The Weekly Investment

Dividend Investing


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May 1, 2016 Net Worth Update

 

It is May 1, 2016 and my net worth rose $6426.77. That is good news. I recently began tracking my net worth monthly and post the updates here.  I began this blog in April 2015 after discovering dividend investing.  I find it interesting to review the weekly, monthly, and now, yearly changes. I am glad that I started the blog.  One reason for this is because I have never kept a budget so the blog’s maintenance forces me to watch the changes in my accounts more closely.  I think it also helps me to spend less because the monthly tracking allows me to see the effects of diligent investing and spurs me on to invest even more.   Seeing the progress firsthand has made me reluctant to spend.  For instance, I received a small bonus that I have not yet cashed out.  I considered purchasing a Roomba or Canon 70d camera, two items that I have wanted for a couple of months.  The amount of the bonus would cover the cost of one of the items  but after going over my net worth changes this weekend I decided to place the money into my brokerage account.

At this present time I have decided to funnel the extra money I  earn into my brokerage, the brokerage gets it all.  I am determined to finish this race and hope to do so early by receiving monthly dividend payouts that cover my expenses, forming a mini pension.  At the beginning of 2016 I assumed I would add the yearly contribution limit to my Roth and 403b but ended up being slowly pulled towards placing all of  my extra dollars into the brokerage account.  Jason from the old Dividend Mantra site mentioned this tactic several times on his blog and I have slowly grown to see the logic in that reasoning.

Another interesting occurrence that I noticed with my accounts is that I have been spending a lot on food.  I do not spend much.  Like I said, I am determined to make it so I spend very frugally, paying my monthly bills and funneling the remaining cash into my brokerage.  I made it a goal, and have succeeded for the past couple of months, to add $2000.00 per month into my taxable account.  I was happy to have achieved this goal however I was shocked to see that my last credit card balance was $500.00 with the majority of the dollars spent at the grocery store.  I rarely eat out so  I am not spending at restaurants.  I am thinking at least $200.00 of the $500.00 could have been salvaged and placed into my portfolio.  I know that this bill represents the “stress food” that I buy when returning home from work.  I am too tired to make anything substantial and end up buying bits and pieces from the grocer night after night.  This behavior adds up.  But what can I do, I am exhausted from working and making a large meal to last for several days has become too taxing.  I usually make small meals.  Because of my burnout I am attempting to lessen my hours, working maybe 3-4 days per week.  I think this would help me tremendously, it might even change my life!  I hope to have some news about this by next month.

Thanks for stopping by, peace.

 


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Dividend Capture

Because of my newfound interest in dividends, by the beginning of 2015 I was seeking to learn more information about dividend investing.  By researching I discovered an investment technique called “dividend capture”.  The technique involves purchasing a stock before its ex dividend date and selling it after receiving the dividend payout, usually a month after the ex dividend date.  In theory, a profit is earned by capturing the dividend.  Dividends can be captured weekly, or even daily, and become a source of passive income.  I liked the idea of marking the payout dates on my calendar because it is a visual reminder that I will receive multiple paychecks throughout the week.

I was able to immediately start dividend investing because most of my income was saved in savings accounts.  The bulk of my income was not in a 401k or 403b because I wanted to keep my income freed up in hopes of someday purchasing a home in full with cash.

On March 16, 2015 I purchased my first stock in my attempt to test the profit earnings of dividend capture.  I would purchase the stock before the ex dividend date and sell after the dividend was received.  I ended up purchasing a stock called White Horse Financial because it had a yield of 9.5%.  I spent $990.89, $12.77 per share, including a $7.95 commission, and waited to see if I could come out ahead.

WHF’s stock price dropped below my purchase price on the ex dividend date.  I was aware that this would happen through my research; the company adjusts the stock price downward to pay the dividend.  I wondered if the stock price would meet or exceed my original purchase price of 12.77 per share immediately after the dividend was paid out?

The dividend payout occurred on April 3, 2015.   The dividend was $7.34.  WHF’s stock price on April 6, 2015 was $12.67.  If I had sold at that time I would have received $967.64, this value includes the $7.95 selling commission.  If I had sold I would have sold at a loss of $23.25.  Selling at a loss was unacceptable.  I realized I could have held onto the stock until the price increased above $12.77 per share but did not want to hold onto the stock since holding onto it would tie up the money that I could be placing into fresh stocks with imminent ex dividend dates.

