Why you should invest in Dividend Paying Stocks

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In this article, I want to show examples of how one can build wealth by investing in dividend-paying stocks over the long term by sharing the dividend income in my portfolio. I started investing in dividend-paying stocks in 2017 with no income from dividends. In 2022, I am earning $2,583 yearly from dividends. How much money am I adding monthly to my portfolio? I invest 10% of my salary in dividend stocks and reinvest all the dividends to buy back the stocks. The best part of dividend stocks is the yearly increase of dividend $ amounts and reinvesting dividends to buy additional stocks of the company’s stock which generates more income from dividends yearly. A good dividend company increases at least 5% dividends a year; some companies with high growth may increase by 20% or more. So on average, a dividend investor can see approximately ~7% increase in income from dividends which must be higher than your 9 to 5 job. To identify a good company that will keep increasing dividends, you must go through the company’s financial health and business model.

Why dividend stocks:

There are several reasons that tell why one should invest in dividend stocks:

• Potential for long-term growth: Many dividend-paying stocks have a history of paying dividends for quite a long time. These companies have already established themselves as a stable and growing company. If one keeps reinvesting the dividends, one can benefit from compounding interest and long-term growth.
• Regular source of income: The potential long-term growth dividend stocks will generate a much higher income in dividends with time which will be an attractive option for investors who are retired or looking for passive income.
• Potential to outperform non-dividend-paying stocks: When we talk about investing for the longer term, it has been found that dividend-paying stocks outperformed non-dividend-paying stocks.

Identifying the stocks:

I follow a few simple steps to identify good dividend-paying stocks that will keep increasing their dividends yearly.

• Consistent in paying and increasing dividends: The first thing I look for in a dividend-paying stock is the company is consistent in paying dividends. A company that pays dividends consistently is more likely to continue paying dividends and keep increasing dividends in the future.
• The dividend yield and payout ratio: The dividend yield and the payout ratio is very important for dividend investors. The dividend yield is the annual dividend per share divided by the stock price and the payout ratio is the percentage of a company’s earnings that are paid out as dividends. I always look for companies that pay a reasonable dividend yield and a payout ratio not higher than 80%.
• PE ratio: Price to earning ratio is also another parameter to look into. It helps to identify if the stock price is fairly valued or not. For dividend investors, this is very important as if you buy at a lower PE ratio then you are buying at a higher yield and you are buying more stocks that will generate more dividend income.
• Company’s financial health: Every investor should read the company’s financial statements that they are invested in. Look for the company’s profitability, debt levels, and cash flow. A company’s financial strength will indicate if it will be able to sustain and increase its dividends over time.
• Company’s business model: Always look at the company’s business model and how it generates revenue. Also, understand the strength of the company’s competitive advantage and its potential for future growth.

The growth: Keep patience and hold your investment for long-term

There are several benefits of holding dividend-paying stocks for the longer term.

• Potential for higher return: This is true for all types of stock investors. Over the long term, the stock market has historically generated higher returns than other asset classes such as bonds and cash. by investing for the long term, the investor can take advantage of these higher potential returns. Picking an excellent growth stock is very important in this case.
• Time to weather market fluctuations: In the short term, the market can be volatile, but over the long term, it tends to go upward. By investing for the long term investors can ride out market fluctuations and potentially get a higher return. Most of the time it also beats inflations.
• The benefit of compounding: In long-term investing in dividend-paying stocks, investors can potentially see the miracle of compounding interest. This is the process where the dividend is reinvested so that the investment earns more dividends from both the original principal and the accumulated dividends. This will help to grow wealth faster over time.

This blog was originally written on Medium by the author.

