RAI go.

  9. March 14th, 2012 at 10:39 | #9

    Hi, i really liked the story of you mother and how dividend investing and drip could make alot of sense if you are holding for long term !

    Just started investing in dividend how it will go as well as your mother!

  10. March 15th, 2012 at 19:04 | #10

    Not working thanks for stopping by.

  1. No trackbacks yet.