Dividend Investing: One Year Later

Saving & Investing / Tuesday, August 28th, 2012

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:

  1. Abbott Laboratories (ABT)
  2. Johnson and Johnson (JNJ)
  3. Coca-Cola Company(KO)
  4. Wal-mart Stores Inc. (WMT)
  5. 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)

*Coca-Cola had a stock split earlier this month, so I now own roughly twice as many shares at half the price.

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.

Going Forward

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?

16 Replies to “Dividend Investing: One Year Later”

  1. Thanks for sharing Julie. My kids have shares in a company that pays quarterly dividends. The shares were given to them at birth by a dear family friend who worked for the same company. He would also add a share or two to gheir accounts for birthdays and Christmas gifts. We let the dividends reinvest over the years and just a few weeks ago we dipped into those shares to help pay for our oldest child’s first college tuition bill. We earned much more on those shares compared to savings bonds. I highly recommend dividend stocks as a new baby gift!

    1. Bestmommy, that’s a fabulous idea. How great that you were able to use that gift to help pay for college. Thanks for sharing!

      1. Keep in mind you are best to do any college investing via a 529 plan since the student doesn’t pay any taxes on using the funds for higher education.

        Cashing out a dividend paying stock with capital gains, they will. Though if you don’t have any other option it’s not a bad idea. Also 529 accounts don’t allow you to invest in individual stocks/bonds.

  2. All good stock picks Julie and not a bad way to determine which dividend paying stocks to hold.

    The bigger question is how did your portfolio perform for that same period if you just invested in an S&P 500 index fund/ETF.

    Granted dividend only stocks might not perform as well as the S&P 500, but still a good comparison for tracking purposes.

      1. Barb and IJ, we have much of our other investments in mutual funds, so I enjoy the experience of buying individual stocks for this experience. It’s my investing fun money. I appreciate the recommendations, though, and I’m sure the other readers do too.

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