Limited Funds Dividend Investor: Wanting Power of Compounding

By tony62tiger, November 11, 2019

I am new to the investing market and present volatility in the market is scary. Researching into safer stocks with less volatility, and that pay a reasonable dividend. Compounding is a powerful way to increase your investment but requires a fair amount of equity to take advantage of the compounding. It is important to put the dividend stocks in a Dividend Reinvestment Program (DRiP) preferably in a tax free account. The problem with DRiP is you need enough invested that when the dividend is paid out it is enough for at least one stock to be purchased, bonus is no charge in the stock purchase. This way you will start to compound the amount of stocks in the portfolio.

Now for the very wacky wild way to invest in dividend stocks. Ok, you get the stock before the ex-dividend date, now you have to wait three months for the next dividend payout. Argument sake $100,000 investment dollars if we are to keep all to a maximum of 5% per stock, there would not be enough to generate a purchase of one stock on the DRiPs for many stocks. Problem is the day the dividend is paid out the stock drops in value sometimes more than the payout, thus you just lost money. I find this common with many REITs–they keep dropping in value, many return to a stable level. More often than not REITs are well below their previous amounts until they find what I call their approximate stable value. For example Washington Prime Group (WPG), over 20% yield but stock is less than 25% of its value from 5 years previous and half of its value from two years ago.

Below is a dividend score card for a few REITs. Now ones that have a very high score may not always be the best investment because the stock keeps losing value more than it returns. Corecivic is one of those on the opposite side of the spectrum Kimco Realty Corporation may have a lower score and thus it takes more get a stock purchased on the DRiP, but currently a better investment. From the table below (as of 2019/09/27) we will need to have to 73 shares or approximately $1480 to generate one stock purchase.

 

Problem is finding the REIT that can still retain stock value. Washington Prime Group would be a good short term that would need monitoring but I still find too risky. Myself, I find Hersha Hospitality Trust CL A, Kimco Realty Co, or American Campus Communities, a more stable option in REITs. If I wanted high risk, possibly very high return, I would go with Innovative Industrial Properties (IIPR).

I am after stable dividend growing companies that will gain stock value as well, doesn’t everyone? Ok, but I have to wait on a lot of money for three months before it generates the dividend and the compounding. To improve that and not lose the compounding I want three companies roughly a month apart on the dividend payouts to try to take advantage of each. That means buying and selling the same stock every three months approximately, but with enough in that it generates a stock purchase each time. This way, every three months I have at least one more stock than before.

All the stocks below are not ones that I would purchase for this method. For instance Microsoft (MSFT) and absolutely rock solid investment, but would need $43,600 invested in DRiP to generate a stock purchase. On the other hand another solid investment, IBM, would only require $12,700 to generate one dividend stock purchase. Key is not to just get hung up on the score, Domtar (UFS) good dividend payout but the stock consistently loses value so I stay away from it.

This method is to try to gain with compounding and growth.

Below are some stock comparisons with some of my favorite dividend stocks for this method:

T, WPC, ABBV, IBM, VTR, STX, and BIP not on chart below

I would be very interested in feedback on both method and stock choices.

 

This is a discussion topic or guest posting submitted by a Stock Gumshoe reader. The content has not been edited or reviewed by Stock Gumshoe, and any opinions expressed are those of the author alone.

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SoGiAm
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Congratulations tony62tiger and thank you for sharing your insights with the Gummunity!
You and the Gummunity may be interested in this thread https://www.stockgumshoe.com/2016/04/microblog-72-the-rule-of-72/ about dividends and $CNXM.
Best, Ben, @H0U3

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