Posts: 18
Threads: 2
Joined: Jun 2016
Reputation:
0
Hello All,
Thanks for letting me join the forum.
Here is a bit about myself. Just turned 32, married with 3 kids and after 4 months of reading multiple blogs and convincing my wife that I can do this without losing it all, I have started off with a $100 every 2 week budget.
Made my first purchases last week, 2 shares of T and 6 shares of ORI. Now just trying to narrow down what 10 stocks I want to hold as a base for my long term portfolio. Seems there are a ton of options that fit the criteria I have finally settled on.
The one question that has been giving me the most trouble is if it is better to save up the money to buy one share of a stock like JNJ or to buy multiple shares of a stock like KO or T.
I look forward to lurking the threads and learning from those who are a bit farther along in the process than I am.
Posts: 403
Threads: 15
Joined: Aug 2015
Reputation:
7
Welcome to the forum!
Do you pay transaction fees, ie, are you paying your stock broker a fee every time you buy 1 stock?
Posts: 219
Threads: 26
Joined: Apr 2014
Reputation:
4
I started out by doing one larger purchase a month instead of multiple smaller ones. As Rasec mentioned, broker fees will be a factor in deciding how many purchases you make.
It is better to save up and make higher quality purchases instead of being in a hurry and picking up weaker/overpriced stocks. Here are a few common things to pay attention too:
What is the dividend rate? What if your personal minimum/maximum?
Price/Earnings (P/E): less than 20 is a common metric
Dividend/Earnings (payout ratio) less than 60% for non utiility/REIT is common
How many years has the company paid a dividend?
How many years since they last lowered their dividend?
What is their debt situation? Debt rating? How does their Debt/Equity (D/E) compare to their industry?
Perhaps use the Chowder rule: Dividend Rate + 5 year dividend growth rate (commonly want over 12)
How are they growing: Expanding into new markets, new products, buying up other companies?
Over the past 5/10 years, how is their earnings and revenue growing?
Why do you think this company will be strong and viable 50 years from now?
Posts: 1,217
Threads: 43
Joined: Jul 2013
Reputation:
24
Welcome to the board JD, good to have another younger guy around here!
It sounds like you are off to a good start. I would just echo what the others said that if you are paying commissions for your purchases you may want to accumulate and buy in larger increments. For instance, I pay $8.95 per trade so I wait until I have ~$500 for a purchase, which is roughly a 1.8% commission.
Posts: 1,459
Threads: 39
Joined: May 2013
Reputation:
8
Welcome to the forum, JD. It's great to have you, and this is a great resource to bounce ideas off each other. You might not want to buy one share of stock at a time, or even a set amount. If you want to go that route, then consider setting up a DSP through Computershare, where you can buy set amounts ($25, $50, etc) of certain stocks (XOM, etc) with little (less than a dollar) or no commissions. If you're going to pay commissions, then you might want to do larger purchases less often. Just my two cents.
Posts: 18
Threads: 2
Joined: Jun 2016
Reputation:
0
Thanks for the warm welcome and advice so far.
I choose to use Robinhood for the zero commissions and no required minimum to open an account which is nice when you start out. I also like the idea of being able to use my dividends toward the purchase of other stocks versus having them automatically reinvested for me, not a huge fan of fractions.
My initial plan is to build a core of 510 holdings and than see where to go from there.
The Criteria I have set up so far is as follows: I wonder if it is a bit to constrictive as I have notice many of the Companies that are suggested as core holdings in blogs don't fit these rules at this current time in the market, or do I need more factors to get a more accurate picture?
Dividend rate between 2.5% and 5%
PE at less than 20%
Payout Ratio less than 80%
Dividend growth of at least 25+ years
Do I know what they do/produce.
Looks like there are a few more measures I need to start considering. I have seen the Chowder Rule mentioned by others, but have not quite understood what it measures versus years of dividend growth. I will need to research some more.
Posts: 1,217
Threads: 43
Joined: Jul 2013
Reputation:
24
(06232016, 11:56 AM)jdhansen Wrote: Thanks for the warm welcome and advice so far.
I choose to use Robinhood for the zero commissions and no required minimum to open an account which is nice when you start out. I also like the idea of being able to use my dividends toward the purchase of other stocks versus having them automatically reinvested for me, not a huge fan of fractions.
My initial plan is to build a core of 510 holdings and than see where to go from there.
The Criteria I have set up so far is as follows: I wonder if it is a bit to constrictive as I have notice many of the Companies that are suggested as core holdings in blogs don't fit these rules at this current time in the market, or do I need more factors to get a more accurate picture?
