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I made a big update to my page on dividend reinvestment following our recent discussion here on the message board and my recent change in strategy with my portfolio.
Dividend Reinvestment Strategy
As always, please let me know if you have any questions or comments, or any ideas for improvement.
I think I have it covered pretty well, but fresh eyes are always good.
Thanks!
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03-20-2021, 07:48 AM
(This post was last modified: 03-20-2021, 07:55 AM by ken-do-nim.)
Great article Eric. Once trades became commission free; directed reinvestment became a great option. However, what I've been finding tends to happen is the "discipline factor". Let's say I get a few dividends, and my cash is up to $150. I will probably choose a stock that's $120 and a stock that's $30 and go right back to near zero in the account. But some of my stocks that are $300, $400 a share are much harder to reinvest into this way. It takes discipline to wait for the dividends to accumulate enough to buy a share of the higher priced stocks.
Therefore, what I've been thinking of is a synthesis of the two strategies. The pure income producers like T, NLY, ORC push their dividends into the pot, whereas the high priced dividend growth stocks like AVGO ($474) and SHW ($706!) keep reinvestment on.
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(03-20-2021, 07:48 AM)ken-do-nim Wrote: Great article Eric. Once trades became commission free; directed reinvestment became a great option. However, what I've been finding tends to happen is the "discipline factor". Let's say I get a few dividends, and my cash is up to $150. I will probably choose a stock that's $120 and a stock that's $30 and go right back to near zero in the account. But some of my stocks that are $300, $400 a share are much harder to reinvest into this way. It takes discipline to wait for the dividends to accumulate enough to buy a share of the higher priced stocks.
Therefore, what I've been thinking of is a synthesis of the two strategies. The pure income producers like T, NLY, ORC push their dividends into the pot, whereas the high priced dividend growth stocks like AVGO ($474) and SHW ($706!) keep reinvestment on.
Yeah, I've noticed that already, and I just started directed reinvestment last month.
I wanted to add HD on its recent dip and get it before the ex-div, but due to its high share price, I wasn't able to build up enough cash in time. I still did add it, but missed out on the quarterly dividend and paid a few more dollars for the shares.
I agree it will take some discipline to let cash build up enough for the higher dollar stocks. Hopefully, it doesn't lead to adding to losers rather than winners in the portfolio.
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03-20-2021, 05:21 PM
(This post was last modified: 03-20-2021, 05:21 PM by fenders53.)
In a port with this many stocks there will be a few losers that need deleted along the way. You can add to the winners then.
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Used my pooled dividends to add 3 shares of BMY ahead of tomorrow's ex-div date.
Raised the dividend by 9% back in December and is yielding 3.1%.
The payout ratio is down to 26% of expected 2021 EPS of $7.49, and growth is expected mid to high single digits going forward.
The market seems to be discounting that future growth, but the risk/reward seems pretty reasonable here with a PE under 10.
The position remains a bit underweight in my portfolio, but this brings it a bit closer to a full position.
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BMY is one of the better values in the market. They have some debt to work down but the pipeline is full enough. The stock could run 20pts and still be a decent value IMO. The entire sector has been moderately out of favor for a long time. Routine Med procedures after Covid should help. Almost a core holding in my port.
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Wanted to get input from the board on something I've been working on for my parents.
They recently accepted an offer for their house and will be downsizing and moving closer to my family. My dad wants to invest some of the proceeds from the sale and asked me to come up with some ideas for investments. This is what I put together, assuming $100k available to invest.
My thinking is spending half on 20 stocks that pay reasonable dividends with some growth, and then putting the other half into 5 ETFs, with three being dividend growth type funds and the others covering the tech and health care sectors.
This would give him roughly $220 a month to start, with my expectations for about 7% annual income growth going forward.
I could have went higher with the income, but I wanted to give him some growth as well. With all 5 of the funds producing double-digit annual returns over the last decade, I think the portfolio has a nice mix of the two.
Thoughts?
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Hi Eric,
You're a great son!
Putting my engineer hat on, before we get started on the implementation, let's nail down the requirements. How much income, if any, do your parents need? Then we can come up with an overall target yield for the portfolio, and work towards that. Second, will they want you managing it, or will they take ownership? What is their risk tolerance? Do they plan to use the money to buy something or go on an extended vacation in the foreseeable future?
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(04-13-2021, 09:05 AM)ken-do-nim Wrote: Hi Eric,
You're a great son!
Putting my engineer hat on, before we get started on the implementation, let's nail down the requirements. How much income, if any, do your parents need? Then we can come up with an overall target yield for the portfolio, and work towards that. Second, will they want you managing it, or will they take ownership? What is their risk tolerance? Do they plan to use the money to buy something or go on an extended vacation in the foreseeable future?
I haven't been given any income requirements. They've been retired for several years, so any extra income will be on top of what they've already been living on. However, they are going from owning a home to renting, so monthly costs will increase.
Talking with my dad, he wants some dividend income, but is fearful of investing a big lump sum. He's been expecting a market crash for the last five years and is worried about losing principal.
I don't think there will be much management done with the portfolio. It will generally be buy and hold with collecting dividends for some extra spending money. They can peel off shares as needed to supplement income if needed. They have other retirement savings as well, so this is new money coming into the fold after selling their house of 40+ years.
Also, this is assuming $100k invested with roughly $50k being held in cash for reserves and for buying a few things and going on trips they've wanted to take for a while.
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I assume your parents are just a little older than I am. I am trying to think how this looks in two years. I like almost all the names you've chosen. I guess the thoughts that come to mind after a quick look are these.
-Get rid of some redundancy... XOM/CVX, PM -MO, ATT-VZ. These stocks practically mirror each other. One too many DIV ETFs. This list is adequately diversified already.
-I think you could find a better industrial than MMM after the run up.
-Don't do a lump sum entry on the individual stocks you know are 20% or more overvalued today. Just a token position for now. I can name names but I think you know.
-Park some of the funds where they are fairly safe briefly. In a list this long some deals will happen soon enough. Just make sure you can buy at least the first dip or two.
-Don't DRP the individual stocks. Use the proceeds to buy more immediate income on dips. You can grow the income quarterly like you do with your own port. That would seem like the best direction to focus for them.
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I think it would be nice to put one pure growth ETF in there like ARKW or SOXX.
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04-13-2021, 09:38 AM
(This post was last modified: 04-13-2021, 09:42 AM by fenders53.)
(04-13-2021, 09:28 AM)ken-do-nim Wrote: I think it would be nice to put one pure growth ETF in there like ARKW or SOXX.
ARKW is absolutely inappropriate for this port. I'll stop reading anything he publishes if he does that to his parents. Why not just take the 100K to Vegas? 
Dipping their toes in some growth that pays some dividend would be as risky as it should get for a sane retired portfolio. I might have a different opinion if the index PEs were close to normal ranges.
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