Dividends General

Lessons From My First Year of Dividend Investing

One year of dividend investing! Can you believe it? I am happy to have partnered Sharesight for most of this year. Their platform makes tracking trading and dividend history, understanding your performance, and saving time a breeze. Click the link above to get a special offer only for Dividend Dollar readers!

One year ago, on 9/24/22, I started this blog and started dividend investing. Back then, some of the stocks I first bought were $SLG, $T, and $GNL. Of those three I only still hold $T. Over the past year, I’ve worked on building my own investing philosophy and putting together a dividend portfolio that will help me reach financial freedom (you can read about that strategy here). My strategy didn’t come to me overnight, instead it was the result of a long process and still continues to change.

What I really like about dividend investing is that you are never done learning. There is always a new situation that could generate new results in your portfolio. There’s always new positions that you can pick up, or let go of. As the economy changes, so do your thoughts on certain holdings and approaches to investing. It is never a one a done. After my first year of dividend investing, here are the most important investment lessons I’ve learned:

#1 I Love Receiving Money in my Account

Every week, I receive at least one dividend and I get to see my account naturally grow bigger. Receiving these payouts is a great feeling. Week after week, these payouts start to compound and have not stopped growing.

In my first year of investing, I raked in almost $285 in dividends. I expect to get close to $700 in my next year. Today, my portfolio is roughly a $10,000 portfolio that has an annual income of $504. This is almost a 5% yield. It is a modest amount so far, but it will greatly increase over the years to come.

#2 It’s Easier to Follow Dividend Stocks

When you buy a dividend stock, you usually buy a sound & healthy company. Therefore, following quarterly results is usually more than enough to make sure one stock doesn’t slip through the cracks and start rotting. From my experience with different types of investing, different strategies usually require much more monitoring.

#3 Don’t Chase High Yield

Everyone always says don’t chase yield. But I believe every dividend investor will make this mistake at least once, even if they are familiar with the saying. I made this mistake myself with $UWMC. It had nearly a 10% yield when I started buying into it and I made a substantial position. I lost more than 40% of that position as I continued to buy into its dips and hold on. I eventually got out, but this sucker still hasn’t turned around.

The lesson to learn from this is that high yield investments always carry limited growth potential and/or higher risk. There is a reason why you get a higher yield and it’s not just for shits n giggles.!

#4 Yield Doesn’t Matter if you Select the right pick

To be honest, I still haven’t fully committed to this lesson, but I know its right! At first, I used to select only companies paying over 2% in yield. It was my way of identifying “good dividend stocks” amongst other factors. I used to ignore lower yielding companies because I wanted to start having larger dividend payouts sooner.

I have since made exceptions with holdings like $MSFT, $EA, and $SPY. There’s lots of gems out there with low yields. Take AAPL for example, low yield but the price has appreciated like crazy.

The dividend yield is not the most important metric when you select a dividend stock. Instead, I look for companies with a solid business and the ability to increase its payout consecutively for many years to come.

#5 Patience is the Most Important Investor’s Asset

In my first year so far, I’ve bought several stocks that didn’t go the right way immediately. Starbucks ($SBUX), 3M ($MMM), Intel ($INTC) are great examples of this. In fact, a majority of my holdings are in the red right now. But some, like Starbucks, stagnated before turning green.

Sometimes you get lucky and your stock keeps going up the minute you buy it. But most of the time, the result of your trade is not instantaneous. On the other hand, patient investors will receive their rewards sooner or later. Especially with starting my portfolio on the cusp of a bear market, most things will not turnaround for some time.

I am excited to finish out this year with my current portfolio, as I believe I have a lot of great holdings. I also know I will have much more to learn in the coming years. It will be interesting to see how my portfolio changes and reacts as this bear market continues. Everyone says that wealth is made in recessions, so I am excited to continue putting my money to work and see what it can grow into.

Tell me, what have you learned from dividend investing in the current bearish market?

Dividends General Portfolio Strategy Welcome

Dividend Growth Investing While Young

It is a common adage that young investors should take on more risk than older investors and pursue high-growth investment strategies. There is a lot of reasoning behind this approach, but I believe it can be boiled down into three main points.

