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Dividend Investing

articles related to dividend based investing

How to make a dividend tracking spreadsheet

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. You can read more about it here. 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 and show you the compounding effect which everyone talks about in dividend investing.

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 give 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 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

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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November 16, 2019 2 comments

Dividend Investing

Quarterly Dividend Update: Q3 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.

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.

October 1, 2019 0 comment

Dividend Investing

Kontoor Brands: Dividend income stock

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

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 dividend investing portfolio here.

Create your own dividend portfolio tracking sheet here.

July 12, 2019 1 comment

Dividend Investing

Quarterly Dividend Update: Q2 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

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!

Check out my complete dividend portfolio here.

Please consider subscribing for quarterly updates to my dividend portfolio.

April 22, 2019 0 comment

Dividend Investing

My Dividend Investing Portfolio

After index investing, my next favorite investing strategy is Dividend Investing. You can read about it a lot over here. In this article I wanted to give details on my dividend stock portfolio. I divide my stocks into various sectors. Although I do not have any target percentages for any sector. I plan on buying stocks based on their valuation and opportunities Mr. Market produces, not based on a target percentage for each sector. I am still young and do not want to restrict myself by only buying a limited amount of some individual stock. Maybe a 5k position is large in my portfolio as of today but 10-15 years later it might not even be half of what I want each position to be. I plan on holding these holdings for a long time and re-investing dividends to create that compounding effect. Most of my stocks are in either my or my wife’s Roth accounts. Some dividend stocks although are in my individual broker account which I purchased when I did not know too much about tax efficient investing. Read more about tax efficient investing here.

I will try to keep this portfolio as much updated as possible. Without much delay here is my current dividend stock portfolio(As of 21st Sep 2019):

Ticker	Company Name	Sector	Quote	Dividend Amount	Dividend Yield	Research Article Link
ABBV	AbbVie Inc	Health Care	72.39	4.28	5.91%
AOS	A. O. Smith Corp	Industrial	47.48	0.88	1.85%
BLK	BlackRock, Inc.	Financials	444.39	13.2	2.97%	BLK Analysis
CSCO	Cisco Systems, Inc.	Information Technology	49.6	1.4	2.82%
DIS	Walt Disney Co	Consumer Discretionary	132.27	1.76	1.33%
GIS	General Mills, Inc.	Consumer Staples	54.33	1.96	3.61%
KTB	Kontoor Brands Inc	Consumer Discretionary	33.85	2.24	6.62%	KTB Analysis
LW	Lamb Weston Holdings Inc	Consumer Staples	73.52	0.8	1.09%
MO	Altria Group Inc	Consumer Discretionary	40.81	3.36	8.23%
NATI	National Instruments Corp	Information Technology	42.74	1	2.34%
O	Realty Income Corp	Real Estate	75.89	2.718	3.58%
PEP	PepsiCo, Inc.	Consumer Staples	134.71	3.82	2.84%
PFE	Pfizer Inc.	Health Care	36.69	1.44	3.92%
PM	Philip Morris International Inc.	Consumer Discretionary	71.2	4.68	6.57%
PSX	Phillips 66	Consumer Staples	103.27	3.6	3.49%
QCOM	QUALCOMM, Inc.	Information Technology	76.44	2.48	3.24%
SBUX	Starbucks Corporation	Consumer Discretionary	90.07	1.44	1.60%
STOR	Store Capital Corp	Real Estate	37.58	1.4	3.73%
T	AT&T Inc.	Telecom	37.91	2.04	5.38%
TCEHY	TENCENT HOLDING/ADR	Information Technology	42.77	0.115	0.27%
TGT	Target Corporation	Consumer Discretionary	106.67	2.64	2.47%
TROW	T. Rowe Price Group Inc	Financials	114.34	3.04	2.66%
VFC	VF Corp	Consumer Discretionary	85.67	1.72	2.01%
WFC	Wells Fargo & Co	Financials	48.63	2.04	4.19%
XOM	Exxon Mobil Corporation	Energy	72.08	3.48	4.83%

Here is a breakdown of percentages for different sectors:

Do remember, this is just a listing of all the dividend stocks I own and their per share metrics as of As of 15th Sep 2019. This doesn’t represent my own size of individual positions or my yield on cost on these stocks.

Please check out my latest quarterly dividend update here. Check out my buys and rare sells for the latest quarter.

Also check out how I get my financial news from WSJ and Barron’s for free every day.

April 21, 2019 0 comment

Dividend Investing

Blackrock Inc: BLK stock analysis

Since many of you know dividend investing is one of my fav styles of investing. I wanted to start a new series of articles on dividend stocks. I plan to discuss fundamentals of the business I am buying, some very basic technical metrics to judge safety of dividend over long term. My plan on dividend investing is mostly to buy high quality companies at decent or undervalued prices. Focus more on the income that is being generated using dividends, re-invest and hold for the long term. These articles will also help me to revisit my theory on buying the stock in first place in future when deciding if ever to sell.

So without any other delays, a stock I have been looking at recently is BlackRock Inc.

