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Dividend Investing

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How to make a dividend tracking spreadsheet

by Yoda September 20, 2020

I am sure you would agree when I say tracking your dividends and portfolio performance is one of the most challenging aspects of dividend investing. Most excel formulas work for few months before having issues with data providers leaving you helpless.

What if we get the data directly from the source? IEX is an exchange that provides an Application Programming Interface(api) to get dividend data for free and reliably.

In this blog post we will make use of a google sheets, latest IEX cloud api and google finance api to create your own dividend tracking sheet.

So head over to google sheets and start a new sheet to follow along.

Just give me your version of dividend tracking spreadsheet

FYI if you do not want to go through the whole process of creating a new sheet from scratch, adding formulas, formatting it etc, you can just go to the last section and download my own google sheet. Then you can use it to do dividend tracking of your own portfolio. For other’s who want to be more adventurous, please follow along.

Stock Data sheet

Let’s first work on the Stock Data sheet, this sheet will have info like stock ticker, current price, current yield, yield on cost, quantity you own, etc. So, on the top row, let’s have these headers on a new google sheet: (I added things like Ticker, Name, Quote, Avg Cost per Share, Cost Basis, Dividend Yield, Dividend income, PE ratio, eps etc.)

Our next step is to get data populated in this sheet. in order to do so, we will make use of google finance function in sheets. Basically syntax for getting anything from google finance function is:

GOOGLEFINANCE(ticker, [attribute], [start_date], [end_date|num_days], [interval])

So, the ticker name is mandatory and after that you can have 1 or more attributes.

Going back to our sheet, you need to populate the column A with ticker of your stock. To populate its name, you can use =GOOGLEFINANCE(A2,”name”) under B2 shown below

Similarly, you can use formulas like given below to get other details about the respective stock:

Function & Syntax	Description
=googlefinance(A2,”price”)	To get the latest price
=googlefinance(A2,”pe”)	To get the Price earnings ratio
=googlefinance(A2,”eps”)	To get the earnings per share
=googlefinance(A2,”high52″)	To get 52 week high price
=googlefinance(A2,”low52″)	To get 52 week low price
=googlefinance(A2,”marketcap”)	To get market cap of the stock

After I fill some of these values for my first row, I get the following:

When it comes to quantity purchased, avg cost basis per share, total cost basis, those depend from person to person and these values can easily be obtained from your brokerage account. After you get those you can very easily fill the following using formulas mentioned here:

Column in Excel Formula

Market Value =C2*D2

Change $ =G2-F2

Change % =(H2/F2)*100

After that, our sheet looks something like this:
Now coming to dividends, I have observed Google’s function is not that great. Its hit or miss. Sometimes it shows dividends sometimes it doesn’t. However, I found another api we can use to get the data related to dividend columns which is more reliable than Google’s api. Its called IEX cloud API. Up until mid June 2019 they used to allow to get the dividend data for free without any registration. But now they require you to register and get an api key.
So, lets try to do that. Head over to the IEX Cloud registration page and create account.
Next choose the START plan which is free. It provides 500K requests to the API every month which is more than enough for a pretty big portfolio. Even if you request to get data from it multiple times a day every day for the whole month.
Verify your account from your email and then login to the iex cloud api account. After verification, log on and from the home page of iex cloud api account, head over to API Tokens section as shown:
Under the API Tokens section you will find your key which you can use in google sheets. Copy the publishable token as shown using the copy button. Now here I have 2 options to get dividend amount into your sheet:

Current Dividend (Easy to setup)

In this method, you will need to copy this code and paste it into the script editor of your google sheet as shown:

Once you do this, you are mostly done. The formula to use this script in a cell to get the dividend amount is:

=if(isblank(A11),,GETDIVIDEND2($A11,”xxxx”))

Again, you will need to replace the xxxx with your personalized api key from the last step. A11 will be the field of the ticker you are trying to get dividend info for. This should get you the current dividend for most US listed stocks. For e.g. for AAPL this will return the current latest dividend. I wrote a function that uses your key to get the dividend from IEX cloud api. Then use that and the dividend frequency to get the annual dividend amount.

Sometimes a company has just announced the most recent raise and not paid it out. In such cases, IEX returns the trailing 12 month dividend. For some stocks like BUD which pays out twice a year and has payouts where one is larger and next is smaller, this might not work. For these 2 use cases, you can take a look at the next method. Please let me know if you come across any other stocks for which this script fails below in comments. I will try and improve the script code to account for any issues you may notice. This particular formula usage is shown in line 2-4 of my sheet if you download it. Do remember to replace the xxxx with your API Key, since IEX no longer allows users to share the same key to get this data.

Current Dividend using Scraping (Easiest)

So in this method, we will just use the IMPORTHTML function google provides. We will then get the dividend paid out annually from a finance website and populate it in appropriate column as shown. We use the following formula in this approach:

=SUBSTITUTE(index(IMPORTHTML(“http://finviz.com/quote.ashx?t=”&A4,”table”, 11),7,2),”*”,””)

where A4 has the ticker of the stock. I have used this in the row 6 of my google sheet provided. You may use this method whenever the first one fails(like in case of stocks like BUD). This method also gets the latest forward looking dividend yield just like the last one. You can use any of the two methods for any number of rows in your google sheet depending on what works or doesn’t.

With the information about dividend per share, you can easily get information about columns on dividends as follows:

Column Formula

Annual Div Income =D2*J2

Yield on Cost =(K2/F2) format as percent

Annual Yield =(J2/C2) format as percent
In addition to this, I have 2 columns that I added at the end, Actual Shares Purchased & Actual Cost Basis. These are completely optional and will be used to calculate your real returns on original investment. So, if you do DRIP, this will be very helpful. These columns must be filled manually, and you need to go to your brokerage website to find this info. For instance, I have some WFC stock which I bought 3-4 years back and turned DRIP on. Now last year I bought some more WFC stock out of my own pocket so my WFC holdings in my broker account look like this:So, what I know is all my DRIP transactions are anything with fractional shares in quantity column and my whole number quantity transactions are made with actual out of pocket money. Therefore, I just add up the quantity columns for whole numbers to get the Actual Shares Purchased column. I add up the cost basis for those transactions to get my entry for the Actual Cost Basis column. Important thing to remember is you must update these 2 columns any time you increase position in a stock with actual money or sell some of your positions. Those transactions will affect values in these 2 columns. When you buy any new stock, value will be easy to calculate first time. It should be same as D(quantity) and F(Cost basis). So, ideally you shouldn’t be trading much and this update will be very rare.
And now, our first row is completely done:
Now, in order to add new stocks, your work keeps getting smaller and easier. For instance, let’s add some tickers like BLK, DIS, MO, PSX,SO,QCOM, VFC, ZBH etc.
After adding the tickers from your portfolio, all you need to do is drag down from bottom right of the cell of first row in a column. That will basically call the same formula for that column for all your tickers. I have highlighted the columns for which you can do this. After doing it for all these columns here is what we get:
Now enter information in columns D, E, F, P,Q and R in that order. Rest of the columns you can again drag down as show in previous screenshot. So now we are starting to get all of our data in the stockdata sheet.
Now, lets add some totals and calculate returns and format the table to get some colors in:Notice how the return incl. dividends is a tad bit higher mostly because of some highlighted rows where I assumed, I bought some shares after receiving dividends using DRIP. Please also note these are just numbers I made up, they might not be factually correct, but this is just to give an example of how you can use the last 2 columns in the sheet. This is the end to the stockdata sheet for our dividend tracking.

Pie Chart showing your Sector allocation

Now that our stockdata sheet is ready lets do some graphs. Let’s say you want to be aware of which sectors you are allocated into and how much of your total portfolio.

