Dividend Yield Experiment

Most of our money is locked away in various index funds. That is our way.  This is true for our taxable and our non taxable accounts.  For the last few years, I have experimented in high dividend yield stocks.  I took money from stock awards from my company, and put the money into these stocks.  My rationale was two fold; explore this investment category, and take an opportunity to learn more about investing.

Initially, I wanted to gain a small exposure to real estate, so I purchased a fair amount of money in 3 ETFs.  2 are US based, and the third is over seas.  I did the general research that one can find on all of them online, and made my best guess. One is centered on NYC real estate, and I feel the most confident in that one as I live here.  My local news keeps me on the pulse of the value of real estate in NY, so naturally, I have the most invested in that one.

A 4th is in a oil company.  That was initially a high dividend yield stock, but that position was merged with a more yield based position, so it’s now a reasonable 2.5% dividend yield with reasonable growth potential.  This is more like my small position in a large US bank.  That is the sole survivor of my experiment in stock picking.

I want to talk about that for a second.  This is a case where buy and hold works.  I took Buffet’s idea that buy quality, and don’t worry about it.  Not long after my purchase, they were crushed.  I held them.  My gut told me to wait.  Now it’s up about 38% over about 7 years.  Instead of taking about a 50% loss, I averaged a 5% annual gain, including the dividend yield which is currently about 2.5%.  We are not talking about a lot of money here.  My initial position was $1000.  It’s a lot of money, but on the scale of retirement, losing it will neither make nor break me.

I will also say that I have put, probably too much, into some well we’ll call them green tech stocks hoping to help out.  One did hit.  I call it my lottery ticket stock.  They make inverters for solar panels, and I’ve doubled my $1000 investment. That is offset by the huge losses in the others totaling about $7000. I bet on green dreams, and I don’t regret it too much.  They all had promising tech.

After that, though, I stopped putting my experiment money were my heart is, and put it more where my brain is.  That’s where the dividend yield stocks come in.  They have done very well for me. They have done well enough to more or less doubled.  I am saying more or less because of the now 3, one has, and the other are close.  I had them setup to repurchase more shares on the dividend. This is how I have earned so many more shares even though I am only up about $1000.  The thing is though, that I have so many more shares.  I initially loaded the 3 stocks in 6 purchases.  I put in about $32,000.  The value is now about $45,000.  They have all been beaten down over the last few weeks, but they were higher before the recent market troubles.  The market is down about 5% as well, and they have floated around. I am very happy with that performance over this time period.

That being said, I think it’s time to spread things around a bit. I should add that one thing I like about them is that the tax rate is 15% instead of the higher rate that is on my salary.  I’m getting about $5500 a year from this, and so I’ve decided to start investing the money into dividend aristocrats.  I’m also seeding that money with some extra salary money that we are not spending.  I over estimate my expenses, so this is a normal situation for me.  The rationale is that I am not a big spender, any more, so when my savings account gets too high, I put the money into some investment.

I will add that I am currently putting about 2.5% of my income via an auto investment into a nice index fund.  That is automatic, but these extra investments into the dividend aristocrats is my next experiment.  Some folks I have read in these blogs have invested heavily in individual stocks, and others have invested in mutual funds that cover the larger community of dividend aristocrats.

Right now my investment in all of these stocks is small.  We are talking about $52,000.  I know that is a lot of money.  It’s a real lot.  Still, it’s a small percent of our total savings.  Considering my wife and I are 42, this is a good thing.  The majority of that money is in the 3 REITs, and the rest is broken up in the 2 regular stocks, and my remaining 2 green stocks from my old experiments.  I sold the rest at a loss, and am taking the loss this year in the case of 3 greenies, and in previous years for a few more greenies and regular stocks.

My current plan is to extend my investments in some of these dividend aristocrats.  I will still periodically bump up my stock and bond fund investments with money as it comes and is not spent.

So my current dividend aristocrat investment is 1 stock, and my real estate exposure in the form of REITs is 3 stocks.  I will start posting how they are doing in future blog posts as a fun way to track this experiment.

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