Overview of BlackRock Inc (BLK)

BlackRock is one of the largest asset management firms in the world. Basically, they are responsible for managing over 6 trillion dollars in various types of assets like fixed income, stocks etc. World’s biggest universities hand over the keys to their endowment funds to BlackRock to manage it and grow. World’s biggest companies ask Blackrock to manage their pensions funds and grow them. Some of the world’s biggest wealth funds, tax exempt institutions, charities etc. engage in services of BlackRock to manage their money. Blackrock in turn charges them fees to do it. Apart from this, they also own the iShares brand of etfs. If you want to do index investing but want more liquidity in selling and buying your shares, you would look towards ETFs. ETFs like IEMG (emerging markets), ITOT(Total US stock market), IVV(US S&P 500) are products of the Blackrock family. These cost almost nothing to make, all they do is package different individual stocks and sell them together as 1 security and collect some fees every year on it. They already have country specific, industry specific, dividends specific ETFs. ETFs inherently reduce risk since it allows you to diversify. and provide liquidity. They are very popular among all type of investors retail/institutional or individual. Blackrock is the largest ETF provider in the world!

Tollbooth in the investment world

All this makes Blackrock analogous to Visa and Mastercard in payments world. Just like Visa/Mastercard charge fee on any transaction done across the world using their cards, BlackRock charges fee to people holding their investment assets. They charge it every year! So its not like a one time transaction fee either. It’s like a toll booth on the superhighway of investing. Lots of people/institutions/retail clients invest in assets and some/most of them will use assets packaged by BlackRock and pay fees to hold them.

Best part is as the total assets under management grows for BlackRock, the more fee discounts they can offer to their clients thereby growing even more. The services Blackrock offers are also very sticky. An institutional client or a retail investor with significant portion of their wealth invested and managed by BlackRock is not going to sell everything and switch to a new provider just because someone else offered lower fee. I think BlackRock has excellent moat in form of its size and brand. They are one of the absolute go to places for big institutional clients looking to manage their money.

Dividend Yield

As of Oct 25 2018 is 3.31% with 12.52$ payout per share per year

Dividend history & Growth

BlackRock has a pretty good history of increasing and growing dividends every year since 2003 except for 2009 when they froze it. For 2009 I think companies can be excused if they had a pause in dividend growth because of the worldwide scenario going on at that time. They could have just cut the dividend in 09 but they decided to just freeze it. This seems to suggest me that the management is invested in growing and increasing dividends year over year. The dividend over last 5 years has grown around at 13.18%. Such growth rate is just great! What is there to not like about this history and growth rate?

Payout Ratio & Dividend Safety

Courtesy Valueline Inc.

Looking at the past 15 years of data from Valueline, we can identify the following about dividend safety:

Dividend per share as of 2018	$12.02
EPS as of end of 2018	$26.93
EPS Payout ratio	(12.02/26.93)*100 = 44.63%
Cashflow per share as of 2018	$29.08
Cashflow Payout ratio	(12.02/29.08)*100 = 41.33%

So with payout ratio in 40’s it seems like BLK makes enough money to cover dividends. This also allows BLK to withstand competition in race to 0 over commission fees. BLK has the scale and the money to innovate and take market share from other companies in its field.

Total Debt as of end of 2018	$6000 million
Total Shareholder’s equity as of end of 2018	$32374 million
DEBT/Equity	.185 or 18%
Operating Income as of 2018	$5531 million
Annual Interest payments	$175 million from Annual statement
Interest Coverage ratio	5531/175 = 31.60

.18 or 18% debt to equity ratio tells us, Blackrock has not used much debt to finance its assets and growth. Its competitors like State Street is at .53 or 53% Northern Trust is at .34 or 34%. Interest coverage ratio of 31 suggests that BLK should have no problems paying its interest obligations every year. It generates enough money to cover them 31 times! This is a good spot to be in. In case of a crisis, BLK should be able to support its debt obligations which will allow it to ensure dividend is also paid there after.

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. Looking at BLK historical PE, it’s been around 13-17. This chart below doesn’t include the latest price decline in month of October and including that, fwd pe today is around 12-13 PE. I think this is below the average in last 12 years.

Next coming up to the dividend yield, historically seems to range between 1.5 to 2.5%. Again, today the yield is close to 3.1%. Kind of the highest its been in last 12 years!

Looking at revenues and net income over the last 10 years from Morningstar shows us the following(in millions):

As you can see both revenue and net income have gone up in the correct direction over last 10 years. This just means management is great at growing the business and making it more efficient.

Positive trends tell us that BlackRock is just a great company that has reduced to reasonable levels in the last few months.

In Conclusion

BlackRock seems to be a fundamentally strong company with great dividend starting yield at around 3% at present. I usually only care about my dividend income and safety of that dividend. The dividend growth and payout ratio with BLK seems very good at current levels. I like to keep the whole process of picking dividend stocks simple and easy. Even if the stock drops more good for me since that means my DRIP will get more of BLK stock. If it goes up again good for me. I would just let the stock DRIP and reinvest all dividends. Usually I buy in lots and bought my first lot here. I will slowly buy more lots and build BLK into a full position for me over the next year or so.

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Disclaimer: The above are just my opinions expressed in the article. I am not your fiduciary and not a financial advisor. Do not consider this as investment advice to you. This article is just for informational and entertainment purposes only. Please do your own research before making investment decisions or talk to a fiduciary.

November 3, 2018 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