Last August I wrote a blog post about taking my first baby steps into investing in dividend stocks.
I’ve long been fascinated by dividend investing, because you not only get the gain (hopefully) from the increase of the price of stocks over time, but you get the dividend payments as well.
At the time I likened dividend investing to owning rental real estate in this way:
Ownership of stock = Ownership of rental home (both of which can increase over time)
Dividends paid = Rental payments received
I’m still really in love with the idea of this kind of investing for it’s “rental income” properties.
Choosing Which Dividend Stocks to Buy
The process I used a year ago to choose my stocks was very unscientific, but it felt like a good fit for me. I started with the Dividend Aristocrat List. Dividend Aristocrats are stocks that have paid a dividend over the last 25 years, and have increased the dividend amount each year. They don’t necessarily pay the highest dividends, but they pay them consistently and the value of the dividends has historically gone up each year.
Using that list, I went through something that looked like this:
I ended up with these five stocks:
- Abbott Laboratories (ABT)
- Johnson and Johnson (JNJ)
- Coca-Cola Company(KO)
- Wal-mart Stores Inc. (WMT)
- McDonald’s Corp(MCD).
After I purchased the stocks, I set the dividends to reinvest and forgot about them for a year.
That was intentional on my part. These are invested in IRAs, so the investments are long-term.
A One Year Dividend Investing Update
It’s now a year later, so how’d I do? I pulled up my account to take a look.
The entire portfolio’s return over the dates in question (just over a year) was 20.05%. The S&P return over the same dates was 13.64%, so I’m happy with that.
Most of the return came from an increase in the stock’s prices, which looked like this:
- Abbott Labs: $49.90 to $65.80 (31% return)
- Johnson & Johnson: $62.85 to $67.47 (7% return)
- McDonald’s: $85.57 to $89.28 (4% return)
- Walmart: $50.83 to $72.53 (42% return)
- Coca-Cola: $67.36 to $38.20* (13% return)
The rest of the return came from reinvesting the dividends paid back into shares of the stock.
Here’s what that looked like for one of the stocks in question, Abbott Labs:
- On 11/15/11, ABT paid me dividend worth $8.16, which purchased an additional .1509 shares of ABT stock at that day’s price.
- On 2/16/12, ABT paid me a dividend worth $8.23, which purchased an additional .1483 shares of ABT stock at that day’s price.
- On 5/16/12, ABT paid me a dividend worth $8.82, which purchased an additional .1417 shares of ABT stock at that day’s price.
- On 8/15/12, ABT paid me a dividend worth $8.89, which purchased an additional .1344 shares of ABT stock at that day’s price.
So over the course of the year, I was able to purchase .5753 shares (or just over half a share) of ABT stock with no additional cash outlay on my part. It came from re-investing the dividends ABT paid me.
The same thing happened with the other four stocks, which is what makes dividend investing so appealing.
As part of this yearly evaluation, I wanted to make sure that all five stocks were still on the Dividend Aristocrat list for 2012 and they are.
I also headed back to Morningstar, to see if there were any drastic changes in the companies that I needed to know about going forward. I didn’t see anything that would cause me to sell any of these stocks.
So my experiment in dividend investing will continue. In fact, writing this update has inspired me to do a little more reading and educating myself on this method of investing.
Are you a dividend investor? What about it appeals to you? Do you have a method you use?