Dividend rate between 2.5% and 5%
PE at less than 20%
Payout Ratio less than 80%
Dividend growth of at least 25+ years
Do I know what they do/produce.
Looks like there are a few more measures I need to start considering. I have seen the Chowder Rule mentioned by others, but have not quite understood what it measures versus years of dividend growth. I will need to research some more.
Overall I like your requirements, although I would argue there are plenty of great companies with sustainable dividends that don't have a 25year streak of increases.
Posts: 219
Threads: 26
Joined: Apr 2014
Reputation:
4
06232016, 12:39 PM
(This post was last modified: 06232016, 12:43 PM by benjamen.)
Basically, assuming a stock will indeed continue to pay increasing dividends in the future and you won't be selling this stock for a very long time, you care about two components. How much does the stock pay now versus the price (dividend rate)? How do you estimate the rate at which this dividend will grow going forward (chowder rule picks the 5 year dividend growth rate)?
Chowder Rule:
"The formula is simply the sum of the current dividend yield plus the fiveyear annual dividend growth rate "DGR" of a stock. Chowder uses 8 as a minimum number for utilities yielding 4% or more, 12 for stocks yielding 3% or more, and 15 for stocks yielding less than 3%."
For example, would you personally prefer stock A, B or C:
A) pays a 5% dividend now and you think it will grow at a rate of 5%
B) pays a 3% dividend now and you think it will grow at a rate of 10%
C) pays a 1% dividend now and you think it will grow at a rate of 15%
Discussion on the Chowder Rule:
http://dividendgrowthforum.com/showthread.php?tid=437
http://seekingalpha.com/article/3622896...guideline
http://seekingalpha.com/article/1967371...ndustrials
Posts: 1,217
Threads: 43
Joined: Jul 2013
Reputation:
24
(06232016, 12:39 PM)benjamen Wrote: Basically, assuming a stock will indeed continue to pay increasing dividends in the future and you won't be selling this stock for a very long time, you care about two components. How much does the stock pay now versus the price (dividend rate)? How do you estimate the rate at which this dividend will grow going forward (chowder rule picks the 5 year dividend growth rate)?
Chowder Rule:
"The formula is simply the sum of the current dividend yield plus the fiveyear annual dividend growth rate "DGR" of a stock. Chowder uses 8 as a minimum number for utilities yielding 4% or more, 12 for stocks yielding 3% or more, and 15 for stocks yielding less than 3%."
For example, would you personally prefer stock A, B or C:
A) pays a 5% dividend now and you think it will grow at a rate of 5%
B) pays a 3% dividend now and you think it will grow at a rate of 10%
C) pays a 1% dividend now and you think it will grow at a rate of 15%
Discussion on the Chowder Rule:
http://dividendgrowthforum.com/showthread.php?tid=437
http://seekingalpha.com/article/3622896...guideline
http://seekingalpha.com/article/1967371...ndustrials
I am working on a lengthy article right now looking at the income projections, yield on cost, and total returns for the 16% yield spectrum with 120% growth rates and corresponding Chowder #'s over the 10YR, 20YR and 30YR time frames. Hoping to get it finished tonight in time for being published before the weekend. It has become a lengthy piece, but I think it has some interesting results.
Posts: 18
Threads: 2
Joined: Jun 2016
Reputation:
0
(06232016, 12:39 PM)benjamen Wrote: Basically, assuming a stock will indeed continue to pay increasing dividends in the future and you won't be selling this stock for a very long time, you care about two components. How much does the stock pay now versus the price (dividend rate)? How do you estimate the rate at which this dividend will grow going forward (chowder rule picks the 5 year dividend growth rate)?
Chowder Rule:
"The formula is simply the sum of the current dividend yield plus the fiveyear annual dividend growth rate "DGR" of a stock. Chowder uses 8 as a minimum number for utilities yielding 4% or more, 12 for stocks yielding 3% or more, and 15 for stocks yielding less than 3%."
For example, would you personally prefer stock A, B or C:
A) pays a 5% dividend now and you think it will grow at a rate of 5%
B) pays a 3% dividend now and you think it will grow at a rate of 10%
C) pays a 1% dividend now and you think it will grow at a rate of 15%
Discussion on the Chowder Rule:
http://dividendgrowthforum.com/showthread.php?tid=437
http://seekingalpha.com/article/3622896...guideline
http://seekingalpha.com/article/1967371...ndustrials
Thank you for the further explanation and the additional discussions. Looks like the Chowder Rule will be a decent way to break ties I may have trying to select the right stock. I will definitely add it to the evaluation criteria.