Lets add a new sheet called sectorallocation and add the sectors you want to track as shown:
Now, under the percentage column, in order to get the correct allocation we are going to add this formula for utilities := ((SUMIF(StockData!P2:P12,”Utilities”,StockData!G2:G12))/StockData!G13)*100
What it will do is, see the sectors we assigned in our main stockdata sheet for any of the rows say Utilities, if so add the values in those rows up and divide by the total value to get the percentage allocated to that sector. Similarly, do this for all the other rows. You can copy the formula, but you will need to replace the Utilities with the sector of the row. So, we get this:
Now, lets add a pie chart to the sheet and add your data ranges from A2:A11,B2:B11. After that, we get the following:
At the end you get a pretty nice pie chart showing your allocation in different sectors. This can help you be aware in what sectors you are more exposed and if you decide to buy a new stock, you can see what sector you are very less exposed to and maybe look at a company there.

Monthly dividend tracking sheet

So far, we created our stockdata sheet which shows our yield on cost, annual dividends, return with and without dividends etc. Our sectorallocation sheet shows how much or less are you exposed to various sectors. In addition to these, let’s create a sheet to track our monthly dividends. This sheet will help us to create more data and understand our monthly cash flows from dividends. It can also eventually allow you to plot your dividend gains over few years/months of investing. You can see yourself on your way to living off dividends.

To do this, add a new sheet and enter the columns as shown till December:Now for the first 2 columns, get the data from your StockData sheets and populate them. Once that’s done, now you need to manually fill in what dividends you got every month from different stocks. This process can be a bit time consuming. Although, you should be able to get all the data from your broker. On my broker’s website, I just login and go to the transactions screen. Then filter to only show dividend transactions. This allows me to go through a few months of transactions at a time and fill this sheet quickly. In addition, we can also enter information for 2018 and previous years if possible, in new sheets. However, this depends on if you can get the data from your broker for previous years. Then using that data, we can add some YOY(Year Over Year) percentage increases for your dividend stocks as shown:
Now, this gives you better idea of how fast your dividend is growing every month. You can even play around with some extra rows and add Year end increase in dividends year over year for the full total etc. Now lets create a graph to show dividends received form companies in Q1 2019. Lets add a bar chart to the sheet for 2019 Monthly dividends and use the following data ranges:
Again, you can play around with the data ranges to change this chart from quarterly to annual ranges. That way you can get different type of graphs. Please feel free to check out my real money dividend portfolio which uses this google sheet in practice.

Check out this article on creating your own dividend tracking sheet using IEX and google api's. Makes it look pretty easy! Click to Tweet

Dividends over time sheet

If you have been using this dividend tracker for a couple of years, you will have enough data for a new chart. You can track your dividends month over month and year over year. This allows us to see the dividend compounding effect over long term.

Add a new sheet titled MonthYearSumm. Next we will just copy data from our other sheets like 2020Monthly, 2019 Monthly into the following format:
Again remember, you need to copy the monthly dividends you made over past years in the table above. Once you have filled in the table, you can then create a new chart of type column chart with no stacking.
You can use the customize tab to change look and feel on the chart. Once finished, the new chart looks like this:
As you can see, this chart allows you to look at your progress over time. You can see your dividends increasing month over month, year over year. Really gives perspective into long term compounding effect of dividends if you stay the course.

OK this is great! Now give me this sheet!

I do realize making your own excel from scratch can be daunting even with the above given steps. So, in case you just want a copy of the sample google sheet. Please enter your email below and I will send you the sheet with easy to follow instructions on how you can set it up for your portfolio. Again, I think if you are buying individual stocks for dividends, its utmost important to track and measure your performance. So you know how you perform against the market and can see the effects of compounding in real time. I usually update my personal sheet once a quarter and publish my quarterly results on this blog.

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Also check out how I get my financial news using a free Barron’s & wsj subscription.

September 20, 2020 8 comments

Dividend Investing

Quarterly Dividend Update: Q2 2020

by Yoda July 5, 2020

Dividend Investing for me is a long-term strategy. I like to buy great companies at good value based on historical metrics and dividend safety. Hold them for a long time, re-invest dividends and wait for compounding to do its magic. In contrast with Q1, Q2 2020 has been great for investors. From the bottom in March, the indexes almost rebounded back to their pre-Covid levels. I cannot and won’t even try to figure out what happens next. All I am planning to do is to keep buying stocks and ETF’s. Here is my Q2 2020 quarterly dividend update:

Total: $727 for Q2 2020 (up 40% from Q2 2019 & up 2% from Q1 2020 )

Here is a graphical view of the same data:

Check out my and download/make your own dividend tracking sheet here and create awesome graphs as above for free.

My Buys in Q2 2020

So, the volatile market has offered some great opportunities! Frankly speaking I was not a 100% prepared to think about what to buy. I definitely had some stocks in my watch list, but I had not looked at them in a long time. Plus I got busy with a lot of work and so did not get much time to research any new stocks. So, at first I decided to add to my existing open positions which I thought were at attractive valuation. I also added a new stock to my portfolio.

Added to position in A.O. Smith (AOS) in 30’s and low 40’s. They have had issues with revenue drop off in China since 2019. However, I like the safety of their dividend and their expansion in India. Eventually, they should get back to growth in revenues.
Added to my Cisco Systems Inc. (CSCO) position. You can read more about my complete research on Cisco Systems here.
I added to my position in Kontoor Brands (KTB). This is one of few stocks that is still around its March lows. They ended up having to cut their dividend. Because of this a lot of dividend based funds had to force sell this stock putting pressure on their stock price. This is still a long term hold for me. Full research here.
Started a position in Monmouth Real Estate Corp. (MNR). This is a REIT that is focused on industrial properties. They only have investment grade clients like FDX, AMZN, KO, HD, RTX etc. They even collected 98-99% rent during the last 3 months. Bought some at starting yields of 6.9 % and then added a bit more during the quarter.
I also added to my position in Starbucks (SBUX) in my Roth after selling some of my position form a taxable account.
Added to my position in Wells Fargo (WFC) in 20 & 30’s.
I used to have a small position outside my 401K in VTI before the crisis. However, last 3 months saw stocks go down so fast and come back up very fast. Working a full time job and researching what individual stocks to buy was looking difficult. I was just not finding enough time. So, I added to my existing positions which I had looked at before and opened new positions in MNR and HON only. But, throughout the crisis, I added big to my VTI position. No need to think/research much before adding to it. I am planning to continue adding to it every month. Since it will become a big part in my portfolio with all the buys, I also plan to add it to my statistics for every quarter.

I am projecting an increase to 2900$ in forward annual dividends as compared to 2103$ I made in 2019!

My Sells in Q2 2020

I sold my Starbucks SBUX position in taxable account and bought it in my Roth.
Sold my small CSCO position in taxable account and bought some in my Roth.
I had a small position in Trow Price (TROW). I decided to sell that from my taxable account and will focus more on my Blackrock Inc. (BLK) position.

I did have Kontoor Brands (KTB) and Disney(DIS) cut dividends in Q2 2020 to preserve cash. Both business were challenged by the virus and seems like a relevant action to take. I decided to not cut them in my portfolio as I still think they will bounce back from this over the long term.

Thoughts about Q3 2020

Upcoming quarter will have Q2 earnings from most companies in my portfolio. We will get to know more impact of the virus on companies. In the last week, we have had a steep rise in cases in many US states. Some states have hit a pause on reopening and some brought few restrictions back. It will be interesting to see if states want to close economies again or just carry on and not go back to the lock down people experienced in last 3 months. I know one thing for sure: I will keep buying stocks and ETF’s during this quarter.

Check out my complete dividend portfolio here.

Click this link for my 2019 Annual dividend income update.