Dividend Income Update May 2022

 Dividend Update May 2022

Hello Guys, today I am sharing the total amount of dividends I that I have received in May 2022. Currently, I am maintaining four different portfolios. My main portfolio is dividend paying stocks as my focus is in dividend paying stocks only. I also maintain a non-dividend paying stocks with massive growth. I invest in AMZN, GOOG, FB, NVDA, and TSLA. My third portfolio is the crypto currencies. Currently it got hammered but in the last year I have got enough profit from the cryptos. I have gradually started to buy cryptos again. My plan is to hold all the stocks for longer time. After my retirement I will sell all the non-dividend paying stocks and will invest those money to buy only dividend paying stocks to get a good monthly income during my retirement. In May, I was active in the market as I have added $SBUX, $JPM and $MPW in my dividend portfolio. In my non-dividend portfolio I have sold out $TWTR and with that money I have added $GOOG, $AMZN, and $NVDA. The table below shows the dividends I have received in May.

In the last month, I have received $122.5 in dividends. I have received $39 from $ABBV followed by $VZ ($14), $BMY ($14), $APPL ($14), and $T ($12). I used to received a big amount of dividends from $T but unfortunately they have slashed the dividends 50%. In the coming months I will add $SBUX and $JPM stocks. 

The next chart shows monthly dividend track sheet in a year. It helps me to understand how my dividends are being distributed monthly.

The chart and the table below summarizes my dividend distribution in the portfolio. The most percentages of dividends I am receiving are from the ETFs (SCHD and VYM). From individual stocks, I am receiving dividends from ABBV, JNJ, MMM, UL, PEP, HD etc.  

The table below shows the detailed distribution of my total dividends.

The dividends that I have received in May, did the DRIP for all of them. The following chart shows how my dividends are growing with time.

The chart below shows the average dividend income and the average amount of dividends received monthly. You will see that my dividend income is increasing with time (red color). 

The chart below shows the comparison of my monthly dividends on a yearly basis. The dividends are growing every year as I am adding new stocks and each company is increasing dividends on an avg of 6-7% a year. If I keep investing for longer run, just think about how much money this portfolio will generate. All you need is the patience. 

The next chart shows the total amount of dividends received in each quarter and compares the total amount of dividends with the previous years. 

On yield basis, the current yield of my overall portfolio is 2.53% while my YOC is 3.49%. The increase in YOC is because of the increase in dividends by each company. This yield only increase with time unless a company cuts the dividend. So it is very important to invest in only great companies. The current yield is dependent with he market. In bull market the yield drops while in the bear market the yield goes up.

The following curve shows the YOC and the current yield comparison with time. The YOC is gradually increasing as the companies are increasing their dividends annually.

Stocks that will give you peace in your retirement

  Portfolio Update - January 2021

Today I am going to share the status of my portfolio at the end of January 2021. My plan is to gradually invest in the stocks that pay dividends and increase the dividends in every year. Investing in dividend stocks is kind of boring but it will help your wealth grow effectively with time with less risk compared to non-dividend paying stocks. They perform good when the market foes to bear mode. Because I am young so I have decide to invest 20% of my invest into aggressive stocks and in the cryptos. I invest a small portion in non-dividend paying stocks like Amazon (AMZN), Google (GOOG), Tesla (TSLA) etc. I also invest a small percentage in the cryptos. I mostly invest in Bitcoin and Ehteruem. Other notable cryptos that I am invested in is Binance Coin (BNB), Chainlink (LINK), Crypto.com (CRO), and VeChain (VET). Recently I have sold some of the cryptos to take profit. Currently I am only buying USDC. These risky positions will help me to build my wealth faster than the dividend paying stocks considering my age. When I will be close to my retirement I can sell these positions and will be able to buy a lot of dividend paying stocks for the retirement income. The table below shows my current portfolio distribution:

The following pie chart also shows my portfolio and you can see that currently Apple (AAPL) is my largest holding followed by Vanguard High Yield (VYM), The Home Depot (HD). The two ETFs that I am holding they are actually from my retirement fund. 

The sector distribution of my portfolio is shown in the following pie chart. I have selected the sectors based on Yahoo Finance. Currently my highest percentage of portfolio are in the tech sector as they are performing superbly for the last few years. My next two largest holdings are in the healthcare and ETFs. 