  1. Certain stocks have the potential for massive gains via quick increases in stock price. If you are successful at identifying these, you can get rich quickly.
  2. If you are unsuccessful at investing in the next “multi-bagger”, you still have plenty of time to make up for your losses.
  3. If you’re young and have a job that provides you with sufficient income, you don’t need to rely on the slow-growth or passive income that dividend stocks provide. Dividend income is not needed at a young age.

While I think that a portion of high-growth stocks have a place in every portfolio, I disagree with the approach that younger investors should overlook dividend investing entirely. Young investors do not need to entirely pursue growth-stocks, they don’t need to risk the potential large losses of this strategy, and I do not think that younger investors should avoid dividend paying stocks simply because they don’t need the income.

As an investor in my 20’s, my personal investing strategy is one of dividend growth investing. My strategy incorporates aspects of traditional dividend investing, value investing, and growth investing. I look for stocks of companies that pay dividends consistently, grows them consistently, appears to be undervalued (using a handful of techniques), and looks to be successful over the long term.

Through doing this, young investors can realize capital appreciation through successful use of both value and growth investing, they can have exposure to passive income through the dividend, and can build up their position over time by reinvesting the dividend overtime to compound their money.

Compounding is the key here. By reinvesting dividends, you are using that dividend to produce more dividends every time a dividend is declared. Compounding dividends is a powerful force for the long-term wealth builder, but it takes time for that power to grow and become significant. For this reason, young investors may not appreciate why dividend growth investing is such a sensible strategy for people who won’t be retiring till 40+ years from now.

Compounding is the 8Th Wonder of the World

Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it.” Over time, your dividends will earn more dividends. Then your dividends that were earned by prior dividends will earn you more dividends. It seems simple, but it is surprising hard to wrap your head around just how powerful compounding is till you play some numbers and graphs. We will do that here.

Take Lowe’s (LOW) for example. For the last ten years, the stock’s average dividend yield has hovered around 2%. 10 years ago today, one share of LOW cost you $26.98. Let’s assume an initial investment of $10,000. Using Sharesight, I can back-test the performance of that investment with dividends reinvested and the result is shocking.

From June 2012 to June 2022, the stock price from $26.98 to $186.33. In 10 years, the stock price grew by almost 6x. Add to that appreciation, 10 years of growth and compounding dividends your position grew from $9,982.60 on June 11th, 2012 to $64,920.20 on June 10th, 2022.

Meanwhile, your quarterly dividend payout began at $59.20 and grew to $296 which yielded you total dividend payout of $5,960.70. With just 10 years of holding, your dividend payout grew by more than 5x and yielded you a total of $5,960.70.

The magical variable in this formula is time. In 10 short years, you can see in the graph below that the dividend payouts start to resemble an exponential curve. If I had back tested for 20 years instead of 10 years, the dividend would have grown from $4.24 to $339.20 and that curve would be more pronounced. This simply goes to show why it is a good idea for dividend growth investors to start early. The younger you are the more time you have available to you for compounding.

Comparison with Aggressive Growth Investing

The graphics above show the potential outcome of a dividend growth investing strategy played out over 10 years with only Lowe’s (LOW). Assume an investor was 55 when they started investing in LOW, held it for those 10 years, then decided they wanted to retire at 65. However, now assume that that investor was persuaded that Facebook (now Meta Platforms META) would be the next big thing and decided to invest in that instead. Instead of finishing the 10-year stint with nearly a $65,000 position in LOW that pays him over $1,000 in dividends per year, this investor now has a $55,000 position in META that pays him nothing.

Though I am picking and choosing stocks for this scenario, it clearly demonstrates that the early emphasis on dividend growth provides a greater return and a stream of cashflow to rely on in retirement.

Some of the popular growth names would have caused you to lose money over that 10-year time frame (think Achillion or Blackberry). Others produced lesser gains like Google and Apple. Others barely outperformed like Amazon and Microsoft. Only a handful really took off like Netflix and Tesla. However, are you confident that 10 years ago you could have picked Tesla while you risk accidentally picking the Blackberry? And are you confident that you could make that same decision today?