Dividends stocks do come with some risk, but with precautions you can avoid the risky one’s and choose the best dividend paying/growing stocks for your portfolio. I prepared a guide where I discuss some key ratios, fundamentals, some important resources to look at while deciding to buy a dividend stock. Also find out how to get free access to Morningstar, Value Line, workaround paywall behind popular news sites like Seeking Alpha etc. Consider signing up for free instant access to the pdf version of the insights into dividend investing.

July 5, 2020 0 comment

Dividend Investing

Quarterly Dividend Update: Q1 2020

by Yoda March 31, 2020

Dividend Investing for me is a long-term strategy. I like to buy great companies at good value based on historical metrics and dividend safety. Hold them for a long time, re-invest dividends and wait for compounding to do its magic. To say Q1 2020 has been volatile is an understatement. Coronavirus has practically brought the world economy to a grinding halt. My heart goes out to all victims of this tragedy and urge every one to practice social distancing. While it has caused a lot of destruction, it also brought down valuations of well managed dividend paying companies to attractive levels. Here is my Q1 2020 quarterly dividend update:

Total: $706.16 for Q1 2020 (up 70% from Q1 2019 & up 20% from Q4 2019 )

Here is a graphical view of the same data:

Check out my and download/make your own dividend tracking sheet here and create awesome graphs as above for free.

My Buys in Q1 2020

Added to my position in Abbvie Inc. (ABBV) in 70’s and then again in 60’s. I like their ability to generate cash flows. Allergan acquisition will go through later this year which will add to their earnings and also help them insulate with the upcoming patent expiration for Humira.
Added to position in A.O. Smith (AOS) in 30’s and low 40’s. They have had issues with revenue drop off in China since 2019. However, I like the safety of their dividend and their expansion in India. Eventually, they should get back to growth in revenues.
Added to my Cisco Systems Inc. (CSCO) position. You can read more about my complete research on Cisco Systems here.
I also added to my position in Disney (DIS). They will definitely have an impact from the shutdown. However, I believe in the long term, Disney will manage to bounce back.
I added to my position in Kontoor Brands (KTB). Full research here.
Bought more Pfizer Inc. (PFE) stock. Upcoming spin off should help them focus more on growth and dividend should also be raised faster with growth.
I also added to my position in Starbucks (SBUX). Crisis will impact revenues for Q1 2020 and Q2 for sure. But, they have been growing their dividend at a very fast rate and should bounce back. They even have a better shot at grabbing market share from local coffee shops around the world, since they will be able to bounce back much faster.
I also bought more Wells Fargo (WFC) in 30’s & 40’s. Asset cap should get removed some time this year and new CEO should help clean the image of the bank and move past their crisis.
REIT’s got hammered during this crisis. This gave me an opportunity to grab Realty Income (O) and Store Capital (STOR) at really cheap prices.
The new stock I added to was Honeywell International (HON). I like their dividend safety & diversity in revenues. They have their hands in aerospace, healthcare, construction technologies, energy etc. A bigger article on this coming up soon.
For full disclosure, I also bought some VTI. It was at 3% yield which might go down a bit in Q2. However I do not include this in any statistics shown in such updates.

I am projecting a increase to 2947$ in forward annual dividends as compared to 2103$ I made in 2019! I had not expected to be growing dividends so fast in 2020.

My Sells in Q1 2020

My big sell this quarter was General Mills (GIS). It was in my taxable account and I wanted to free up some cash to move to my Roth account and buy better dividend stocks in there.
Sold some of my position in National Instruments (NATI) from my taxable account. I just sell some of this position when it becomes too large, to reduce risk of too much of being in 1 stock.

Thoughts about Q2 2020

Upcoming quarter will be very interesting. Most companies will speak about impact of the crisis on their numbers. I am thinking about adding more to positions in PEP and HON for this quarter. Another REIT I am looking at is Monmouth Real Estate Corp. (MNR). Its a REIT that focuses on renting out big industrial properties to investment grade clients. Like, Amazon, Fedex, Coca Cola, IIPR etc. But I am yet to do research on it. I am also going to be looking at dividend cut announcements.So far, many companies have announced them and none of my companies that have cut or suspended their dividends. I am concerned about XOM and STOR, but I have confidence in them bouncing back in long term.

Check out my complete dividend portfolio here.

Click this link for my 2019 Annual dividend income update.

March 31, 2020 2 comments

Dividend Investing

Annual Dividend Income Update 2019

by Yoda January 26, 2020

Dividend investing for me is a long-term strategy. I like to buy great companies at good value based on historical metrics, dividend safety & future prospects. Hold them for a long time, re-invest dividends and wait for compounding to do its magic. In Q4 of 2019 I was able to add to my CSCO & PFE positions. Here is my dividend income for all of 2019:

Total: $2103.36 in dividend income for 2019 (up 37% from 2018 )

Here is a graphical view of the same data:

Check out my and download/make your own dividend tracking sheet here and create awesome graphs as above for free.

Here is how much percentage of the dividend income is coming from each of the 26 stocks in my portfolio:

My Buys in Q4 2019

I added to my Cisco Systems (CSCO) position in Q4 2019 quarter. Cisco had fallen more than 20% from its highs. They reported a stellar fiscal year 2019. However, they gave weak guidance for fiscal 2020. They expected slowness due to trade war and Brexit uncertainty. CSCO seems pretty good by all dividend metrics. Great payout ratio and good cash position. Cisco is midst of transitioning from a purely hardware focused business to subscription recurring revenue business. They are getting into business of selling chips with Silicon One, getting into security and application analytics software. I like the direction and actions company is taking to future proof itself. Here is a detailed analysis on Cisco Systems and their dividend metrics.
I also doubled my position in Pfizer. Pfizer had announcements related to spin off plans this quarter. This has lead the stock to tumble to where I originally bought its stock. I think Pfizer would make sure that the spin off their expired patents drugs plus new Pfizer will give same in dividend income before spin off. However, I am yet to decide if I want to keep or sell the spin off after it goes through.

I would expect my Q1 2020 quarterly dividend income to go up with help of these buys .

My Sells in this quarter

None! I would like to see each quarter as this one in terms of selling.

Check out my complete dividend portfolio here.

This is how the market value is spread across various industries in my portfolio:

Performance for the year 2019

I was able to beat S&P 500 across my roth and traditional brokerage accounts. I did have 3 non dividend income paying stocks that also helped me to beat S&P in those accounts. My wife also started a roth account in 2019. We bought dividend income stocks in that too. Since we started it in middle of the year, I do not have concrete performance data on that. But I will track it in 2020.

Plans for 2020

Buy more dividend growth stocks in our roth accounts. Currently, I get 45% dividends from 3 stocks in my portfolio. I will try to increase my existing positions in some holdings. I am looking at $AOS and $WFC in the near term to add to.

January 26, 2020 2 comments

Dividend Investing

Cisco Systems : Analysis of CSCO dividend

by Yoda November 26, 2019

Cisco Systems Inc. (CSCO) is one of the largest networking hardware and software provider in the world. It also started giving out dividends in 2011. I wanted to analyze the safety of the CSCO dividend and look at its future prospects. We will do an overview of what Cisco Systems does and then look at its financials.

Overview of Cisco Systems Inc.

Cisco Systems Inc. (CSCO) is large cap American multinational company that focuses on building hardware/software related to computer networking, security, applications & collaboration in cloud and on-premise environments. Think of them as someone in business of building infrastructure to help world of internet function & grow. They mostly build these tools and services for enterprise customers. You might go and buy a Wi-Fi router or modem to allow you to tap into internet connection provided by your ISP. Most big business need to do this but, at a much larger scale. Most companies have their own data center. They usually setup their own private internet which employees work on. This needs to be done across multiple sites across multiple countries. They need to make sure connection is secure and only legitimate employees can connect. Employees use various devices. Companies need to make sure employees can connect using these devices from workplace or while travelling etc. The complexity involved with so many factors is huge. Cisco essentially provides their own proprietary hardware/software to help business manage their users, devices etc. connect to their own network and the global internet in a secure manner.

