Any Dividend/Income Investors out there?

Discussion in 'Investing' started by Gray Wolf, Apr 10, 2016.

  1. Gray Wolf

    Gray Wolf Well-Known Member

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    While I do some growth and trend trading, my overall emphasis and highest allocation is to long term income stocks and strategies. Please post in here if you have an interest in income investing. Would love to discuss income strategies, Aristocrats, DRIP, income from selling calls and puts, CEF's and how to analyze them along with REIT's and how to analyze them. I can ask and answer a lot of questions. No doubt we can learn things from each other.
     
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  2. Value543

    Value543 Active Member

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    Greetings Jerry, welcome!

    Being a buy-n-hold type myself, I've really been interested in looking at high dividend stocks. To be honest, I've never factored dividend yields into my picks really...not sure why...probably because I'm just naive/ignorant. But since I'm always trying to reduce basis, focusing on high dividend stocks, then coupling that with my propensity to sell puts & calls, could really accelerate basis reduction.

    Look forward to following along and contributing to the discussion if/when I can!

    BTW -- love the signature quote!
     
  3. YLC

    YLC Member

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    I've only looked at "blue-chip" stocks with dividends; pretty much the whole Buffett method. Whenever I collect enough dividends I would just use it to purchase a tiny bit more of that same stock.

    That's really the only thing I know to do with dividends...
     
  4. Gray Wolf

    Gray Wolf Well-Known Member

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    What broker do you use? I use TD Ameritrade and they allow me to setup DRIP (dividend reinvestment program) which allow you to automatically use each dividend disbursement to buy stock in that company. The nice thing about it is that you have no transaction fees with DRIP. Depending on the amount of the dividend vs the share price, you might only by 1 or 2 shares (it also purchases fractional shares) at a time but it then gives you that many more shares for the next dividend payment etc. Nice compounding effect. Are you familiar with Dividend Aristocrats?
     
  5. kthanx

    kthanx Member

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    Currently I use the DRIP method through BMO Nesbitt Burns.

    I look for companies that have a:
    a) good value (below book value, stable dividend, favourable EPS)
    b) companies that are considered micro cap or small cap (for the ability to get a higher ROI in the long term)
    c) companies that have DRIP discount (free money)

    I am young - so I hope this strategy will work well over the next 20-30 years.
     
  6. Gray Wolf

    Gray Wolf Well-Known Member

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    Currently I use the DRIP method through BMO Nesbitt Burns.

    I look for companies that have a:
    a) good value (below book value, stable dividend, favourable EPS)
    b) companies that are considered micro cap or small cap (for the ability to get a higher ROI in the long term)
    c) companies that have DRIP discount (free money)

    I am young - so I hope this strategy will work well over the next 20-30 years.


    #5 kthanx, Today at 11:18 AM

    Sounds like a good plan. The only thing I would add is to have an exit strategy in case something goes wrong. I would monitor you holdings for changes in the payout ratio, downward earnings revisions and dividend cuts. The payout ratio is the percentage of earnings a company is paying out in dividends. The lower the ratio the better. Over 70% payout is a yellow flag and over 90 to 100% is a red flag. (yes some can go over 100% and still pay out but they are doing it with other capital like loans and can't sustain it. Any dividend cut will probably be noticeable as the price will drop (often gap down) on the news of the cut. Consider selling anyway as they often take a long time to recover and fill in the gap down. That's why it is best to evaluate the downward earnings revisions which could impact payout ratio first.

    So, consider adding that criteria to your entry rules when considering purchases (payout ratio has to be below 70% and EPS projections 1yr and 3 yr are rising) and exit rules if they exceed 70% and projected earnings are falling after purchase. Good luck but you have a good plan in place, especially long term.
     
    #6 Gray Wolf, Apr 11, 2016
    Last edited: Apr 11, 2016
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  7. kthanx

    kthanx Member

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    That is a great piece of advice - thank you.
     
