While it’s never too late to start investing, it’s certainly better to start as early as possible. Consider this: a single $250.00 stock investment, earning an average of 7% per year, grows to approximately $8.000.00 in fifty years. Fifty years is a long time, but for an investor starting at the age of 9 years old, a $60k account balance at age 59 is possible by simply saving lawn mowing earnings and monetary birthday gifts during his/her adolescent years (just 10 years) and leaving it alone to grow.
Let’s look at a hypothetical example that I hope to make a realistic future my own 9-year old child. By mowing lawns, completing household chores, and saving a portion of cash birthday gifts from relatives, he is currently able to save about $250.00. If he invests the $250.00 per year in stocks for the next 10 years, and earns a 7% average annual return, he will have approximately $3,735.00 upon finishing high school.
$3,750.00 isn’t too exciting, but it’s a great start. Now, let’s examine what happens if the investment is left alone for the next 40 years at an estimated 7% annual return. Without any additional contributions, $3,735.00 becomes nearly $60,000.00…
But how can a 9-year old child invest in stocks with savings of only $250.00? Legally, the child cannot open a stock brokerage account by themselves, and commission charges would be prohibitive. One possible solution is to open a custodian DRiP account for the young investor. “DRiP” means “dividend reinvestment plan” DRiPs allow anyone to get started investing with small sums of money, and they feature automatic reinvestment of dividends in additional fractional shares of stock at no or very low fees. To learn more about DRiP investing, visit The DRiP Investing Resource Center at DRiPinvesting.org – there is an abundance of great information and resources available at the website. It’s also important to understand the characteristics of a “custodian” account – essentially, an adult controls the account until the child reaches 18 or 21 (depending on which U.S. state you reside in). Remember, when your kid reaches 18 or 21 years of age, assumes control of their custodian account, and is tempted to withdraw the hard-earned savings, send them back to this article – for the magic of compounding to work, the investment needs to be left alone!
If you and/or your child have larger sums to invest, consider opening a traditional custodian account with an online discount brokerage firm such as . However, if you only have $250.00 to start with, then using a direct stock purchase plan administrator such as Computershare is an option to begin investing in a DRiP plan.
In next week’s article, I’ll post a detailed review of the account opening process at Computershare. Please know that I have no affiliation with Computershare, or financial incentive arrangement with the organization. I will provide an honest, unbiased review of the experience and will provide account updates in future blog articles.
At Computershare, you have to carefully review the investment plan for each stock – the fees and minimums do vary. It appears the fees to sell shares are actually much higher than a traditional online brokerage firm. However, the higher sell fees may be an acceptable trade-off for years of no-fee purchases and dividend re-investments (depending the stock purchased), and the whole point of this article is to buy and hold for fifty years. I would love to hear comments from readers who have used Computershare or other DRiP plans, please Register and join the conversation…
At the end of October, 2015, the Dividend Meter reading is $5,756.37. This Meter Update is the first in what will be a regular month-end blog post, and will include the months of September and October, as I’d like to summarize all the activity that took place since I first started this blog. The header screenshot, which reflects a meter reading of $5,649.85, was taken shortly after September 3rd, 2015:
In both September and October, I managed to save about $1,000.00 of my income each month to make new purchases, buying 100 shares of DAKT (Daktronics) and 23 shares of ETN (Eaton). Also, dividends that were paid since early September included AVY (Avery Dennison), WM (Waste Management), and DAKT (Daktronics). I choose to not automatically reinvest dividends in my brokerage accounts, but rather let them accumulate in cash and purchase shares in a stock that is flashing a Buy signal when I’ve accrued enough cash to justify a commission expense. (As I reminder, the green Buy cells shown above are my own personal indicators and should not be construed as professional investment recommendations.)
During October, two of my positions, KMI (Kinder Morgan) and AFL (Aflac) announced dividend increases. For your own dividend spreadsheet, I suggest adding conditional formatting to the dividend column, so that when the Google sheet is refreshed, you’ll clearly see which stocks have increased their dividends. In my spreadsheet, I keep a transaction journal on the far right-hand side of the sheet, so being able to identify which companies changed their dividend payout is extremely helpful. After the dividend increase, I’ll update the journal and change the conditional formatting value in the cell to the new dollar amount to remove the green shading.