CSCO in Cloud Era

However, times are changing. Cloud is the new jargon. Nearly every big company on earth is looking at implementing or has implemented some or the other cloud-based applications/solutions. Most big cloud providers like Amazon, Google & Microsoft do not use Cisco switches or hardware in their data centers. They prefer to use white box(open source) cheaper alternatives to do networking. Companies today are preferring to outsource infrastructure/networking/storage related tasks to these cloud providers. This gives them even more money/effort to focus on their core competency. So, this can represent a challenge to Cisco for future growth.

Software Defined Networking (SDN)

What is making it possible for public cloud providers to use white box hardware instead of Cisco’s hardware? A new software based approach to manage networks. Traditionally the data plane (responsible for moving data across hardware) & control plane (responsible for controlling flow) used to reside within the hardware itself. Changes in config had to be done physically at the device and by a human. However SDN separates the logic from data flow. You can now make any changes using software. The actual hardware switch/router will act on them. So, this leads to easy reconfiguration of hardware using software. Now the hardware can be by any company and the software is what matters. This is a big shift in networking industry.

courtesy researchgate (click/hover to remove caption)

I work on the IT programming side for a big company. I can safely say that not all applications are going to be moving to cloud anytime soon. Hence, you have a situation where 15-20% of the applications are in a public cloud, some in private cloud and rest are still on their own on-premise data centers. Moreover, cloud applications are also distributed among various providers like AWS, Azure, Google etc. I can already see we work with AWS, Azure, Oracle cloud products on top of managing our own data center. We now have requirements to make sure one application residing in one cloud can communicate with some other application in our private data center or some other cloud. This type of setup is known as a multi-cloud environment.

An Exciting Opportunity

Imagine the amount of challenges this will have across multiple applications/platforms/users for networking and providing a seamless user experience. Cisco is already positioning itself as the leader in this multi-cloud space. They are now creating more software to manage networking and communications between multiple cloud environments. Here are some examples of their products:

Domain	Product	Competitor
Infrastructure-switches	Catalyst 9000 switches with Cisco DNA software	Arista Networks, Huawei, HP
Infrastructure-routing	SD-WAN with Cisco DNA	Juniper, Riverbed, Alcatel Lucent, Fortinet
Infrastructure-wireless	Catalyst and Meraki based wireless access points	HP, Ubiquiti, Extreme Networks
Application-collaboration	Webex, Cisco telepresence	Microsoft, Zoom, Slack
Application-analytics	AppDynamics	New Relic, Dynatrace
Security-endpoint	AMP, Any connect VPN, Umbrella	Fire Eye, Citrix, Zscaler, Fortinet
Security-cloud	Cloud email security, stealth watch cloud etc.	Palo Alto Networks, Fire Eye, Symantec

I am sure I have probably missed many other Cisco applications in the above table. But Cisco has some or the other cloud feature for each of the above apps/hardware.

They can either be found on app stores of biggest cloud providers or can be used as SaaS solution from Cisco themselves. Cisco is aggressively converting many of their hardware contracts by providing some cloud software to manage the underlying hardware. Again, this has been possible after moving logic and hardware into different layers in first diagram. Software to manage networking hardware and security is becoming more important. Then bundling this as subscription-based solution instead of customers buying the hardware & paying a one-time fee. Historically, Cisco has been a bit cyclical and there is some drop off revenues after every few years. But by moving into subscription style sales, they will address this in few years.

Cisco Systems seems to be on right path

Cisco provides application/hardware over most networking sub-categories. They do not have to be the best at everything or even one thing. Most of their products are in top 3-4 in every category. That is all they need. For any business looking for their networking needs for multi-cloud, Cisco can probably cater to everything. Provide support for everything under one roof. That is a big usp for most of their customers. Being in similar position at my job, I realize support is very important. If one company can provide me support for multiple solutions, I would like that instead of chasing customer support for 2-3 different vendors. Its not just me saying this, check out a post from reddit where multiple system and network admins talk how important support is in big companies:

Point is, it seems like Cisco is again trying to become one stop shop for everything you would need to manage multi-cloud environment at any enterprise. Cloud is immense opportunity to grow, has lots of challenges and Cisco Systems seems to be well equipped in all fronts.

A look at what cisco systems does and how it makes money Click to Tweet

Cisco Silicon One

On 12th Dec 2019, Cisco Systems announced it was getting into the business of selling chips. Historically, Cisco has been making and designing its own chips that go into its routers and switches. However, only way to get them was by using Cisco’s own hardware. As I mentioned above with increasing adoption of cloud, Cisco had not been able to sell its hardware to Google, Microsoft, Amazon or any big cloud provider. However, white box chips/hardware needs a lot of R&D and investment. Cisco Systems is now starting to sell these chips to any customer who wants them separately. They will do the R&D and make chips that will work in any white box router, switch or other networking hardware and design it to be more efficient. This move really helps them to start selling to these big cloud providers I mentioned above. Its a completely new business line for Cisco Systems and brings them in competition with Broadcom, Juniper which used to have their chips in this white box hardware so far.

Financials (Cisco Systems)

Here is a financial snapshot from Valueline with last 15 year results:

courtesy ValueLine (click/hover to remove caption)

Revenues

It is important to note that CSCO’s fiscal year lasts from Aug-July of every year. Keeping that in mind, in recently concluded Year 2019 in July, CSCO made about 51.9 billion in revenues. This was 5% growth as compared to fiscal 2018. Services grew by 2% and products revenue by about 6%.

If we look at revenues by different segments Cisco operates in:

Security is going to be massive in the multi-cloud world. So Cisco growing 16% in that and another 15% in cloud applications segment is great to see. Switching and Router products come under the infrastructure platforms which also grew by 7%. This segment is most challenged by SDN and good to see that Cisco grew revenues in this segment. I think this is where they are probably bundling some controller UI or software to manage routers and switches. So Cisco is already on the offensive to make sure they remain relevant in multi-cloud world.

However, in Q1 2020 ending in Oct 2019, CSCO only had a 1% increase in revenue and guided down to -4% revenues in Q2 2020. They attributed this to the weak macro environment. With Brexit and trade war between US and China still unresolved, its possible many of its customers are holding back on investing in networking equipment. Additionally, most telecoms are currently only using 4g equipment to demo 5g networks. So, less revenue on that side as well. Another reason might also be them converting one-time payments customers made, into deferred revenue subscription model. So, upfront revenue would be less as compared to previous years. But, it will be realized over the life of the contracts (multiple years).

Dividend Yield & Safety of CSCO Dividend

Dividend per share as of Nov 2019	$1.4
Price as of Nov 22 2019	$44.85
Dividend Yield as of Nov 22 2019	3.12%
EPS as of Jul 2019	$2.61
EPS Payout Ratio as of Jul 2019	.5363 or 53%
Cash flow per share as of Jul 2019	14.922/4.273 billions = 3.49
Cash flow Payout ratio as of Jul 2019	(1.4/3.49)=40.11%
9-year DGR	23.02%
5-year DGR	13.146%
Latest dividend increase in 2019	6.06%

Cisco Systems pays a 1.4$ dividend annually at 3.12% yield as of Nov 2019. Moreover, the payout ratio based on eps and free cash flow both seem relatively safe as compared to other tech companies. I think Cisco has some wiggle room during this period of transiting their business to cloud and subscription base. Looking at the latest dividend increase of 6% and the 9-year average of 23%, it looks like CSCO has tempered down their raises a bit. Although, I am still expecting mid to high single digit raises going forward. 3% starting yield with 6-9% yearly increases can still help return about 10% return on dividend income every year which is great!

