Live Off Dividends

Passive Income and Personal Finance

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Dividend Portfolio Update: January 2017

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The first month of a quarter is usually pretty light for dividends and this month was no exception. My financial situation is still far from normal. I’m still out of work for roughly another 6 weeks so my income is much lower than I’m used to. I was also supposed to close on my house in January but I still haven’t. Everything got slowed down initially from me being on disability, luckily I have an accident insurance policy and that coupled with my disability income is enough to afford the mortgage. So now I’m just waiting on the seller to get all the title work to their attorney so we can schedule the closing, which they were supposed to have done last week. It doesn’t look good for this week either. I’m hoping to close next week but I think worst case scenario will be two weeks from now. There’s no rush to close, but it basically has all my finances on hold.

Dividend Increases: 3 Increases

EPR Properties increased their dividend from $0.32 to $0.34. This was a 6.25% increase.  This increase will earn me an extra $7.44 annually.

Realty Income increased their dividend from $0.203 to $0.211. This was a 3.94% increase. This increase will earn me an extra $0.86 annually.

Cincinnati Financial increased their dividend from $0.48 to $0.50. This was a 4.16% increase. This increase will earn me an extra $0.08 annually.

 Combined, these three increases will earn me an extra $8.38 annually or $0.698 monthly with nothing more invested.

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These are all the companies that paid me dividends in January amounting to $35.53.

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Starting the new year I’m going to include a year over year comparison in my dividend updates, like the one above. Last year was the first year I really started investing and I didn’t receive any dividends in January last year. So from $0.00 last January to $35.53 this January is a 3553% increase year over year. This year over year percentage is obviously inflated due to $0.00 last January but seeing a $35.53 increase is encouraging. I hope to see similar gains in the coming months as well.

 

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My portfolio has basically remained unchanged since last month. I’m now 6 contributions behind totaling $2,640. The reason I’m not contributing to my portfolio currently is 1.) I’m still waiting to close on my house and don’t want to spend extra money until I do. and 2.) I’m making much less money while on disability. My plan after I move into my house and get back into a fairly normal routine is to begin making my bi-weekly contributions again and start playing catch up.

After the down payment and the closing costs for my house (I’m putting 20% down) I won’t have a ton left in the bank for my emergency fund. Things will be going rather slowly for me until I’m back at work but I still feel confident that I will be able to make up all my missed contributions. I’m excited to see what February and especially March bring!

How did your portfolio perform in January?

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Dividends and Dividend Growth Investing

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There are many different investing paths to choose from, day trading, options trading, swing trading, value investing, growth investing and lots of others. For myself and many others, including Warren Buffet whose portfolio is roughly 90% dividend stocks, dividend growth investing is the most appealing. Before we talk about dividend growth investing it’s important to understand exactly what dividends are.

What Are Dividends?

A dividend is an amount of money that is paid by a company to its shareholders. You’ll receive a specified amount of money for each share that you own. For example, if you own 10 shares of Company A who announces a $1.00 dividend you will receive $10.00 on the date specified. Dividends are usually paid on a quarterly basis but they can also be paid monthly or semi-annually. Dividend payments can range anywhere from less than 1% to upwards of 20% of the share price. Though, companies that have a high dividend yield may not be able to sustain such a payment, choosing stocks solely on their dividend yield is extremely risky and not advised. Use these Four Dividend Evaluation Methods to help you choose stocks for you portfolio instead.

Three Types Of Dividends

There are three types of dividend payments you may receive, cash, stock and extraordinary.

The most common type, a cash dividend is simply what it states, a payment from a company you’re invested in, in the form  of cash.

A stock dividend is similar to a cash dividend except instead of paying shareholders with cash, they are paid with partial or wholes shares of the companies stock.

An extraordinary dividend is a one time distribution of cash or stock to shareholders. This is also referred to as a “special dividend.” These dividends usually occur if a company makes an exceptional profit during a quarter or period.2

Record Date and Ex-Dividend Date

The record date is the date announced by a company to determine which shareholders are eligible to receive a dividend.

The ex-dividend date is usually set two days before the record date and it  is the date in which you must own shares of a company in order to receive a dividend. If you purchase a stock on its ex-dividend date or after, you won’t be eligible to receive the most recently declared dividend.

