Saving & Investing

Investing with the Aristocrats: My Third Annual Dividend Investing Update

August 11, 2014

Disclaimer: I am not an investing professional. This post is for informational and entertainment purposes only. You should always contact your financial advisor before making any investment decision.

Most of our retirement savings are invested in mutual funds. The kind that match the investment mix to the year you plan to retire. It’s a plan we’re happy with.

But in 2011 I had about $4600 from an old 401k and I saw it as a chance to invest it with dividends in mind, something that’s always interested me. So I rolled the  money into IRAs and spread it across five different stocks from the Dividend Aristocrats list.

Three years later, my little portfolio now contains six stocks. Here are my current holdings:

  • 13.1672 shares of McDonald’s (MCD)
  • 30.0519 shares of Coca-Cola (KO)
  • 19.3849 shares of Wal-Mart (WMT)
  • 16.5302 shares of Johnson & Johnson (JNJ)
  • 18.195 shares of Abbott Laboratories (ABT)
  • 17 shares of AbbVie Inc. (ABBV)

All dividends from these stocks have been reinvested back into additional shares of the stock.

Why Dividend Stocks?

I like dividend stocks for the same reason I like rental real estate, or the idea of rental real estate anyway. That is, there are two ways you’re rewarded for your investment:

  1. The value of the rental house (hopefully) increases over time. Same with the stock.
  2. As the owner of a rental house you’re paid rent, usually monthly. As the owner of a dividend-paying stock you’re paid dividends, usually quarterly.

That’s a very basic analogy, but hopefully you get the idea.

#2 above is especially enticing to me. The rental income or dividends that are paid out create an income stream and, as you know from all the talk I do about found money, I’m all about income streams.

Why Dividend Aristocrats?

The Dividend Aristocrats are S&P 500 companies that have both paid a dividend and increased that dividend each year for at least 25 years.

In other words: these companies don’t necessarily pay the highest dividends, but they’ve paid dividends the most consistently. I like that.

These aren’t the sexiest stocks (Clorox, Kimberly-Clark, ADP) but they’re solid stocks and they tend not to get beat up as badly when the market tanks. These are the stocks you’d take home to Mom and Dad. Again, I like that.

Why individual stocks?

After one of my previous updates, it was suggested that I think about investing in a mutual fund made up of dividend stocks instead of the individual stocks themselves. It would be simpler and probably cheaper to do it that way. There are even mutual funds made up of just the Dividend Aristocrats.

So why don’t I do that? Because it’s not as much fun.

Most of our retirement savings is already in mutual funds so I wanted to try something different.

What do I want to get out of this?

I’ve referred to these stocks in the past as my investing fun money, but that’s probably not the best description. I am having fun with it and it’s a pretty small part of our savings, but it’s  real money so I’d like it to be a little safer than – say – taking it to the casino.

I’m also using this as a learning experience. This update took me hours to write because I kept stopping to research different things along the way. I could read a shelf full of book about dividend investing, but actually owning a few stocks, tracking their performance, and digging into my account statements is much more effective.

So enough background, let’s get on with the update.

How have my stocks performed?

McDonald’s (MCD)

Ah, the golden arches. It’s where I get my Diet Dr. Pepper fix when I’m out and about.

I bought the stock three years ago at a price of $85.57. The price at the time I am writing this post is $93.55. That doesn’t seem like a bad return (9%) unless you look at last year’s update and see that the price then was $95.60. Ouch.

Of course I’m writing this at a time when the whole market is down. But McDonald’s was tanking before that. Really tanking. Back in mid-May it was selling at over $103/share.

There was the Chinese expired meat issue that you may have heard about. That’s no doubt responsible for a lot of it. I don’t think my Diet Dr. Pepper is going to taste as good the next time I drive through.

Coca-Cola (KO)

Coca-Cola’s shares are at $39.45 at the time I am writing this, compared to $38.48 last year and $38.20 in August, 2012. All in all pretty flat (no soda pun intended).

I bought KO at $67.36 in 2011, which was the price before a stock split. Last year I attempted to do the math to see what my return had been, split and all. This year I’ll just rely on Schwab’s math to tell you that KO’s 3 year return (with all that split business factored in) has been 17.52%.

Wal-Mart (WMT)

Speaking of flat, Wal-Mart’s current price is $74.67, compared to $73.45 last year at this time and $72.53 the year before that. I bought WMT at $50.83 in August of 2011. The price has increased almost 47% since then, but that was thanks to that great first year return.

Now on to a bit of good news.

Johnson & Johnson (JNJ)

The price of JNJ stock has risen from $62.85 when I bought it 3 years ago, to $101.08 today, an increase of almost 61%. Not much to say about that except: go JNJ!

Abbott Labs (ABT)

In last year’s report I explained that Abbott Labs spun off part of it’s operations and created a separate company in the form of AbbVie Inc. Here is Investopedia’s explanation of a stock spinoff and a Chicago Tribune report of the Abbott/Abbvie spinoff specifically.

I bought ABT in 2011 at $49.90 and the price today is 41.69. That seemed to me like a decent return given the spinoff, so I checked with Schwab, which is reporting a 75.56% 3-year return for ABT. That certainly makes up for some of those MCD, WMT, and KO returns.

AbbVie (ABBV)

AbbVie is the stock that spun off from ABT in January 2013. I didn’t own the stock before that date; in fact it didn’t exist before that date. Since that time the stock price has increased from $35 to $52.82, or nearly 51%.

Dividend Payments

But the stock prices are only part of the story. The real reason I chose these stocks was for their consistency in paying dividends.

So what has that looked like? Here are the total dividend amounts I received from each stock since my last update. They represent a year’s worth of dividends:

  • MCD$41.29
  • KO    $34.53
  • WMT$36.27
  • JNJ    $43.55
  • ABT  $12.95
  • ABBV $27.54

The total from all six stocks was $196.13. The three-year total of dividend payments was $510.19.

To put this in found money terms: the income stream is the dividend payouts and the job they’ve been given to do is to buy more shares of the stock.

Bottom Line

We’re at exactly the 3-year market since I invested in these stocks. The value of my portfolio then was $4675, today it’s $7345.

Some of that increase is because the prices of the stocks have gone up and some is because the dividends were used to buy more shares.

What’s Next?

While preparing this post, I noticed that I have a small amount of cash sitting in my investment account, so I’d like to use that to invest in more stock.

Some of that cash came from AbbVie dividends, which were not set to reinvest for some reason. I need to change that.

Other than that it’s keep learning and stay the course.

Are you a dividend investor? Have any thoughts on the subject?
















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