Ability to Service Debt and continue paying dividend

Total Debt at end of fiscal 2019	$24666 million
Total shareholders equity at end of fiscal 2019	$33571 million
Debt/Equity	24666/33571 = .734 or 73%
Operating Income as of end of fiscal 2019	$14219 million
Annual Interest payments	$859 million
Interest Coverage ratio	14219/859=16.55

Cisco’s competitors have a lower d/e ratio. JNPR is at 40, ANET is at 3% & HPE is at 59%. Cisco is a highly acquisitive company. Here is a list of about 200+ acquisitions they have made since 1984. I think they’re just being very opportunistic in such a low interest rate environment. Making smart acquisitions and with a huge history, making those work. Having a interest coverage ratio of 16 means they have enough earnings to pay interests and service their debt. Cisco generates a lot of cash even after dividends and can pay debt down if it wanted to within 3 years. Thus, having debt/equity ratio a bit on the high side shouldn’t be much of a problem for a cash cow like Cisco Systems.

Trends

There is a very popular reversion to mean theory. It says that most stock metrics tend to hover around the mean of its lifetime average. So if the PE of a stock increases to very over-valued, over time it will fall back to its mean PE ratio. Hence, I also like to look at average PE ratio and dividend yield of stock I am looking to purchase as compared to its historical values. This plays a small part in my decision-making process. Cisco only started paying dividends 8 years back in 2011. Using Macrotrends, we can see the current yield of 3.12% is higher than the overall average yield of 2.67% over 9 years.

The fwd pe ratio as of Nov 2019 is 13.77. Average annual PE over last 11 years is about 13.37. Ignore the spike in 2018, its from tax reforms and them paying taxes to bring cash back into USA.

As you can see both pe ratio and dividend yield seem higher or close to the average in last 9-11 years.

Risks

Cloud

As mentioned earlier, Cisco faces threat to its core hardware business which made more than 50% of it revenue in 2019. With more enterprises looking to move applications to cloud to reduce operational costs, less Cisco hardware gets purchased. But with Cisco trying to move to more subscription based business and getting into chip selling business, I think they are moving in right direction. Move to cloud is definitely happening but it will take time and till then we will be in a multi cloud environment for which Cisco seems well prepared.

Trade War

Cisco’s sales in China fell a whopping 26% from the 2018. Just as US is trying to eliminate Huawei equipment from its upcoming 5G network, Chinese government is making sure it avoids equipment from US based vendors. Although Chinese sales only comprise of about 3% of overall revenues for Cisco. However this could be a long term trend. Secondly impact of tariffs on Chinese goods also increases price of Cisco hardware coming into the US. So at least a resolution in trade war could help Cisco on one of these issues.

In Conclusion

Cisco in its most recent fiscal Q1 2020 guided revenues to be down in its fiscal Q2 by about 3-5%. They attribute it to their slowdown of sales in China, general macroeconomic environment and less investment in buying products by cable & telecom companies. With 5g standards still being finalized, slowdown in cable and telecom industries can be explained. Trade war can explain slowdown in sales in China and rest of the world as many customers seem to be delaying investments in technology improvements. They want to wait and watch because of the uncertainties. Eventually, 5g will be here. Companies won’t be able to keep delaying investments in upgrading their networking and cloud infrastructures. ANET & JNPR have both given lower guidance between SEP-NOV 2019. So, it does look like this is a broad industry issue and not just CSCO doing something wrong. The macro economic weakness may go on for a few quarters. But, Cisco Systems CEO Robbins did mention they expect fiscal Q1 2021 to be better.

In the meanwhile, we get a cash cow paying 3+% safe yield and maybe even growing it mid-high single digits every year. This could be a good time to at least start a position for the long term in a tech stock that pays dividends. I am long CSCO.

Please check out my complete dividend portfolio and analysis of other dividend stocks.

I am by no means an expert on networking technology. So, I will also love to hear your opinion on the analysis in the comments below. Is Cisco Systems on the right path on the way to Cloud future?

References:

SDN Explaination

Cisco investor relations

Forbes article on CSCO

Disclaimer: The above are just my opinions expressed in the article. I am not your fiduciary or an investment advisor. Do not consider this as investment advice to you. This article is just for informational and entertainment purposes. Also please note that this article was published on Nov 26th. Many numbers would have changed when you are reading it.

November 26, 2019 0 comment

Dividend Investing

Quarterly Dividend Update: Q3 2019

by Yoda October 1, 2019

Dividend Investing for me is a long-term strategy. I like to buy great companies at good value based on historical metrics and dividend safety. Hold them for a long time, re-invest dividends and wait for compounding to do its magic. This quarter I was able to double positions in 2-3 of my holdings. Here is my Q3 2019 quarterly dividend update and comparison with Q3 2018.

Total: $585.53 for Q3 2019 (up 44% from Q3 2018 & up 13% from Q2 2019 )

Here is a graphical view of the same data:

Check out my and download/make your own dividend tracking sheet here and create awesome graphs as above for free.

My Buys in Q3 2019

I received some shares of Kontoor Brands (KTB) from the spin off of VF Corp (VFC) last quarter. Shares of KTB went down significantly after starting trading. Most likely due to it being small-mid cap company post spin off. Many funds that held VFC probably were forced to sell KTB due to its market cap and fund rules. I thought of it as a good long term opportunity. They are in a very boring jeans segment in the market which has stable sales. Plus the 7+% yield was a bonus. I bought some more during Q3 2019. I did more analysis on it here.
Doubled my position in Wells Fargo (WFC) in Q3 2019. This quarter had lots of talk about rates heading either direction. Rates were even cut for the first time in last 10 years. And then cut again. This created a lot of volatility in bank stocks. I believe that the worst from their scandals is behind WFC now. The fed enforcing a limit to their balance sheet in the meanwhile has really helped them to focus more on good quality loans to generate income. Towards the end of the quarter WFC finally managed to assign a new CEO. New CEO probably has a lot of house cleaning to do, but I think this is definitely a step in positive direction.
I bought some more of Altria (MO) in Q3 2019. With all the negative news around vaping and ban on vape devices from various state and international governments, MO’s price has fallen down a lot. Although I think MO management has a lot of experience with moving through regulatory hurdles. I think MO still has a pretty good chance of working with the governments to re-introduce vape devices in a very regulated manner. WSJ had a couple of interesting articles where they mentioned how JUUL took off their flavored pods form retail stores and ever since then we have had this health crisis. It also talked about how JUUL is already in process of making applications for May 2020 with the FDA to get their devices approved for sale. The dividend in the meanwhile appears safe.
I also doubled my position in Pfizer. Pfizer had announcements related to spin off plans this quarter. This has lead the stock to tumble to where I originally bought its stock.

I would expect my Q4 2019 quarterly dividend update to reflect higher dividends with the help of these buys.

My Sells in Q3 2019

Sold some of my position in National Instruments(NATI) from my taxable account. I just sell some of this position when it becomes too large, to reduce risk of too much of being in 1 stock.

Check out my complete dividend portfolio here.

Click this link for my Q2 2019 dividend update.

October 1, 2019 0 comment

Dividend Investing

Kontoor Brands: Dividend income stock

by Yoda September 2, 2019

Spin off’s present one of the most interesting opportunity for investing. They might have some irrational selling which will move the stock price downwards. Both Joel Greenblatt from Magic Formula Investing fame and Peter Lynch in One up on Wall Street mention to keep an eye on spin offs for best opportunities to invest. I believe there is something similar going on with Kontoor Brands, a recent spin off from VF Corp.