Dividend Dollars Strategy

While it’s hard to pick the next Tesla, it is not hard to pick stocks that pay consistent dividends, grow them, and have potential for future growth. As I said before, my strategy incorporates aspects of traditional dividend investing, value investing, fundamental analysis, and growth investing. I look for stocks of companies that pay dividends consistently, grows them consistently, appears to be undervalued (using a handful of techniques), and looks to be successful over the long term.

10 years ago, Lowe’s already had nearly a 50-year streak of paying and growing dividends, they had good financials, a growing P/E and a growing EPS. Fundamental analysis shows that the company has value, value that may have been overlooked in 2012 depending on what quarter you look at. From a value standpoint, 2012 had some dips in the stock price that would have made sense to buy. From a dividend standpoint, Lowe’s already had great history of payments that would make any income investor feel fuzzy inside. Overall, there was nothing fancy about them back then, and there is still nothing fancy about them today.

In conclusion, it is much easier, and much safer to take the road less traveled as a young investor. Achieving long term wealth is much more realistic when considering the compounding opportunity that already successful and healthy companies can offer you.

Young investors should not feel obligated to follow the conventional advice of pursuing high growth investing or risk day trading. Taking on excess risk with goal of achieving wild returns might not materialize. Even though they have the time to recoup those losses, they may not be able to avoid the consequences of lost time for compounding.

Here at Dividend Dollars, I am a young investor trying to avoid just that. I invest in safe dividend paying companies that long-term have the greater potential support me in retirement and may even help me retire early! I have educated myself and built a sensible long-term strategy and highly encourage you to do the same.

This website is here to help you do just that by following our posts which include weekly portfolio updates, market analysis, occasional stock due diligence articles and the shared investing resources to give you all the tools you need to start!

I am also open to conversations to help! Comment below or reach out to me on my socials if you ever need anything.


Dividend Dollars

Dividend Stocks Due Diligence General

Website Announcement

As you know, it is the beginning of March, and the start of a new month means I write and publish another watchlist of potentially undervalued dividend growth stocks.

I sat down at my computer today, ready to screen for stocks, analyze their charts, and do some research into debt and cashflow levels just as I usually do. When I started researching today, I found that the stocks I was picking were not stocks that I would be purchasing myself.

Up to this point, I have bought and held every watch-listed stock that I have shared and am very pleased to say that these picks have outperformed the market.

But now, with a portfolio that is built of 29 strong dividend payers, I feel that it is no longer smart for me to continue adding positions.

Though there are plenty of other good stocks out there with awesome buying opportunities right now, it doesn’t make sense for me to add them to my portfolio. It doesn’t feel right for me to research and share stocks that I won’t buy and hold myself.

Therefore, going forward there will be no more monthly stock picks.

Instead, I will do a deep dive into a dividend stock of my choosing (possibly with the added help of Twitter polls to influence my choice). Like my watchlist, this stock will be one that is fundamentally undervalued, a strong dividend payer, with good timing to buy and take advantage of gains and dividends.

This monthly stock will be one that I will personally look to buy throughout the month, and because I am not actively looking to add more positions, there is a strong chance that these deep dives will be on positions we already have.

These monthly deep dives will be an exercise in reviewing our positions in order to identify good times to add or liquidate if needed and that research and decision making will be shared on this website here for your benefit.

However, if there are opportunities I can’t pass up, or if I reorganize the portfolio, these monthly deep dives can still be used to analyze potential new positions

So by all means, still treat these monthly deep dives as a monthly stock pick. Now that our portfolio’s positions are established, the purpose of this due diligence is to strengthen our conviction in our holdings and identify good timing to build these positions.

General Goal Welcome

Welcome to Dividend Dollars

Welcome to the first post of Dividend Dollars! Let me start by saying this blog and the strategy that I will develop through it is an experiment. I have no idea how this experiment will end, but I hope that it stumbles into success so that others can follow suit.

Don’t let that word “experiment” scare you. All of investing is an experiment. Every financial security you have ever bought in your life is an experiment and you the scientific method within that experiment even without you trying to. Step one in the scientific method is to question, as trades our question usually is “what stocks can I make money on?” and we begin to research stocks. Step two, we form a hypothesis that originated from that question. We pick stock A over stock B because our hypothesis is that stock A will be more profitable based on our research and ideas. Step three is the actual experiment and testing of the hypothesis which is actually purchasing the stock. The experiment can succeed or it can fail and a good trader completes the scientific method by observing, analyzing, and reporting on the result.