As long as you own a stock on the ex-dividend date you’re entitled to the dividend payout even if you sell your shares after the ex-dividend date. Buying a stock before its ex-dividend date and then selling after (but before the dividend payment date) and still receiving the dividend is a common strategy called a Dividend Capture Strategy. In a perfect world, the stock will drop equal to the amount of the dividend, but we don’t live in a perfect world and that’s why this strategy is plausible.

Tax Advantages

It is important to know that long term capital gains are taxed differently than short term gains or ordinary income. A long term investment is one that has been held for longer than one year. The personal income tax rate is always significantly higher than the long term investment tax rate, as you can see by the chart. Long term investments can save you big come tax time and that’s one of the biggest benefits of dividend growth investing. You can learn more about this here.

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Disclaimer: Non-qualified dividends come from REITs, MLPs, tax-exempt corporations, and foreign corporations. These non-qualified dividends are taxed at your personal tax rate rather than the long term investment rate.

Dividend Aristocrats and Dividend Kings

Dividend Aristocrats are companies within the S&P 500 that have been paying an increasing dividend for at least 25 consecutive years.

Dividend Kings are companies within the S&p 500 that have been paying an increasing dividend for at least 50 consecutive years.

Aristocrats and Kings are a great place to begin researching stocks for your own dividend growth portfolio.

 

**It is important to note that since 1930 roughly 40% of the total U.S. stock market returns have come from dividends.**

What Is Dividend Growth Investing?

Dividend growth investing is a form of investing that focuses on dividend growth, obviously right? Obvious indeed, but the uniqueness of this style of investing allows your money to grow in a way like no other form of investing does. In the previous example with Company A let’s assume that was your first year investing. At the end of your first year Company A announces a 5% dividend increase, from $1.00 per share to $1.05 per share. Let’s also assume they continue to increase their dividend by 5% for the next 10 years. At the end of the 10 years your $1.00 per share dividend ( $10.00 ) would have increased to $1.63 per share ( $16.30 ) with no extra money invested. This is a small scale example for simplicity sake but it properly illustrates the premise of dividend growth investing. This is the unique compounding effect of dividend growth investing.

Long Term Approach and DRIP

A dividend growth approach is almost always seen as a long term approach. There are many benefits to this, including the tax benefits we talked about earlier. In addition to the tax benefits, you can plan on paying less in broker fees because you’ll be buying and selling much less frequently. Historically, dividend stocks tend to do much better than their non-dividend paying counter parts during a down market as well. In a dividend growth approach, a pull-back in the market usually means discounted stock prices and a prime buying opportunity.

DRIP- Direct Reinvestment Plan. When you sign up with a broker you usually have the option to enroll in a DRIP plan. This means that when you receive a dividend payment it will automatically be used to purchase fractional or whole shares of the company that paid you the dividend, rather than the cash sitting dormant in your account.

A DRIP plan can be advantageous as time is always a factor, but I want you to consider another option as well. If you receive a dividend from a company whose stock price is at an all time high, is it really the best time to invest more money into that company? Maybe it is, maybe it isn’t. There’s really no way to know for sure, but an alternative to this method is to receive your dividend payments in cash and manually redistribute them into stocks that are valued better at that time. It does take more work but, the payoff can certainly make it worth it.

Consistent Income

Another advantage to dividend growth investing is the income. In a non-dividend paying stock you only have one way to make or lose money, capital gains or capital losses. Thus, the only way to make any real money (not paper money) is to sell your shares for a capital gain. With dividend growth investing you can make paper money from your capital gains and make real money from your dividend payments without having to sell any of your shares. Dividend income is a great form of passive income and it’s what inspired the name of this blog.

How To Calculate Yield

It’s fairly simple to calculate dividend yield once you get the hang of it. The yield of a stock is the return paid over one year. So for a dividend stock that pays quarterly, the yield is the sum of the last for quarterly dividends, divided by the price of the stock, multiplied by 100. For example, let’s say you buy AT&T (T) at $42.00 per share. And the last four quarterly dividends have been $0.48, $0.48, $0.48 and $0.48 giving a total of $1.92 per share. 1.92/42 = 0.04571429. Multiplied by 100 gives you a 4.57% yield.