Allow me to introduce Kontoor Brands (KTB)

Kontoor Brands (KTB) is a newly created spin off from V.F Corporation (VFC). Its business is selling Wrangler, Lee, Rock & Republic jeans as well as operating VF Outlet business. VFC spun off this business in May 2019 to focus on their fast-growing adventure brands business. They wanted to focus more on them and decided to spin the jeans segment off as KTB. So Kontoor Brands started trading on 23rd May for about 40$ a share and then fell to about 26$ a share by June 25th.

Why did Kontoor Brands fall so much?

Irrational selling. Just like most big stocks, VFC had lots of institutional owners of its stock. If you look at Morningstar’s ownership details tab for VFC, you will find a huge amount of Large cap/dividend growth-based funds holding VFC stock.

You can see above most funds are large cap based funds. When KTB was spun off and started trading, its market cap was about 2-2.5 billion dollars. It was not part of SP500, neither was it considered a large cap company, nor had they made any official dividend announcement. On the contrary, KTB was a very boring, small-mid cap, non SP500, high dividend yield company with not a fast growing dividend. These large caps, SP500 focused, or dividend growth funds, would have been forced to sell most/all of their KTB stock. Since the new KTB stock did not follow any rules set by the fund for their holdings. I think this is the prime reason KTB stock took a dive after beginning to trade as an individual company. You can also see huge volumes of buy, sells in the first few days when mostly funds were selling:

The daily volume is far less now, 3 months after the spin off:

Management seems great and very shareholder friendly

KTB management has been touting the dividend policy of the company. Even before the spin off, the management spoke about a very strong dividend policy. Focusing on dividends as a major factor in total shareholder return. They already said in their roadshow, they planned to maintain a 60% target payout ratio. They even mentioned they plan to initiate a 2.24$ per share dividend equaling about 5+% of their 40-42$ trading price when it was spun off. So, when the price kept falling and a dividend was not announced, investors became skeptic of the planned dividend. I believe this contributed to further falling of the price. However investor’s fears were disproved when KTB announced a 2.24$ dividend per share on July 23rd 2019. Yield around 7%+ as of close on Jul 23rd.

I think this really speaks about the quality of management. Management promised something and delivered! The dividend is always at discretion of the management and the board. Management could have reduced the 2.24$ payout they mentioned before the spin off. They could have kept it at 5% of 26-28$. However, they followed through and delivered on the 2.24$ amount as previously mentioned.

Most of the KTB management has come straight from their parent company. The CEO, CFO and VP of supply chain all worked for VF Corp before moving to KTB. I see this as a great sign and shows confidence of the leadership in Kontoor Brands.

Now let’s talk about financials

Revenues for Kontoor Brands have been decreasing over the past 3 years and was one of the reasons VFC wanted to spin off this division. Revenues have decreased from about 2.92 to 2.76 billion dollars since 2016. This was mainly due to challenges in NA over retailer bankruptcies (Sears in 2018), India demonetization and exiting business in Argentina. Management expects them to decrease to 2.5 billion dollars in 2019. But then from 2020 on wards they expect for revenues to start growing at low-mid single digit rate.

For the most recent Q2 2019 quarter, the adjusted EPS was .96$ a share. You can check out there Q2 earnings report right here.

The interesting thing you would notice is that they have the word adjusted mentioned at a lot of places. Adjusted EPS (0.96) is also higher than the GAAP EPS (0.67). But there is not much concern here. We need to remember that this is practically KTB’s first earnings report as an independent company. They are focusing a lot on restructuring currently. As part of Q2 2019, they ended up exiting business in Turkey & Argentina which were poorly performing. Changed business models to distribution from direct in Chile, Russia & Israel. Closing some factories in Mexico that used to produce goods for VFC.

All these steps cost money and KTB is excluding these costs and revenues from adjusted numbers as one time charges. They plan to continue investing in restructuring throughout 2021. This is kind of needed for a newly spun off company since this will eventually help them to cut a lot of costs which will reflect on the bottom-line soon. In fact KTB management expects to start seeing result from the restructuring program in second half of 2019 itself.

Current PE for KTB is 32.20/(.96*4) = 8.41 on an adjusted basis & 32.20/(.67*4) = 12.01 on GAAP basis.

Dividend Safety of Kontoor Brands (KTB)

According to adjusted EPS, payout ratio comes to be about .56/.96 = 58.3% for the quarter. According to GAAP EPS, payout ratio is .56/.67 = 83.5%. That’s a little high but as I mentioned, this reflects extra one time costs company has had to bear for restructuring. As we move forward into 2020 & beyond, cost savings will be realized and one should expect costs of operations to go down lower thereby improving the payout ratios on GAAP basis.

Based on free cash flow, its 53.39-9.3 = 44.09 Million in free cash flow. This results in (56.64*.56)/44.09 = 71% payout ratio on cash flow. Which is not bad at all and again this percentage should improve with the restructuring changes.

Interest Coverage ratio = GAAP EBIT / Annual interest payments which comes to about (52.15 *4)/60 million = 3.4 times. I annualized the 52.4 million EBIT to get the annual. On adjusted basis its (74*4)/60 million = 4.93 times.

This ratio just tells us if the company will have any extra money left after paying interest payments. Ideally 5 and over is better. I think on adjusted basis, KTB is almost there. On a GAAP basis they might take a couple of years to get there, but I am confident they will.

I expect all ratios mentioned above to improve with each passing quarter as Kontoor Brands management keeps executing on their restructuring plan. I will keep looking at their financials with each quarter to see if they improve or not.

Risks

Concentration of Revenues

Walmart accounts for about 33% of revenues in USA which is pretty huge considering they generate 73-80% of their total revenues in USA. In fact, 53% of revenues come only from 5 retailers in USA. So maintaining those relationships is very key to Kontoor Brands.

Lack of diversity

At the end of the day they mostly sell jeans. They do sell some shorts and some shirts, but most revenues are generated by the jeans segment.

Too much debt

As part of the spin off, 1 billion dollars in debt was taken out by KTB. That’s pretty huge. This is mostly long-term debt and company is in a very defensible industry selling jeans and related products. So the debt is a big concern with the juicy dividend yield. However only 20% of revenues in Q2 were from outside USA. So there is room for far more growth internationally where management said, they are now focusing. Lee is already number 1 jeans brand in China and KTB plans to introduce Wrangler in China in early 2020. Plus with all the operational efficiencies realizing over next 18-24 months, I can see the company focusing more on cash flow and bringing down the debt. They already paid off 50 million this quarter Q2 2019.

Still a new dividend company

Ideally most dividend investors like to look at multiple years of prior data. Dividend history, sustainability/safety, historical pe ratios etc. before making a decision on dividend stock. However KTB is still a very new company. They just declared their first dividend. So there is not much historical data to look at which might put off some investors.

Conclusion

Peter Lynch and Greenblatt do mention, special situations like spin offs create interesting opportunities to invest. They also mention there is huge imperative not just for the spun off company but also for the parent to see the spun off company succeed. If the spun off company fails it also reduces trust in the management of the parent company since it destroys shareholder value. VFC has always mentioned spin off will unlock lots of value for both companies and would allow KTB to focus more on gaining operational efficiencies and growing in jeans segment. This is just what KTB has been presenting and speaking about since day 1 of spin off.

I think KTB has been way irrationally oversold. The company has already declared dividends as they had been saying. They also have a good plan to achieve efficiencies in operations and cost. This is already showing signs of good management quality. They operate in a very boring but defensive jeans wear segment. They only had 11% drop in revenues during the recession. Management has mentioned multiple times about focusing on dividends being major component in shareholder return. They even reiterated this during the most recent Q2 2019 earnings call. This is just the type of dividend income company investors should like for the long run.

I received a handful of shares of KTB as part of the VFC spin off. After studying the company, I decided to increase my position. I would add more if I see their financials improving in another 2-3 quarters. Here is my proof of purchase which is also updated in my dividend investing portfolio.