Whether you have recognized this before or not, as traders we are very familiar with experiments. I personally spent 6 years “experimenting”. I went to college in 2016 for a Bachelor’s in Finance and throughout my studies I traded quite casually. After graduating in the summer of 2020, the COVID-19 pandemic had left me unemployed and I found myself with even more time on my hands to experiment. Soon after, I landed a job and started that fall and still traded throughout the day on the job. I have traded for over 5 years and throughout that time I had subscribed to every Twitter furu’s alerts, chatrooms, watchlists, etc. You name it, I did it. And not just with day trading, but I tried all the other popular methods as well like options trading, swing trading, momentum trading, etc. Not only did I try to find success through subscribing to and following the plays of popular traders on the internet, I also amassed a fairly large collection of trading books and have read them all.

“I failed! And that’s ok.”

All of my experimenting, and reading, and formal studies in finance has led me to become a well-educated trader. However, regardless of my knowledge and experience, in my prior 5 years of trading a never found consistent success. My account value started small, I ran into some beginner’s luck and some good plays and had nearly quadrupled my account and every trade since then has been a slow and steady decline to my balance.

I failed! And that’s ok. Here’s why. A study done in 2010 showed that pigeons understand probabilities better than humans. This experiment was ran using the Monty Hall problem which originated from the original host of “Let’s Make a Deal”. The contestants are presented with three doors and only one has a prize. After a contestant makes a guess on which door the prize is behind, Monty Hall would always open one of the remaining doors that did not conceal the prize. The player would then be given the option of staying with their guess or switching to the other door that remained. Most people stayed with their guess despite the fact that switching increased their chances of winner. The contestant is first poised with a choice where they have a 1 in 3 chance of being right. That probability does not change after Monty Hall opens one door, therefore their door remains with the 1/3 chance while the only other door left must now have a 2/3 chance of being right.

The scientists of this study tested six pigeons under the same circumstance. Pigeons were present with 3 small light bulbs. When the bulbs would light up, it indicated that a prize was available. A pigeon would then peck at one of the bulbs and it would turn off showing that it was the wrong choice, the other two bulbs lit up green. The pigeons were then rewarded when they made the right choice with the remaining two bulbs. In this experiment, the pigeons learned the best strategy, 36 percent of them switched answers on day one and 96 percent switched on day two. 12 undergraduate volunteers, however, failed to catch on to the best strategy.

Photo by Oleg Magni on

Why am I spewing on about pigeons you may be wondering. Because this is a probability problem. Trading is a probability problem. If we can get outsmarted by pigeons in a Monty Hall experiment, what makes you think we can fare any better in the market where the odd of being profitable are arguably lower than a 2/3 chance of being right? Some traders may argue that you can study fundamentals or technical charting or different set ups to better put the odds of success in your favor. While that argument holds some truth, you also need to realize that every trade is entirely 100% unique. If you were to buy an Amazon stock right now, the current chart set up, price, volume, market conditions, news headlines, company fundamentals and any other stock trait you can think of is wholly unique in this moment and never again will be and never was in the past identical to what it is in this moment. In the Monty Hall experiment, this was not the case, the scenario was the same every time and humans still lost to pigeons!

Correctly predicting and positioning on price movements for consistent and reliable gains in day trading, swing trading, scalping, etc. is extremely difficult. If you can do that, you are smarter than me, most other traders, and the pigeons from the Monty Hall experiment. If you can’t do that, you are in the majority with me. It is due time for me to stop trying predict short to medium term stock movements and instead focus on a strategy where the probabilities aren’t nearly as important.

That is where dividends come in. Dividend Dollars will focus on finding and investing in companies that offer stable and growing dividends while also utilizing some aspects of the trading methods I had experimented with in my last 5 years of trading in order to build towards a portfolio that provides a steady and reliable stream of income while also position the portfolio for capital gains through studying fundamentals, evaluation, and a small amount of technical analysis.