How To Pick Dividend Stocks

There are four well known methods used to evaluate dividend stocks and they are: free cash flow to equity, dividend payout ratio, dividend coverage ratio and the net debt to EBITDA ratio. You can read more about these four methods here. Together they combine to form a solid method for picking dividend stocks to purchase. However, there are other factors to consider as well such as current price and upside potential.

Some Things To Be Aware Of

Please be aware that companies do not have to pay dividends and they can be cut at any time. In economic hardships, dividends are usually the first thing to go, or at least the first thing to be trimmed. This is probably the biggest risk involved with dividend growth investing.

I’ll say it again because it’s that important, don’t go chasing yield! High yield is appealing and why shouldn’t it be, but it’s far from safe. If you plan on investing in a company that pays a high yield do your due diligence and properly value that company to be sure that dividend is sustainable.

Also be aware that in a rising rate environment, like the one we’re currently in, dividend paying stocks may drop in price as people turn to other investments options such as CDs or bonds.

 

I hope those who were unsure have a better grasp on the concept of dividend growth investing. I also hope some of you may have been convinced to join myself and many others on the path to financial independence through dividend investing!

 

What’s your take on dividend growth investing?

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The 5 Best Survey Sites To Earn Extra Money This Month

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Surveys are an extremely easy way to earn extra money. Whether you’re on lunch break at work, sitting on the couch after work or just have a few minutes to kill, surveys are a great way to make some extra money.

These 5 survey sites are my personal favorites and out of all the sites that I’ve signed up for I find that I am consistently using these 5 more than any other sites. And I also get paid the most from these 5 as well, which is what’s really important here.

1.) MySurvey

MySurvey is strictly a survey site and they offer rewards for just about everything! You can transfer to Paypal, redeem points for gift cards to Amazon and much more!

1.) Swagbucks

Swagbucks is the largest online rewards site that gives free gift cards to its members for their online activities, such as Taking Surveys, Shopping, Searching the Web, Watching Videos, and Playing Games. Swagbucks is one of my personal favorites.

2.) Cashcrate

Cashcrate offers multiple different ways to get paid. You can get paid to test out new products, sign up for free websites and services, taking surveys and giving your opinion, get cashback on purchases from hundreds of online retailers, refer Cashcrate to others, you can get paid to socialize, play games and even for winning contests! Cashcrate has so many different ways to earn money that I’m certain that everybody can find a way that works for them.

3.) Marwood Research

Marwood Research offers participants the opportunity to take place in market research surveys. You will have the opportunity to help influence new products. Everyone who signs up is entered into a daily drawing for a $100.00 Visa gift card. The $100 daily drawing is enough reason for me to sign up!

4.) Opinion Surveys

Opinion Surveys has a member base of over 10,000,000 people and counting. You give your input to brands to influence future products and services while receiving cash, gift cards and the opportunity to test products!

5.) MySurvey

MySurvey is strictly a survey site and they offer rewards for just about everything! You can transfer to Paypal, redeem points for gift cards to Amazon and much more!

 

My Survey Advice

When it comes to survey sites, the more options you have the better. I sign up to as many survey sites as I possibly can so I always have surveys available to me. And I have many more options available to me, meaning I can only do the highest paying surveys while skipping the others.

Survey sites are always free to sign up with and if they aren’t then don’t sign up. If a survey site tries to charge you then it is guaranteed to be a scam. There is no risk to sign up for these free sites because it is free and if you are dissatisfied with the service they provide then you can simply unsubscribe.

It is important that you’re honest when taking surveys. A lot of the sites will remember previous information that you’ve given and if they detect inconsistencies you may not qualify for as many surveys as you should. You can also be disqualified mid-survey if you give too many contradictory answers.

I also like to cash in as soon as I reach the minimum threshold. This is just my personal preference but that way I know that I’m guaranteed my money.

It’s also not a bad idea to setup an alias email. This way you can keep all your survey emails in one account and easily sort through them to find the best surveys. It’s just a more efficient way to view and complete surveys, some surveys are only available for 24 hours or even less, so complete the high paying surveys while you can!

Disclaimer: This post may contain affiliate links.

Looking for other ways to earn extra income? Try these 10 Ways To Earn More From Home.

 

 

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