Disclaimer: The above are just my opinions expressed in the article. I am not your fiduciary or an investment advisor. Do not consider this as investment advice to you. This article is just for informational and entertainment purposes. Also please note that this article was published on Aug 25th. Many numbers would have changed when you are reading it.

References:

Q2 Earnings Release

Investor Relations KTB

Curreen Capital Q2 letter

September 2, 2019 0 comment

Dividend Investing

All about making a living off dividends

by Yoda July 12, 2019

Passive income has become a big topic now a days. As people become more busy and stressed, they are trying to search for alternate sources of income. Something they can earn passively. Making a living off dividends is one of the best ways to take part in investing and growing your wealth. Be warned this is not a get rich easy scheme.

Living off dividends passive income strategy requires you to put a lot of time and effort over a long term to be successful. I wanted to break down some myths about dividend investing with facts and explain how you can be successful in this strategy.

Let’s get started!

What is a Dividend?

When any public company makes a profit any year, it needs to decide what to do with its profit. This is usually called the question of capital allocation. A company can:

Invest back in its business in R&D, in operations to grow more and make more profit next year.
Invest in acquiring a new company and boost its return on invested capital.
Return capital to shareholders in form of buying back stocks thereby boosting EPS(Earnings Per Share) or by giving dividends.

A company need not only do 1 or 2 of the above-mentioned things. They can employ all 3 strategies every year. That third point above is where dividend investing comes into picture. Dividend is essentially your share of profit in a company in which you own stock. When you purchase a stock of a company you are part owner in that company. You have the right to vote for the board of directors in the company. By voting them in, you expect them to make sensible decisions on the above 3 criteria. So, the executives in the company every year/quarter announce if they will have a dividend or not. They announce the following dates too which are important to know when investing in such stocks:

Record Date	Date on which the broker will check to look who all own the stock that day to calculate how much dividend owner of stock on record will get.
Ex-Dividend Date	Once you buy a stock it takes couple of days for the transaction to settle and for you to be a shareholder in the company. So, this is the date before which you need to buy the stock in your brokerage, for you to show up as the owner of the said stock by record date. This is usually 1-3 days before record date.
Payment date	That’s the date on which you will get the payment of dividends in cash/stock in your account as per the company’s policy. Mostly its cash and you can re-invest it automatically or use it for buying other stocks.

Why Dividends?

Dividends are actual income (Passive Income)

No doubt capital gains via price appreciation of a stock are good. However, you need to sell the stock to realize the gain. With dividends you get a part in the profits of the company without selling the stock. You can choose to reinvest it again to get more dividends next year. Over long term, you will see your dividends compound and you would see yourself living off dividend income alone. Again mind you this can easily take from 10-25 years depending on how much you invest every year. Nothing in life is easy and dividend investing needs time and effort on your side, but its definitely possible. I know a few people already living off dividends in retirement.

Dividends force executives to be more sensible

Importance of this cannot be understated. Sometimes management makes foolish decisions to acquire companies out of their circle of competence. They spend a lot of money and years down the line, we don’t see any returns at all. A lot of such acquisitions must be written off in balance sheet in form of goodwill impairment. Having a dividend policy forces the management to make more sensible/disciplined decisions. This leads to better returns for you as an owner in the company.

Risk Management from volatility

Dividend stocks are a way to lower the risks arising from volatility in daily/monthly/yearly stock movements. Since the owners of dividend stocks get their dividends as income every year, they are more open to not selling the stock in tough times and giving the company a chance to tackle problems at hand. Many companies that have an established dividend policy also have a large base of owners who are looking for those dividends to come in like clock work and they are more forgiving of the performance of the overall appreciation of stock.

Dividends taxed favorably

Dividends are taxed favorably under the current tax scheme. You pay lesser taxes for qualified dividends as compared to your taxes on income.

Dividends Drive overall Stock returns too!

There is a lot of data and analysis done that proves companies that pay dividends outperform companies that don’t pay dividends over long periods of time. Look at this chart below for a comparison between the index of dividend stocks vs non div paying stocks (courtesy Hartford Funds):

As you can see in the last 4-5 decades dividend growth stocks have outperformed the whole market. Check out some articles from Hartford Funds and Raymond James which go on to give way more data on how over the long term, dividend stocks outperform non dividend paying stocks.

Dividend Yield Investing vs Dividend Growth Investing

Dividend yield is basically ratio of total dividends given out per year by the price of the stock. For e.g. if AT&T (T) pays out 2.00$ every year and its current price is 31.62$ then the yield is 6.32%. So, it might make sense to buy the stocks yielding the highest to get more income. However, do not go chasing the yield. Usually stocks with 10-20% dividends are highly risky and prone to getting dividends cut soon. Dividend Yield Investing (DYI) focuses on having more income from your stocks. Usually people who are close to retiring and have a more conservative approach prefer dividend yield investing. Usually if you look at high yield companies they do not increase the dividends by huge amount every year. In case of AT&T its usually 1-2% per year.

Total Return= Dividend starting Yield (6.32%) + increase of 2% in dividend payout every year + capital appreciation

Meaning you get 6.32% return every year using dividends alone. I haven’t even included any stock price appreciation yet in the above calculation. Neither did i include dividend raises, nor did you sell any stocks to get this money in your pocket. See the magic of dividends?

People who are younger and have much more time to compound money usually should do Dividend Growth Investing(DGI). This is where you forgo the initial high dividend yield in favor of higher dividend increases every year. E.g. Starbucks (SBUX) yield of about 2.79% at price of 51.62$ as of 15-JUL 2018. However, if you notice the annual rate of increase of dividend over the last 5 years, its almost 20-25% annually!

Total Return = Dividend starting Yield (2.16%) + 20% increase in dividends every year + capital appreciation

Just as Einstein mentioned, compounding is the 8^th wonder of world. Real magic happens if you re-invest these dividends to buy more of the same stocks. Since more stocks next year would result in even more dividends. This is where dividend growth investing also leaves dividend yield investing behind. If you continue to Dividend Re-Investment Program (DRIP) and reinvest dividends its easily possible you will have a much higher yield in 8-10 years for your DGI stock as compared to the DYI stock.

Let’s look at Starbucks and AT&T stocks as of 15^th Jul 2018:

You can see the starting and ending yield on cost in these 2 investments above. Over time a DGI stock usually performs and returns way more money. However, it obviously comes with its risk. At&T has many years of history in successfully paying dividends. Starbucks has only 5-6 years of history paying dividends. But there are many indicators and fundamentals to look for when choosing such stocks.

Case against Dividend Investing

Dividend payout = Lower share price

This is true, every time a distribution gets paid out the price of the stock goes down by equivalent value on the payout date. People argue what’s the point of getting dividends. However, that’s just being very short term in thinking. If you plan on holding such stocks forever and you should, how should a short-term blip on payout date matter at all? Over the long term, company grows and so does the stock price!

Dividend paying companies grow less

Another argument is only companies that have stopped growing or have no use of cash, pay out dividends. Such companies cannot efficiently allocate capital and so choose to give out dividends. So capital appreciation on the stock gets hit. You won’t be able to make much off of capital gains on stock. However as mentioned earlier, good dividend stocks bought at correct price have great potential to provide above average returns.

Preferential tax treatment for dividends can change

This is a minor threat. Currently you pay less taxes on dividends as compared to short term capital gains on stock sales. However, nobody knows the future, and this can change at any time. When that happens, its possible such stocks can fall out of favor.

Dividend stocks make you miss out on fast growing industries

Usually most dividend stocks belong to consumer cyclical, consumer staples industries. Companies that have very stable fixed stream of income. Some financial companies etc. Argument is that tech stocks which grow the fastest usually never pay dividends. So, if you do not buy such stocks you are missing out on the best growing stocks in the market. However, there are big tech companies like Microsoft, Apple, Intel, Cisco etc. that pay dividends and increase them at a fast rate. Secondly, I never said to not have any non-dividend paying stock in your portfolio. Ideally you should have a balanced portfolio of stocks, bonds, REIT’s as mentioned in my earlier article on portfolio building.