In last week’s post, When to Sell Stock, I described a strategy for using dividend yield as an indicator to make buy and sell decisions for dividend stock investments. Today’s article will explain how to add an automatic buy sell alert column to your Dividend Meter spreadsheet.
When purchasing dividend growth stocks, my first preference is to hold the shares long-term; however, if a stock becomes significantly over-valued, I will consider selling some or all shares of the company, especially if an attractive buying opportunity exists in an alternative investment.
To measure value, I look at a position’s current dividend yield compared to a historical range for that particular stock. Next week, I’ll explain how I determine the high and low dividend yield values that trigger a buy or sell alert. But for now, let’s look at an example for COP, ConocoPhillips. Currently, I’m willing to buy more shares if the dividend yield is greater than 5%, and I would consider selling shares if the dividend yield were ever to fall to less than 3.5%.
In reference to the Dividend Meter screenshot below, here is the formula you need for column J:
Next, add conditional formatting, so if the cell indicates “Buy”, it will be highlighted in green or whatever color you prefer to use. For a “Sell” indicator, you can additional formatting to highlight the cell in red:
Now, when you open your Google Sheet, column J will automatically show a “Buy” indicator if the current stock dividend yield is greater than the value in your formula, or a “Sell” alert if the yield is less than your lower value. If the dividend yield is somewhere in between the high and low values, the cell will be empty.
Disclosure: This article is not intended to provide specific recommendations to buy or sell securities. The author holds a long positions in COP.
When investing in stocks, knowing when to sell shares is frustrating, and very difficult to do well consistently. The key word here is “knowing”. Knowing is a fallacy. Once you realize it’s impossible to always sell stocks at optimum points in time, creating a sell strategy becomes much easier.
In my own personal experience, the difficulty in determining when to sell an investment is the primary reason I’ve adopted a dividend growth strategy, where a stock sale is a rare occurrence. What if the most important rule of your sell strategy was to never sell the investment? If you buy shares in a company with the intention of never selling them, then the buying criteria becomes the most important first step of your sell strategy.
Here’s my sell strategy – it starts with several buy rules. Stocks I buy meet at least four out of the five requirements:
- Buy companies that provide necessary goods and services for everyday living. Examples include food companies, utilities, waste disposal, household goods, and oil. My favorites include General Mills, American Water States, Waste Management, and ConocoPhillips.
- Buy companies that provide highly desirable or addictive consumable products. I love drinking Dr. Pepper. The only way I can experience the taste again after finishing a can is to buy another one.
- Buy companies that are leaders in their industries with strong brand names. Think chocolate = Hershey’s and cell phones = Apple.
- Buy “shareholder friendly” companies. This is characterized by a long-term history of raising dividends and having a balance sheet that shows growing amounts of treasury stock. Treasury stock are shares of stock bought back by the company, reducing the amount of outstanding shares on the open market.
- Buy companies led by great people with a vested interest in the success of the company. Look for high insider ownership of stock and leaders that possess a prior history of success.
After buying a stock that meets the above characteristics, here are the sell rules:
- Sell the stock if the company cuts the dividend. All companies go through painful economic downturns and competitive market challenges. The great companies, the ones worth holding on to, are those that can weather the storms and still maintain or continue to grow their dividends through tough times.
- Never sell the stock as long as the dividend yield stays within the range of x and y. With each stock, I establish low (x) and high (y) dividend yield figures, values at which I would consider either selling or buying more shares. For example, if a stock experiences a significant run-up in price, the dividend yield will fall, and it may be a good time to take some profits and move the proceeds into a different investment. I establish low-yield sell figures at extreme points – outside of a normal range, to make it difficult to sell the position. However, occasionally an opportunity arises when a stock’s price has risen abnormally high. During these over-valued situations, I’ll consider selling some or all of the position, especially if an alternative buying opportunity presents itself. Be sure to check back next week for my post: How to Add Buy Sell Alerts to Investment Spreadsheet, to learn how you can create a column in your spreadsheet that will help you see opportunities to sell over-valued stocks and buy other under-valued positions.
That’s it – only a couple of sell rules, designed to minimize selling in the first place and keep me invested for the long haul in quality companies with stable, growing dividends.
Disclosure: This article is not intended to provide specific recommendations to buy or sell securities. The author holds long positions in GIS, AWR, WM, COP, DPS, HSY, AAPL.