Time to invest???

In reading a little here and there, I see that there is a wealth of knowledge around this board… that I need to dig into slowly…

I am retired for a long time and in the process of selling a property containing 4 rentals. If I am able to sell near where I am listed, then I will have some cash to invest over the next ten years plus or minus as age kicks in, posssibly to keep me out of the market…

I see some major ways to lock in income, but the least risky seems to be in dividend stocks. Is this a good time to buy in when the market is down? Maybe, with dividend stocks, the market doesn’t dip as low as other stocks are doing now and this is an OK time to buy, but not fantastic… What is your take on this?

The other info that I am needing is perhaps some board posts, a book or something else to read comparing the variety of ways to produce current income in the market that would help with inflation… I do think I could live out my life with just cash if it were not for inflation… so to help out my heirs and to safeguard myself, where should I begin to learn? Is “Money Makers, Dividends” from TMF a good place to start? I can see that I have a lot to learn and need help knowing which things I need to begin looking into…

Thanks for your help, Anne

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Hi Anne,
Lots of questions, lots of thoughts. Don’t know if I have all the answers, but I will share my thoughts.

  1. This board used to have a great resource for dividend ideas. A former Motley Fool contributor by the name of David Fish, who produced a monthly report called CCC (Champions, Contenders and Challengers) list
  2. Unfortunately, David Fish passed away a few years back. So, no regular CCC updates on this board.
  3. Fortunately, someone who followed David Fish decided to continue David’s work. His name is Justin Law and he posts a monthly CCC list at SeekingAlpha
  4. Dividend (Growth) Investing is not a quick fix. It requires patience.
  5. In the “patience” mode, I have seen dividend investors set dividend investing goals that increase over time
    a. Earn enough in dividends to cover a monthly bill
    b. Earn enough in dividends to cover a vacation
    c. Earn enough in dividends to cover a vacation + a monthly bill
    d. Earn enough in dividends to cover 1/2 their house rent/mortgage, etc
    6, Dividend Champions don’t always stay that way. Big names like General Electric (GE) and AT&T (T) were once dividend champions. But now, they don’t make the cut.
  6. While some folks are strictly DGI (company pays an increasing dividend each year), I’m not. DGI works for them, until it doesn’t (See #6)
  7. Not the best person to advise on this, but I will still say it - don’t chase yield. A former board participant once suggested, and I am paraphrasing, - any stock yielding > 6% was a high risk idea.
  8. To DRIP or not? To DRIP is to reinvest dividends in the same stock that issued the dividend. Most brokerages will allow customers a DRIP option (many at zero cost). The alternative is to take the dividend in cash. Have one or more dividends accumulate, and then decide on their next stock purchase.
    It isn’t either-or. I have some stocks I DRIP, and others I don’t.
  9. Careful with partnerships. Some entities have a payout, but the payout is a distribution rather than a dividend. Dividends and distributions both begin with the letter “D/d”, but they have different impacts during tax-time.

Is now a good time to be investing in dividend stocks? Well, in general, many stocks are trading at prices lower than they were 3-6 months ago. From that perspective, one is purchasing a stock at a lower price than 3-6 months earlier. All else being equal (and assuming no dividend cuts), a purchase now means a higher yield. Obviously, not true if a stock has bucked the market slump. With a dividend paying stock, one also gets a periodic reminder of what the stock traded for at certain times during the year (serves as a reference point).

When I first started dividend investing, I opted for a “mini-basket” of four dividend paying ideas in (at least) three different business categories. Still think it was a good way of getting my feet wet and though the basket was tiny, it still allowed me to learn about sector risk.

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Thank you for recommending this post to our Best of feature.

I see some major ways to lock in income, but the least risky seems to be in dividend stocks.

Tru dat! If a stock is paying dividends it’s a good bet they are making money*!*

Is this a good time to buy in when the market is down?

Anytime is a good time to buy dividend paying stocks. If you wait they may go up or down and in any case if you miss the dividend payment you’ve missed that money.

For a list of dividend paying stocks go here:
https://www.discoverci.com/stock-scanner/dividend-stocks-lis…

There are other lists out there if you look for them, but they ALL mostly cover the same stocks.

Desert (CVX, XOM, T, BNS, BKH, ED, ATGFF, NI, NWN, TRP, ENB, WRE, WGL, XEL, DUK, SO & KO) Dave

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I see some major ways to lock in income, but the least risky seems to be in dividend stocks. Is this a good time to buy in when the market is down?