Dividends are not guaranteed

This is true. In the recent past companies like Kinder Morgan Inc (KMI) and General Electric (GE) have cut their dividends. They were considered dividend stalwarts but fell into a lot of trouble and had no choice but to cut dividends. However, for such companies there were always signs. Things like payout ratio which was increasing, financial health was deteriorating, too much debt, not being shareholder friendly etc. But most of these signs were identifiable.

How much do you need for living off dividends?

There is no fixed answer to this question. You know how much you spend annually and how much you would need. For e.g., lets say you need about 45K annually in your retirement around age 60. Assuming you go on to live for another 30 years, you need about 1.3 million dollars (30*45000). Another way to think in terms of dividends is you need about a million dollar portfolio of dividend stocks to generate about 50K$ every year at 5% dividend yield. You will only be living off the dividends. Principal can still keep on growing at a healthy rate.

Also realize that its possible you do not even have to actually save a million dollars. You can just keep on investing money over 15-20 years & re-invest dividends. Your portfolio will keep on growing during that time, eventually reaching a million dollars. At that point you can simply stop investing stop re-investing and live off of dividend income. Here is a calculator that shows how starting with 0$, investing 12000$ annually with a dividend yield of about 4% and below avg price appreciation of 5% you can get to 1.4 million dollars in 30 years.

The above are just some numbers I plugged in. You can even do this 12K investment in your Roth account and your taxes will be 0! Feel free to play around on the calculator with different numbers, but living off dividends is definitely possible.

Best free resources to get you started with dividend investing

Dividend Condition(DIVCON) free ratings

This is a free rating system developed by the firm Reality Shares. They rank dividend stocks from highest (5) to lowest (1) depending on their probability of increasing dividends in next 12 months. They look at cash flow, future earnings, buybacks, dividend trends, etc. to come up with this rating. Although not iron clad, but its a good thing to check up on when deciding to buy a dividend stock. We have heard the saying safest dividend is the one that has just been raised. This tool allows you to find out stocks that most likely will raise it! Its also a good idea to look at their quarterly list of worst ranked (1) stocks which hints at possible divided cuts. This could allow you to highlight a stock in your portfolio and go deeper into it. Check more about them here.

Invest alongside the Superinvestors!

Its always good to have some extra information while investing. Sites like Insider Monkey, Whale Wisdom & DATAROMA allow you to see what the most famous super investors like Buffett, Munger, Bill Ruane (Sequoia Fund) etc. bought in the most recent quarter. Most of these websites have free signups which give you the most data you would ever need! I am not saying to blindly buy what Superinvestors are buying. But its always good to get more information. Do your own research, look at fundamentals and make your own decision.

Dividends stocks do come with some risk but with right precautions you can avoid the risky one’s and choose the best dividend paying stocks for your portfolio. I created a free guide for you to get started on your journey to living off dividends. I discuss some key ratios, fundamentals, some important resources to look at while deciding to buy a dividend stock. It will show you how to get free access to Morningstar and Value Line reports and how to look at them from dividend point of view. I discuss how you can read most financial news articles from Seeking Alpha, WSJ, Barrons for free even if they are behind paywall! Consider signing up below and get the free pdf version of the insights into dividend investing research and how to keep your dividend income safe.

Check out my complete dividend portfolio of stocks.

Create your own dividend tracking google sheet with graphs and pie charts.

July 12, 2019 1 comment

Dividend Investing

Quarterly Dividend Update: Q2 2019

by Yoda June 30, 2019

Dividend Investing for me is a long-term strategy. I like to buy great companies at good value based on historical metrics and dividend safety. Hold them for a long time, re-invest dividends and wait for compounding to do its magic. This quarter though, I decided to focus and keep/move more of my dividend stocks in my and my wife’s Roth accounts. So I did end up selling in small quantities wherever it made sense in my taxable accounts. Ideally I would like to buy and never sell. Here is my Q2 2019 quarterly dividend update and comparison with Q2 2018.

Total: $516.76 for Q2 2019

Here is a graphical view of the same data:

My Buys in Q2 2019

Bought about double my existing position in A.O. Smith(AOS) when 2 firms released short articles and the stock price went down to low 40’s. My original position was in my taxable account. This year I am focused on moving a lot of my taxable dividend positions to Roth accounts. This seemed like a good opportunity to do it.
Doubled my position in AbbVie Inc. (ABBV ) after they announced they are buying Allergen Plc (AGN) and it fell by 16%. Dividend is still pretty safe. They even announced plan to further focus on dividends. New company will have 18-19 billion in cash flows which is probably the main reason for the deal(diversification of revenue of course). Huge debt now becomes a concern now. I am planning to watch this like a hawk. Need to see debt go down next year as they mentioned in their presentation.

I would expect my Q3 quarterly dividend update to reflect higher dividends with the help of these buys.

My Sells in Q2 2019

Sold my small position in Coca-Cola Company(KO) at gain from my taxable account, purely to move proceeds to Roth. I might start building a position back in KO but not at these prices.
Sold my small position in Vodafone Plc(VOD) at loss from my taxable account, again moving proceeds to Roth. Plus this was leading to some dividend being withheld and not being able to re-invest dividends owing to foreign entity in my broker’s account.
Sold my 1 stock position in Apple Inc.(AAPL) at gain from my taxable account again to move money to Roth. I would like to start a position again in this maybe if it gets back to Dec-Jan 145$ prices.
Sold some of my position in National Instruments(NATI) from my taxable account. I just sell some of this position when it becomes too large, to reduce risk of too much of 1 stock.

Check out my complete dividend portfolio here.

Click this link for my Q1 2019 dividend update.

Check out my and download/make your own dividend tracking sheet here.

Dividends stocks do come with some risk, but with precautions you can avoid the risky one’s and choose the best dividend paying stocks for your portfolio. I prepared a guide where I discuss some key ratios, fundamentals, some important resources to look at while deciding to buy a dividend stock. Also find out how to get free access to Morningstar, Value Line, workaround paywall behind popular news sites like Seeking Alpha etc. Consider signing up for free instant access to the pdf version of the insights into dividend investing.

June 30, 2019 0 comment

Dividend Investing

Quarterly Dividend Update: Q1 2019

by Yoda April 22, 2019

Dividend Investing for me is a long-term strategy. I like to buy great companies when they are out of favor. Hold them for a long time, re-invest dividends and wait for compounding to do its magic. I have been investing in dividend stocks for the last 3-5 years, but only started recording my dividend income since 2018. I decided to share my dividend investing journey on a quarterly basis from Q1 2019 on wards.

Here are the results from Q1 2019 and comparison with Q1 2018:

Total: $412.37 for Q1 2019

Here is a graphical view of the same data:

My Buys in Q1 2019

Bought about 33% more position in DIS (Walt Disney Company) a few weeks before the Disney+ streaming announcement.
Bought some more of T (AT&T) purely for income.
Increased 50% more position in MO (Altria) in February.
A starter position in XOM (Exxon Mobil Corporation) and ABBV (AbbVie Inc.) in February.

Most of these buys in Q1 2019 did not contribute to any dividend income in Q1. But I would expect my Q2 income to grow much faster with the busy buying quarter I had in Q1.

My Sells in Q1 2019

None!

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April 22, 2019 0 comment

Column in Excel	Formula
Market Value	=C2*D2
Change $	=G2-F2
Change %	=(H2/F2)*100

Column	Formula
Annual Div Income	=D2*J2
Yield on Cost	=(K2/F2) format as percent
Annual Yield	=(J2/C2) format as percent