What I learned through my experiment with dividend capture:

#1  Commissions eat away at the profit that could be earned through dividend capture.  In my case the commissions alone cost $15.90.

#2  The stock price falls on the ex dividend date.  The price drop  will prolong selling the stock for a couple of months.  This delay disrupts the technique since holding onto capital diminishes the purchase of new stocks to fuel the next cycle of dividend payouts.

#3  I realized I could just hold onto the stock and avoid a second commission and receive the next quarter’s dividend payout…

I did not sell the stock and still have it to this day.  I was beginning to doubt the profitability of dividend capture but my enthusiasm about dividends did not wane.   I was continuing to research and was not deterred but still had more to learn.

 

 


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Conexant and P&G

20120530_182429I opened my Roth IRA on November 8, 1999 and immediately mailed a check for $2000.00 to Fidelity. Aware that I had opened a new account, I took advice from someone I knew who suggested buying a promising technical stock by the name of Conexant because it was quickly growing in value.

Once the funds were available, I bought 32 shares of Conexant stock at $62.50 per share. The value of the stock quickly rose, I checked my Fidelity account on a daily basis, watching it double, increasing to $4000.00. I was pleasantly surprised to witness my new Roth IRA immediately double.   I did not plan to purchase additional shares because the limit for a Roth at that time was $2000.00 annually.  Believing that investing was easy due to the seemingly easy growth filled me with contentment…but only for a short time.

Unfortunately Conexant’s stock value fell drastically a couple of months later. My investment decreased as fast as it increased and I learned immediately as a beginner that one’s money can quickly vaporize in the stock market. The stock’s value plummeted and I was looking at a loss. By the early 2000’s the stock’s value was in the hundreds of dollars. I lost almost all the money I put into the stock. I never sold Conexant but held on and watched it dip into cents per share as well as branching into two new companies, Mindspeed Technologies and Skyworks.

This was a learning experience and I was relieved that it was only $2000.00. I hoped I could recoup the lost money by the many years of investing that I had ahead of me.  Shortly after opening my Roth someone suggested buying stock in P&G since it’s value dipped to near $50.00 per share.  Because it was a new year I was able to invest another $2000.00 into my Roth. Undeterred, I mailed a second check to Fidelity and bought about 38 shares of P&G. Not long after, I watched the value of my minuscule portfolio return to normal as the value of the P&G stock rose, bringing it near $4000.00, my original investment amount. I was happy to break even and planned to continue to invest in the years to come.


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Investment Beginning

I began investing in 1999 when I was 26 years old and worked for a temporary agency.

During that time I often listened to a financial radio program hosted by Bruce Williams who consistently recommended opening a new form of IRA called a Roth IRA because of its tax free benefits. I decided to open an account.

The maximum annual contribution in 1999 was $2000.00. I saved and readied the maximum amount for investing with a nearby broker.  The process was very exciting: planning, selecting a broker, calling, making an appointment, and leaving work to go to the appointment. A moment in time on a cool autumn afternoon remembered to this day.

I was looking forward to opening my Roth IRA. I believed it was a wise decision because I was starting at an early age which would give the investment many years to grow.  Surprisingly, after being seated and speaking with the broker, I quickly grew uncomfortable towards the idea of having someone else involved with my investments plus paying them a fee. The question bore down on me, “Why is a middleman necessary?” I was under the impression that in order to invest one must go through a broker.

Ironically, I was working temporarily at Fidelity Investments. Because of my apprehension during the appointment I began to consider other ways to open an IRA. Knowing little about investing basics, I relied upon my gut instinct, suspecting that Fidelity might possibly provide a more suitable service. This hope alleviated the acute unease that I felt and I told the broker I would forgo opening an account. Later, after a short amount of research, I confirmed that the correct decision had been made. I discovered that investing with Fidelity would enable me to deposit my money directly into my account and manage solely the decisions and transactions of the account.

Having direct control over my future investments, with no middleman, was the best decision for me. I believe my intuition served me well. Looking back, I recall the broker suggested that I start my new account with an investment in a small airline company. The recommended company shut down in 2012. It is understandable that this is the risk one takes when investing but I preferred facing the risk solely on my own.