Extra Money

The series on how to make extra money with dividend stocks was getting rather unwieldy with eleven posts in the series already and a lot of subject area left to cover.  I have decided that rather than making one giant series, I will just post on different subjects and anyone wanting to learn about dividends can just sift through the dividend category for what they want to know.

Today we are going to look at how to use the dividend payout ratio when determining what stocks to buy.  Generally you want a stock to have a dividend payout ratio of less than 50% to ensure that the corporation has plenty of cash to continue paying the dividend.  This does vary by industry though.  If you have an REIT stock they are required by law to pay out at least 90% of their earning in dividends and often pay out over 100%.  Keep the industry standard in mind when looking at the dividend payout ratio.

I did not give much detail in my last post on freebie trading so I wanted to revisit the topic and give a little more information.  Freebie Trading is a phrase used to describe transactions in which people complete offers in exchange for cash or prizes. A lot of these offers are free or very inexpensive trial offers.

There are three different ways to make money in Freebie Trading.  The first method is to get paid to complete offers.  The second method is to get paid directly by the freebie sites.  And the third method is to get free prizes which you resell or keep for your own personal use.  You will probably use a mixture of these three methods and will eventually discover what works best for you.  More details will follow as I try this method of making extra money out.

With the proceeds of my sale of ONAV I decided to add to my position in Realty Income Corporation (O).  At yesterday’s price O was yielding over 9%.  They are a real estate investment trust and a lot of people are skeptical of how REITs will do with the current financing crunch which has resulted in the stock price declining.  I think O looks very good at their current price.  The price might decline more but I’m more concerned with the dividend. O is extremely committed to maintaining and increasing their dividend.  They even trademarked the name “The Monthly Dividend Company” which shows how important dividends are to them.  As you might have figured out from the name they are one of the few stocks that pay dividends monthly.  I consider that a plus.  As long as they have enough money to keep paying their dividend- which I think they will- this stock will produce a nice return.

It might have been wiser to buy stock in a different company.  I have 12 stocks now and I plan to have a total of 15.  Once I have 15 different stocks I will gradually increase my positions in each of them.  I just did that early for O because I thought it was attractively priced.  We will see whether that was a wise decision.

I purchased two more stocks yesterday. They were Pitney Bowes Inc. (PBI) and Bemis Company (BMS).  PBI makes mail processing equipment and offers mail solutions. BMS manufactures flexible packaging products and pressure sensitive materials.  These are different industries than any of my other stocks so they will help diversify my portfolio by industry.

Both stocks are dividend aristocrats meaning they have increased their dividends every year for at least twenty five years. PBI currently yields just over 6% and BMS yields just over 4%.   That gives me a good yield now and if their dividends continue to grow I’ll have an even better yield in the future.  Both companies look to have sufficient earnings to cover their dividend payments.  I can’t predict the future but both companies seem to have decent financials and shouldn’t have any trouble surviving the economic downturn. These stocks fit well in my strategy of having a diversified portfolio of stocks with good yields and good prospects for dividend growth.

I’m sharing my most recent trades so you can get an idea of what type of stocks I have in my portfolio.  These are not suggestions on what you should buy or sell but just an example of what I am doing.

I sold Omega Navigation Enterprises (ONAV) today for a slight profit. Actually considering the dividend I already received it was a very nice profit if you figured it on an annual basis.  The reason I sold it is because it is a shipping stock and its dividends can be unpredictable.  The current yield of 26.32% looks pretty nice but I don’t think it is sustainable and it doesn’t leave any room for future dividend growth. When you buy a shipping stock you are looking more for immediate income than future growth.  I still own one shipping stock which I’m going to hold onto and I might add a shipping stock or two back into my portfolio when I’m close to reaching my investment income objective.

A new to make extra money is freebie trading.  I had never heard of it until last week but I have been reading up on it since then.

The basic way freebie trading works is that you get paid to complete free trial offers.  The complete process is somewhat complex but I’ll attempt a brief explanation.  There are lots of sites out there that will give you free prizes for signing up for offers. They can do this because they get paid by the advertisers of the offers.  It may seem like they are giving away more than they can afford but the fact is most people don’t complete enough offers to qualify for the free prizes. If you are going to do this you need to study the terms very carefully.  A good place to learn more is this Squidoo page.

I haven’t tried this myself yet but I intend to do so when I have time and I will report my results after I have tried this.  

This is part eleven of a series on how to make extra money with stock dividends.  We have just reviewed the yields of stocks in my portfolio and we will look at a measure for determining whether a stock’s yield is sustainable in this post.

A stock’s dividend payout ratio is a common measure used when determining whether a stock’s yield is sustainable.  The dividend payout ratio is determined by taking a stock’s annual dividends per share and dividing them by the earnings per share. For example if a stock had earning per share of $4 and paid out $1 in dividends for the year the dividend payout ratio would be 25%.  In the next post we will look at how you can use the dividend payout ratio.

This is part ten of a series on how to make extra money with stock dividends. I am currently reviewing the yields of stocks in my portfolio.

My current portfolio yields about 7-8%.  This is a fairly high yield and does involve a little extra risk and perhaps surrenders a little opportunity for growth.  I have stocks that yield from just over 3% to over 20%.  Most of my stocks are around the 7-8% mark though.  I try to keep a mix of industries and offset the riskier picks with more conservative picks.  A stock must yield at least 3% before I will buy it.  It is probably wiser to have most of your stock yield close to what you would like your overall yield to be but if you really think a stock is a good investment don’t pass it up just because of the yield.  In the next post we will look at a measure for determining whether a stocks yield is sustainable.

This is part nine of a series on how to make extra money with stock dividends.  We are continuing to conduct research to decide which stocks we want to invest in.

We are looking at the stock yield right now. We’ve already determined that just because a stock has a high yield that is not sufficient reason to invest in the stock.  You also need to determine if the yield is sustainable.

How high of a yield should you look for? That depends on several factors. One of which what your goal is for your portfolio.  I want to be able to live off my dividends in about ten years therefore I am looking for higher yielding stocks more than low yielding stocks with good growth. More on my portfolio in the next post.

This is part eight of a series on how to make extra money with stock dividends.  At this point we are doing research to decide which stocks we want to invest in.

If you find a stock with a high yield you need to determine why the yield is high.  If the yield is high because the stock price has gone way down than you need to look at what has caused the decline in the stock price.  Although we are focusing on companies that have a long streak of consistently increasing dividends these streaks do sometimes end. We need to determine if a dividend cut might be coming which would defeat the purpose of our purchasing the stock.

Bank of America provides an example of this. Last year Bank of America cut its dividend after a long history of consistently increasing dividends.  It wasn’t exactly a secret that financial stocks were being hit hard but many people still bought this stock for the yield only to see the dividend significantly cut later in the year.  You won’t always be able to predict when a dividend cut is likely but if you are worried a stock might cut its dividend you should probably pass on that stock.