Exclusive Content:

Easy Homemade Apple Pie Granola Recipe

This yummy homemade apple pie granola recipe is perfect...

Surprised by Blackstone’s limit on REIT withdrawals? Advisors shouldn’t be

If advisors who directed clients to put money into...

It’s time to counsel clients on critical year-end tax considerations

It's time to schedule year-end tax conversations with clients...

My Dividend Stock Investing Experiment: 8 Picks to Riches?

We’ve been riding the waves of a strong stock market and scorching hot housing market for several years now.

Our investments are split roughly 50-50 between stocks and houses, and throwing more money at either isn’t all that appealing, especially with a probable recession looming. (and still looming. Is it here yet??)

What’s a financially independent cubicle junkie to do? Well, I’ve taken on the unthinkable – investing in a few individual stocks — stocks that yield high dividends. Oh, and we picked up some I-Bonds too.

Why Dividend Stocks?

Based on all of the research I’ve done so far, stocks that yield higher dividends tend to be companies that have been around for a long time. They’ve established an operating model that keeps them profitable and can return a portion of those profits to shareholders in the form of dividends.

So, a stock that comes with a 4, 5, 6, or 7 percent or higher yield means you’re gaining a relatively consistent return on your investment (as with real estate rentals). Generally, from my novice’s perspective, the higher the dividend yield offered, the more stagnant the stock price itself.

Contrast that with low or zero dividend stocks, which are growth-oriented and can yield tremendous returns from their ticker price alone.

Ultimately, I figured wading into dividend stocks would diversify our portfolio even further. We have a small amount of money in bonds and cash but neither of those generates much yield these days. Though rising interest rates are beginning to make savings slightly more attractive.

The Dividend Stocks We Picked

With a little bit of research, I landed on a few stalwarts. Some are referred to as Dividend Kings or Dividend Aristocrats. These are the pick of the litter for dividend stocks.

The Aristocrat list includes reliable investments that have offered a dividend for a few decades or longer and have also raised their dividends over time. Definitely a good place to start for newbie dividend stock investors.

Dividend Stock Investing Experiment – The First Batch:

IBM: 4.65%AT&T: 5.29%American Electric Power: 3.33%Pfizer: 3.10%Realty Income Corp:4.29%Walgreens Boots Alliance: 4.59%Verizon: 5.02%UnitedHealth Group: 1.33%

I think the primary intent in picking up shares in these stocks is somewhat of a hedge against a market that’s been overheating for an extended period. If we can reliably capture a return of 4-5% during a downturn, we’ve offset some of the losses in our index fund portfolio.

Dividend Stock Investing and Inflation

With inflation hovering near 8% these days, what good is a 4% yielding dividend stock? It’s a matter of how long you hold onto these investments. We’re buy-and-hold types in this household. We expect (er, hope?) inflation to return to modest levels well before we plan to sell any of these stocks.

There’s also the matter of what effects inflation will have on our household. We drive a lot less these days and I’ve become a telecommuter since the pandemic unfolded over two years ago.

We eat a vegetarian diet at home. Granted, fruits and vegetables are almost as inflated as meat and poultry of late, so I can’t claim to be immune to any of it.

Natural gas is bonkers thanks in part to the Ukraine conflict, and we should all hope and work to end that madness before winter returns. Again, this too shall pass. Keep your dollars working for you and others.

A Side Note on Series-I Savings Bonds

Thanks to the current inflation spike we’re living through, other reliable investment options are coming to the fore you might not have considered. The US Treasury is offering Series-I Savings Bonds through its website. Individuals can purchase up to $10,000 of bonds per calendar year.

That’s not a huge mountain sum of cash, but it’s pretty darn healthy. A couple could purchase $20,000 and more for their children or dependents. What makes the I-Bonds so appealing is the yield of 9.62%. Not too shabby, and all thanks to the current inflation spike.

As a bonus, any I-Bonds used for education expenses avoid federal taxation. In addition to a 529 savings plan, these savings bonds, at nearly 10% interest, are an excellent complement to a college savings plan. I would strongly suggest (as does Suze Orman) getting in on this action.

Is Dividend Stock Investing a Good Idea?

That’s a question perhaps worth an entire post all on its own. I would argue “yes” but a qualified “yes” at best. If you haven’t paid off the big stuff like student loans, home mortgages, and credit card debts, then avoid this path. Stick with the tax advantage accounts that matter most for now: Your 401K and HSA.

I would however urge anyone with $100 to $10,000 to explore the US Treasury Savings Bonds. Now’s as good a window as any to turn lemons into lemonade with this inflation madness.

Once financial independence is achieved, have a look at dividend stocks. See what companies show promise for long-term and sustainable yield. We chose to reinvest our dividends into additional stock, but many dividend investors use their portfolios to provide a steady stream of income.

Latest

Easy Homemade Apple Pie Granola Recipe

This yummy homemade apple pie granola recipe is perfect...

Surprised by Blackstone’s limit on REIT withdrawals? Advisors shouldn’t be

If advisors who directed clients to put money into...

It’s time to counsel clients on critical year-end tax considerations

It's time to schedule year-end tax conversations with clients...

Don't Miss

Treasury says Social Security cuts would ‘decimate’ retirees

A senior U.S. Treasury official warned Tuesday that cuts...

Wealthtech 2023: 5 tech insiders on the tools and tips that actually help financial advisors

When looking at the modern wealthtech landscape, there seems...

$1.3B Cetera branch launches outsourcing and succession venture

Cetera Financial Group is investing in one of its...

Airbnb Profitability Makes for a Retirement Cash Cow

Our condo in Northern Michigan continues to provide a strong and reliable stream of income. Thank you, pent-up pandemic demand! Since we opened our Airbnb Experiment...

The 2023 crypto outlook for financial advisors after a trying year

Crypto may seem like the last thing financial advisors want to talk with clients about in this environment, where each day seems to bring...

Hard to save with your gig-economy job? Robinhood wants to help

With an eye to helping gig workers save, Robinhood Markets is broadening its suite of investing and brokerage services to include individual retirement accounts. The...