6 Months Later a Look at my Perpetual Income Machine

6 Months Later a Look at my Perpetual Income Machine

In February I wrote about wanting to start investing in dividend producing stocks and then I immediately wrote about creating my dividend portfolio.  Well since it has been six months I am going to review my process and review my results.

Creating my Dividend Portfolio

I went through my own process to determine what stocks I would be buying:

  1. I listed all the Dividend Aristocrats.
  2. Next, I cut out those stocks whose P/E and Operating Margin was either in line, equal or worse as compared to the industry standard.
  3. Next I looked at Yield.  While I wasn’t yield chasing, if the yield was horribly compared to the remaining peers, why purse it further.
  4. Lastly, I looked to Price to Book

Some Quick Definitions When Creating the Dividend Portfolio

  • Dividend Aristocrats are those dividend paying American companies that have increased their dividend for the past 25 years.
  • P/E is Price is “a valuation ratio of a company’s current share price compared to its per-share Earnings.”
  • Dividend Yield a “Financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated by dividing Annual Dividends per Share by Price Per Share”
  • Price to book is a ratio used to compare a stock’s market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter’s book value per share.

My Income Producing Portfolio

I ended up with 5 stocks that I have been investing a tiny amount each month.  I looked at a bunch of different online brokers and I ended up with the old school Sharebuilder.com.  Why? Automatic investing, fractional shares, instant transfers from my ING account, and free dividend reinvestments.  Sharebuilder is horrible when selling, but I don’t plan on doing that for a long time.  So for $12/month I get 6 automatic investments (I only use 5) making each trade $2.50 (Get a Free $25 for opening a new Account by emailing me).

I am going to invest once more next week (6 months total) but here are my results:

Dividend Producing Stock Portfolio

dividend Producing Stock Gains

My portfolio is up 3.73% from March 1st to August 10th as compared to the SPY which is up .86%.  That being said, I am not comparing it to the SPY.  I just want to slowly create a non-qualified portfolio which produces passive income.

Moving Forward

In my next post I am going to re-create my elimination process to make sure those companies are being invested in still meet all my requirements.  I have no intention of selling any position, I will continue to let them participate in the free dividend reinvestment. I also want to increase my monthly contributions, but don’t think I can just yet (I am not near my optimum cash position yet), so 100 bucks or so per month is it.

 

Thoughts?

10 Responses to 6 Months Later a Look at my Perpetual Income Machine

    • Absolutely want to! But right now I want to bump up my cash position to apply for a downpayment on a new house next year.

  1. Hmh. That’s interesting. My investment guys have also moved a fair amount into dividend-producing stocks. That’s a pretty modest investment… Do you think it’s too risky to invest larger amounts, or are you just testing the waters for the time being?

    • Very modest. I don’t think it is particularly risky, I have a lot more in my 401(k). I just need to accumulate cash for a house down payment next Septemberish.

      The Wife and I want to buy bigger next year

  2. Nice recap Evan. I like the Sharebuilder interface.

    Are you at all concerned that you’re paying over 10% in transaction costs?

    Our approach is simply transfer the amount we want to contribute each month, then invest when the balance in our brokerage is $1,000. We use Fidelity who charges $8/trade, so the cost is 0.8% which is more comparable to index fund levels.

    • Am I concerned? Yes. Anything I can do about it, right now? Nope.

      The reason I can’t do anything is that if I wanted until the brokerage hit $1000 I would still be waiting! I just am doing a small amount for now.

      The Wife and I had a sit down about cash reserves and since we wantt to sell our home and buy a new one in 12 to 14 months CASH IS KING. So that gets priority numero uno. So every week I’ll throw 30 or so bucks into the account so it’ll get above that $100 buy trigger.

      But I really believe in the idea, so I think I am going to bump it up 50 to 100% – still a small amount of money but I am too excited not to.

  3. Great work, beating the market by a few percentage points. That’s not always easy, even for the pros!

    I’m trying to figure out where things are going next. At this point, I’m increasing cash holdings…clearly a bearish approach to beating the market. We’ll see though.

  4. Nice return level. IMHO dividend stocks are a much better play than say a 5 year CD offering a maximum of 3.31% return (3.29% for most people)

    http://nowcdrates.com/5-year-cd/

    My only concern is stocks overall aren’t cheap and I’m personally waiting a few months before I add any more dividend stocks to my portfolio. Also the impending Bush tax cuts are ending, I suspect people will be selling soon dividend stocks because of their tax increase.

  5. Nice Job!

    I’ve been running on the wild side by playing with REITs. Too risky, I know, but so far it’s been a wild ride!

    I also have some safer stocks like MCD…

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