▶ Full Post Text
this is something I've considered making for a while, but have never had the chance to. I've seen a lot of people on here talk about dividends from which stocks are best, whether to actually focus on dividends, what to look for, and so on. so I've decided to writ about what feel is the best strategy when dividend investing, and what I tend to look for.
i like to call it:
The break even strat
this strategy is simple, if the amount you receive in a single distribution form a single stock/ETF is less than the price of the stock itself, then you should let it auto-DRIP back into it so your next distribution will be slightly higher. if the amount in said distribution however is more than the price of the stock, than you should manually reinvest it, buying as many whole shares as you can, and take the remaining amount as profit. if possible a 50/50 split would be a good idea too, using half the dividends received to reinvest, and keeping the other half as profit.
EX: say you own a stock/ETF whose price is currently $30, and you receive say, $20 in dividends in a single distribution. in this instance, you should let it DRIP back into the stock in question so your next distribution will be slightly higher.
now say you own a stock that is worth $10 and you receive $15 in dividends from it. in this instance, you should buy yourself another share, and keep the remaining $5 for other uses.
this I feel, is an effective way to grow a dividend income, and your overall portfolio.
choosing the right stock/ETF's:
often when talking about dividend investing, their will always be at least one person saying you should focus on total return, not dividends.
To that I say they are PARTLY right.
for me personally, when choosing a dividend stock, I will often choose ones whose stock price has shown consistent growth or has remained stable/flat for at least a year minimum. this way, should I do need to sell the stock, i can do so at a profit, or at least get the same amount i put in back out. this is especially useful if you want to sell your shares to invest in a much cheaper dividend stock, allowing you to scoop up more than if you invested in one and sold at a loss.
Dividend growth:
this is something that should also be considered. many dividend stocks have pretty consistent growth, while ETF' tend to jump around a bit, but you should always check to see if the dividend amount at minimum maintaining itself around a certain amount, and that its dividends aren't falling.
when to invest:
when it comes time to actually start putting money into these stocks and ETF's, i tend to invest in whichever is about to pay the month after. for example, if the month is June, you should look to see which are paying in July. then in July, look to see which are paying in August, and so on through out the year, and do so/ stop before the ex dividend date. if your lookin to invest in some monthly payers, then again, always best to do so before the ex-dividend date, before moving onto the next months stocks. this ensures your immediately getting a return on your investment, and makes it easy to build a near constant stream of income, and keep track of when certain holdings pay out.
Too young for dividends argument:
one thing i do tend to disagree with, is the belief that younger folk shouldn't be focused on dividends, only growth. that, as they say, is a bunch bullsh8. if your like me and are building a portfolio you can hopefully retire on, or are looking for a secondary source of income, dividends are absolutely something you should focus on to some capacity, as the dividends can help with growing your overall portfolios value, especially if you choose to DRIP them back in. even if a majority of your portfolio is dedicated to growth stocks or if that's your main focus, you should still have at least small percentage focused on dividends, 10% minimum in my opinion. it always helps
That i believe is all i have to say on the matter, i hope many will find it helpful, i intend on pinning this post should anyone discover my account far past when this is posted. please feel free to comment on your opinions about this or any questions you may have.