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.

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.

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 seven 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.

We already know to look for companies with a long history of consistently increasing dividends.  Another thing to look at is the current yield of the stock.  The yield can be determined by dividing the annual dividend amount by the current share price.  Most financial sites will do this math for you.  In general you want a stock with a higher dividend yield because that means more money in your pocket but picking a stock based on a high yield alone could be a mistake.  There are several things you need to consider when looking at a stock’s yield and we will discuss those in the next post.

This is part six of a series on how to make extra money with stock dividends.  In the last post we discussed several online sites to use for research on dividend stocks.  Now that you know of some possible research sites you need to know what information to look for when researching dividend stocks.

One thing to look for are stocks that have a long history of paying dividends. One source for finding such stocks is the list of dividend aristocrats.  Dividend aristocrats are a group of S&P 500 index constituents that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years.  By picking stocks from this list you can be sure that you are investing in a company that has a history of being committed to paying dividends.  You still have a lot more research to do though so keep reading.

This is part five of a series on how to make extra money with stock dividends.  Right now we are on the subject of research to learn more about investing in dividend paying stocks.  In the last post I recommended reading some books on the subject from your library or bookstore.

Another way to do research is online.  There is a humongous amount of information relating to dividend stock investing available online.  For basic stock information I like to use either Google Finance or Yahoo Finance.  I haven’t used Morningstar but it was recommended by a commenter in my last post and I know it has a good reputation.  Now that we have some sites to do general research I will give you more information on conducting research in the next post.