Investing is broad, but necessary, category in a person’s personal finance world. Leaving your savings in just cash never made much sense nevertheless at today’s rates. Investing is often thought about in terms of buying stocks, but it is more than that, you could invest in an insurance based product, real estate, a business, yourself, etc.
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:
- I listed all the Dividend Aristocrats.
- 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.
- 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.
- 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:
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.
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.