The following tree-map shows the sectors that I am holding the most and also the shares under each sector. I like the tree-maps as it helps to understand the portfolio much better. I am holding the most in the tech sector followed by the healthcare.

I also keep updated my portfolio in TipRanks where I can track my overall gain of my capital since I started to invest in 2017. So far my capital gain is 84.89% and my Sharpe ratio is 2.28. I am ranked among the top 15% of the total investor in the website.

My 12 month return (TTM) is 13.29% and the last 6 months return is 11.99%. I am investing for longer term. I have no intention to sell them unless if I need for any emergency.

The table below shows the dividends that I have received in January 2021. I have received only $23 because I have sold a good number of stocks to purchase my first home. However, I have purchased KMB, MRK, and PPL recently. So my income at this period of the quarter will increase. 

On average I am currently earning around $110 monthly in dividends totaling $1329 a year. If I continue to invest regularly then it will keep growing and the companies will keep increasing their dividends every year. This will compound the income and after few years I will start to see snowball effect. This is the magic of investing in dividend paying stocks.

The following table shows the detailed performance of my portfolio. The current price in the table is based on the price on January 31st 2021. In the table, I have shared my current positions, annual income through dividends, total received dividends from each company so far, cost basis, YOC, current yield, and finally the total gain or loss including the dividend income. My top 5 performers in terms of gain are AAPL (216%), MSFT (179%), MA (114%), CAT (86%), and STOR (85%). I am only loosing in CVX (-1.84%) and recently purchased C (-3.37%). The total gain of my current holdings are 48%. 

The following tree-map shows my gains in every sector under each stock. I have a huge gain in the tech, consumer, industrial, and financial sectors. In the tech I have big gain in AAPL and MSFT. In the consumer sector I have gain mostly in SBUX and HD. In the industrial sector I have big gain in CAT stock. I am also gaining a lot in MA, V, STOR, and PG.

Monthly Dividend Update - January 2021

 Monthly Dividend Update - January 2021

Hey guys, today I am sharing with you my dividend status of my portfolio at the end of January 2021. In January, I was very active in buying stocks. I have initiated my positions in General Mills (GIS), Hormel Foods (HRL), and Citi Bank (C). I have also purchased Kimberley Clark (KMB) and PPL Corp (PPL) stocks in my portfolio. I have also purchased Vanguard High Yield (VYM) in my retirement portfolio. As I have written in my previous blogs that I invest 80% in dividend paying stocks, 10% in non-dividend paying stocks, and the rest 10% in the Cryptos. At this current condition, I am not adding any cryptos. I am investing that money into non-dividend paying stocks. The table below shows the dividends that I received in January 2021. This month my income was too little as I sold a good number of stocks to get cash to buy my first home. 

The following chart shows the dividends received monthly from my portfolio. The chart indicates the growth of my monthly dividends with time. If I keep investing and hold in these great companies my income will continue to grow with time. 

The following chart compares my monthly dividends on a yearly basis. In the last month, I have received only $23 while last year in the same month I received around $60. It dropped significantly because I sold some of my major holdings such as JP Morgan (JPM), Medical Properties (MPW), and PPL Corporation (PPL).

The next chart shows the total amount of dividends received in each quarter and compares the total amount of dividends with the previous years.

On yield basis, the current yield of my overall portfolio is 2.68% however, my yield on cost (YOC) is 3.82%. The YOC will continue to increase because the dividend paying stocks always increase their dividends yearly so the YOC will only increase with time. On the other hand, the current yield depends on the market. If the market is in bull mode then yield will drop and will increase if the market is in bear mode. The later condition will give you buying opportunity.

The following figure shows the YOC and current yield comparison with time. My YOC is gradually increasing with time while the current yield fluctuated in the same range which depends on the market condition. On the other hand the YOC increases with time because most of the companies increase their dividends yearly and it does not fluctuate with the market condition.

The chart below shows the average dividend income received monthly and the average amount of dividends received monthly. I am slowly increasing my passive income and if I continue to invest in the dividend paying stocks it will only grow with time.