No, the least risky way would be CDs and Treasuries, probably purchased in chunks within the coming 9 months or so. The downside, of course, is you’re in fixed income. Safety comes at a cost.

Dividend-paying stocks is a sensible alternative. They’re more attractively priced now than they were recently, but prices could certainly fall yet more. Only you know whether that would bother you a lot or not. In view of what you suggest is a somewhat limited expertise in selecting individual issues, it may make sense simply to move funds into an appropriate ETF, such as SCHD, VYM, or DVY.

You don’t need to choose one or the other, of course. You can invest some $ in option #1 and some in option #2.

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‘If a stock is paying dividends it’s a good bet they are making money!’
Hi Dave - one major caveat to that is when companies borrow heavily to maintain/ increase dividends, which has unfortunately been increasing thanks to abundant easy money.

Now that money supply is tightening, those leveraged payers will have to face the music, at the cost of their dividend investors’ peace of mind.

Hi Anne - it’s great that you’re making an effort to educate yourself about various income options before committing any money. Very Foolish indeed!

Generally, mature stocks that have a long track record of paying increasing dividends will tend to be less volatile than those that don’t. However, there are lots of ifs and buts involved - how high is the payout ratio, have they ever dropped or cut the dividend, how much debt is being used to support the dividend, how sustainable is the dividend, how volatile/ cyclical is the stock, etc.

US Treasuries are commonly accepted as the ‘least risky’ - specifically in terms of potential loss of capital. However, there is no such thing as ‘risk free’ investing, as holders of US treasuries have been discovering of late thanks to rapidly rising interest rates sending their holdings south!

To really understand risk, the best way to start is to understand your own risk tolerance, which determines how much market risk suits your personality, financial needs and responsibilities
Here’s one way of assessing your personal risk profile
https://www.schwab.com/resource/investment-questionnaire

Have you checked out the Fool’s ‘Total Income’ service? It covers a host of ways of generating total income across various asset classes, including dividend income.
https://www.fool.com/premium/total-income/

It also has a series of income-focused video sessions with full transcripts- here are some links in case you can access them
https://www.fool.com/4056/coverage/2022/06/03/the-dividends-…
https://www.fool.com/4056/coverage/2022/06/17/the-dividends-…
https://www.fool.com/4056/coverage/2022/06/21/the-high-energ…
https://www.fool.com/4056/coverage/2022/05/20/the-dividends-…
https://www.fool.com/4056/coverage/2022/05/13/the-dividends-…

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1. This board used to have a great resource for dividend ideas. A former Motley Fool contributor by the name of David Fish, who produced a monthly report called CCC (Champions, Contenders and Challengers) list
2. Unfortunately, David Fish passed away a few years back. So, no regular CCC updates on this board.
3. Fortunately, someone who followed David Fish decided to continue David’s work. His name is Justin Law and he posts a monthly CCC list at SeekingAlpha

Or you can look here and click the Dividend Radar link which is updated every Friday.

https://www.dripinvesting.org/tools/tools.asp

JLC

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However, there is no such thing as ‘risk free’ investing, as holders of US treasuries have been discovering of late thanks to rapidly rising interest rates sending their holdings south!

So long as the USA remains a going concern, at least for the next few years, I know I will receive the face value of my short-term Treasuries when they mature. In the meantime, I earn interest on them, free of state tax. What the daily quote is on them is of no interest to me, since I have neither the need nor the desire to sell them.

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But inflation means you are losing buying power every day you hold them.

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But inflation means you are losing buying power every day you hold them.

Surely we all know that, and I said as much. (“The downside, of course, is you’re in fixed income. Safety comes at a cost.”) There are, of course, I-bonds (and DW and I own some of those, too). But one can buy only a limited amount of them annually.

“Surely we all know that”


Folks beginning their investing life may not be aware of what we all know.
Starting out - and sometimes quite a ways through - we all tend to feel our way
through the jargon, the adverts, the out and out lies and the fraudulent issues.

Howie52
I sometimes wish I paid more attention to the basics at times.

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One thing you can do is buy Vanguard’s Hi Income Dividend exchange traded fund (etf). The symbol for this is VYM. It’s priced at about $102 a share, pays a dividend quarterly, next one will be in September.
But then for every 100 shares you purchase, you can sell a covered call option, giving someone the right to buy those shares from you at a higher price. This should give you an annualized yield of more than 10%. Since transactions today are pretty much commission-free…if someone buys your shares away from you, no big deal. Just buy them back, and sell another call option again.