  8. Onepoint272

    Onepoint272 2019 Stockaholics Contest Winner

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    I'm always trying to figure out how to increase gains in the IRAs. Thanks to the Wall Street-bankster / US-Congress alliance we cannot use our tax-deferred accounts as collateral. Consequently no shorting, no buying of calls, and no buying of puts. They say it's for our own good o_O and that we should just put our retirement money into an index fund or with a good mutual fund manager;);). However, we can sell (write) covered calls and puts (covered with cash). How convenient for Wall Street; to have all that retirement money creating an option market for them to play in.o_O But it is what it is.

    One of the problems with selling covered calls or puts on expensive dividend paying blue chips is that the premiums are not enough to cover the commissions unless you are uber-rich or you place your whole portfolio into one or two trades to make it worthwhile. So, it seems to me like the best income producing strategy for the IRAs involves selling weekly covered calls on $5 to $20 stocks.

    Take AMD for example. At the close Friday I could have bought 1000 shares at $5.84 and sold the July 29th $6 calls for $0.13. My cost would have been 5,840.00 - 130.00 + (9.99+9.99+7.50) commissions = $5,737.48.

    If the calls end up in the money next week Friday then my shares would be called away at $6.00 giving me $6000.00 gross income. With TDA my exercise commission would be 19.99. So my profit would be 6000.00 - 5737.48 - 19.99 = $242.53. My weekly return would be 242.53/5737.48 = 4.23%.

    If on the other hand, the stock would drop, I would be left holding the $130 premium less the 17.49 option commissions or $112.51.

    Either way, I'd repeat the process week after week. If my shares got called away then I could switch horses if I chose. Even if I could make $100 a week by having $6000 invested at the end of a year that would yield $100 x 52 = $5200 or an 87% annual return.

    What am I missing?
     
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  9. Gray Wolf

    Gray Wolf Well-Known Member

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    You don't account for how much the stock dropped. Maybe on bad news down to 4.50 or maybe a string of bad news and a market pullback that leaves you having to hold the stock when or if it comes back or sell at a loss thus reducing profit or perhaps losses. In theory the plan works quite well if the stock does what you need it to do while holding the option. I'm not saying it can't work, but it is not as easy peasy getting the math to always work in your favor.
     
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  10. Onepoint272

    Onepoint272 2019 Stockaholics Contest Winner

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    You noticed that I didn't mention that.:p

    That is exactly why I have not sold very many covered calls. As you say Jerry, when the price of the underlying goes down the loss on the underlying is not made up by the gain on the sold-call. And, I am not naturally inclined to buy and hold, so it bothers me not to cut my losses.

    So let's say AMD went down to $4.50, I'd have a paper loss of 1000 x (5.84 - 4.50) = $1,340 on the stock. I keep the $112 net-premium. Yeah, not a good scenario. Then I suppose the calls wouldn't be worth much, so selling another call wouldn't probably be as attractive.

    Okay, so I'll forget easy peasy and treat it more like swing trading. Wait for the stock to find support, say at 5.22 and then sell the weekly $5.00 or $5.50 put. Then if it gets put to me and I'm still long-term bullish, I wait for an upper swing point and sell the weekly call for the retracement.

    There just is no easy way.
     
  11. Alexis John

    Alexis John New Member

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    Hi everyone I am looking forward to invest in long term stocks, can anyone give me some advice on which dividends to invest in?
     
  12. Gray Wolf

    Gray Wolf Well-Known Member

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    Just so we get the terminology right, you don't invest in dividends you invest in stocks. So if you are a dividend stock investor you need to add that criteria to your stock screen using a minimum yield (for me it is 3% minimum). Then you want stocks with a history of raising their dividends each year for at least the past 5 years and a payout ratio of under 70% unless they are REIT's or Closed End Funds.
     
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  13. Gwen John

    Gwen John New Member

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    I looked in some of the monthly dividend stocks for 2017, and I suppose the following are going to be good options:
    1. Realty Income Corporation
    2. EPR Properties
    3. Shaw Communications Inc.

    Source: Incomeinvestors
     

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