The chart and the table below summarizes my dividend distribution in the portfolio. The most percentages of dividends I am receiving are from the Vanguard High Yield (VYM), Abbvie (ABBV), At&t (T), Johnson & Johnson (JNJ), and Home Depot (HD) etc. They are the 40% of my total dividend incomes. 

Dividend Source in the table format:

The following tree map shows the percentage of dividends that I am receiving from the individual stocks and also compares between the sectors. It helps me to understand which sectors are paying me the most in dividends. The map shows that I am getting the highest amount of dividends from the health sectors followed by the consumer defensive, ETFs and consumer cyclical.

The following table shows the dividends that I received from my positions in each month. This chart is very helpful to track my monthly income through dividends.

The next table shows the total amount of dividends received so far in 2021. In January, I have received a small amount of dividends but in the next cycle I will receive more dividends because I invested in KMB and PPL.

The next table shows my dividend growth performance in the year 2021. Last year, none of my holdings cut their dividends. Only 4 of them did not raise their dividends other than that all of them raised dividends. 

Stocks that will generate passive incomes - Portfolio update December 2020

Portfolio Update - December 2020

   

Today I am going to share the status of my portfolio at the end of December 2020. I invest in dividend paying stocks mostly, however I also invest a small portion in non-dividend paying stocks like Amazon (AMZN), Google (GOOG), Facebook (FB) etc. I also invest in cryptos but not at this price. I am selling to take a huge profit. I will use those money to buy stocks. The following table shows my current portfolio distribution:

The following pie chart also shows my portfolio and you can see that currently Apple (AAPL) is my largest holdings followed by the Vanguard High Yield (VYM), and Abbvie (ABBV). I added AAPL in 2018 and after that the price skyrocketed. That is why it is my largest holdings. VYM is part of my retirement fund. 

 

The sector distribution of my portfolio is shown in the following pie chart. I have selected the sectors based on Yahoo Finance. Currently my highest position is in the tech sector followed by the healthcare, and consumer cyclical. In the tech sector, the prices of AAPL, MSFT, and TXN rose sharply that's why percentage in the tech sector on the top.

The following treemap shows the sectors that I am holding the most and also the shares under each sector. I like the tree maps. It helps to understand the portfolio much better. I am holding the most in the tech sector followed by the healthcare.

I always keep track my portfolio on the Tipranks website and the figures below compares my portfolio with the S&P 500 in the last 12 years. In the recent months my portfolio is performing similar to S&P 500.

My performance as a portfolio manager is also impressive. At the end of December 2020, I was ranked 6,720 out of 51,587 investors in tip ranks which is at the top 13%. My portfolio has gained 89% since 2017. My sharpe ratio is 2.41 while the average ratio is 1.35.

My 12 months return (TTM) is 15.77% and the last 6 month return was 19.79%. All of my investments are for a longer term. So it will only grow with time.

The table below shows the dividends that I received in December 2020. I have done DRIP of all the dividends that I received. I have received $168.68 in dividends in the last month.

    The following table shows the detailed performance of my portfolio. The current price in the table is based on the price on December 31st 2020. In the table, I have shared my current positions, annual income through dividends, total received dividends from each company so far, cost basis, YOC, current yield, and finally the total gain or loss including the dividend income. My top 5 performers based on gain so far are AAPL (218%), MSFT (168%), MA (141%), STOR (102%), and V (100%). The only stock that I am in loss is CVX (-2.9%). However, if I look for long term then energy sector has good potential to move up.

    The following treemap shows my gains in every sector under each stock. I have a huge gain in the tech and financial sectors. In tech I am gaining in Apple (AAPL) and Microsoft (MSFT). In the consumer sector I am gaining mostly from Starbux (SBUX), in the financial sector Mastercard (MA) and Visa (V), in the industrial sector its Caterpiller (CAT), in Procter & gamble (PG) in the consumer defensive sector, Store Capital (STOR) in the REITs, and in the health sector I am gaining mostly in Abbvie (ABBV) and Bristol Myers Squib (BMY).