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Hi Anne
If you are considering investing for a dividend, or is often termed ‘Dividend Growth Investing’, you have to decide if you wish to use the dividend to reinvest back into the company to regularly add more shares thus increasing value over time, which you’ll periodically sell some number of shares to generate wanted household income…or…ignore the stock’s price and focus on the dividend as the means of household income. Both are considered DGI but they are managed differently.

I wrote a book on this back in 2015 you may find useful as you decide what it is you wish to do. Now, I’ve modified some of my cash flow metrics and their trending, but the fundamentals are still there.

https://www.amazon.com/Retirement-Investing-Income-ONLY-reti…

BruceM

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(BruceM:)If you are considering investing for a dividend, or is often termed ‘Dividend Growth Investing’, you have to decide if you wish to use the dividend to reinvest back into the company to regularly add more shares thus increasing value over time, which you’ll periodically sell some number of shares to generate wanted household income…or…ignore the stock’s price and focus on the dividend as the means of household income. Both are considered DGI but they are managed differently.

I actually do a variation of the first method. I do reinvest the interest and dividends I receive, but not necessarily in the same stock that paid them. I keep a rolling schedule of the dividends I get each quarter, with the pay dates and ex-div. dates, and each month I will see if it makes sense to buy additional shares of stocks that will pay dividends next month, to get the dividend on the new shares.

Example: this is July, the first month of the quarter. In the next few days I expect to buy some more shares of Procter & Gamble (PG) and Fastenal (FAST), which will pay dividends in August.

Some people might think this is a lot of work. But I’m retired. In my former life I was an obsessive-compulsive CPA, and for me investing is a hobby.

But - this almost guarantees that each calendar quarter, we will have more dividend income than the prior quarter. And after a couple years, the difference is really noticeable. The last few quarters haven’t always done that, because what we have in bond fund-ETFs took a big hit for a while, but with rates coming back up, those are doing better too, for income.

Bill

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Hi Wradical,

“with the pay dates and ex-div. dates, and each month I will see if it makes sense to buy additional shares of stocks that will pay dividends next month, to get the dividend on the new shares.”

I don’t do this exercise. To me it just does not matter if I get the “next” dividend or not.

When shares go ex-div, the exchanges adjust all open orders by the amount of the payment.

So, if the price is $20 and the dividend is $0.15, the stock price is changed to $19.85 and later on, you receive the $0.15 in cash.

If having the cash a month later is all that important, just hold back $20 or whatever when you buy stock.

In a taxable account, that $0.15/share dividend will increase your taxable income, even if it is a qualified dividend, while the $20 held back is tax free!

Does that help you?

Gene
All holdings and some statistics on my Fool profile page
http://my.fool.com/profile/gdett2/info.aspx

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Bill
Interesting approach providing you don’t require the income. Having done this a while, my primary driver in dividend stock selection is the strength of the dividend. But if you’re willing to spend the time to research cash flow progressions of a list of dividend payers that meet your requirement and they have cooperative sequential Ex-D dates, this could be a great way to build an income portfolio for the pre-retiree

BruceM

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Bill
Interesting approach providing you don’t require the income. Having done this a while, my primary driver in dividend stock selection is the strength of the dividend. But if you’re willing to spend the time to research cash flow progressions of a list of dividend payers that meet your requirement and they have cooperative sequential Ex-D dates, this could be a great way to build an income portfolio for the pre-retiree
BruceM

Yes, it would, but I’ve only been this methodical about it since I retired. Since I retired, I’ve actually had more time - AND money - to work with. And it’s true, I only require a little of my investment funds’ income to live on; we almost get by on Social Security and my wife’s pension. Since I retired:

  1. I rolled my 401(k) over to a self-directed IRA,
  2. My father died, and I inherited money, so I have more after-tax invesment money to work/play with.

Bill

1. I rolled my 401(k) over to a self-directed IRA,
2. My father died, and I inherited money, so I have more after-tax inves[t]ment money to work/play with.

Bill

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Suggestion:

3. I converted all my IRAs into Roth IRAs, thereby avoiding any taxes & RMDs in the future.

sunray
a man suggesting the Path he took

I followed your method for a while several years ago but stopped. Now that I’m that much closer to turning in the company laptop, I might restart - easy to model up in a GoogleSheet - thanks for the reminder!