Forget making a profit; instead focus on the income provided from your stock portfolio. That’s right! Forget making a profit. The burden is now lifted - no more pressure on making a buck in the stock market. (Instead of trying to bend the spoon, that is impossible, instead just think of the spoon as – omigosh! - I’m in the Matrix!) When you focus on the amount of money your holdings are providing in dividends – and when those companies selected have a history of raising their dividends each year – a lower stock price allows the dividends that are being rolled back into the stock to accelerate your income. The total value of your portfolio may go lower, but your income from that lower priced portfolio would increase dramatically. Profit by income!
To demonstrate this tip, I’m going to take you back in time, but the strategy of that time is just as viable today, as it was in the past. The year is 1990, the stock for the demonstration is Comerica, and the amount of money invested was $3,333.34. Comerica (CMA) was selected for one simple reason – in 1990 CMA had a historical record of raising their dividend for the past 21 years. Today’s CMA has a 36 year history of raising their dividend every year.
In January 1990 Comerica was selling at $48.38 a share, paid a quarterly dividend of 65 cents a share, with a dividend yield of 5.37% (.65 divided by 48.38 x 4 x 100 = 5.37%). The result of just holding this stock through the years, never taking a profit, and simply having the dividends reinvested each quarter (commission-free) back into the stock is chronicled below: These are the actual returns based on the closing prices of the stock on the company’s dividend payout date (the date a company purchases their stock on the open market for investors enrolled in their stock dividend reinvestment plan; The figures were taken from the research I did, and is from an excerpt from my book The Stockopoly Plan – Investing for Retirement.)
Comerica: (with the dividend each quarter rolled back into the stock) $3,333.34 into CMA in January, 1990 at $48.38 a share: Shares purchased, 68.90 shares.
Total Amount of shares at the end of 1990: 72.92 shares.
Total Amount of shares at the end of 1991: 115.01 shares.
Total Amount of shares at the end of 1992: 118.85 shares.
Total Amount of shares at the end of 1993: 245.78 shares.
Total Amount of shares at the end of 1994: 256.96 shares.
Total Amount of shares at the end of 1995: 268.78 shares.
Total Amount of shares at the end of 1996: 277.83 shares.
Total Amount of shares at the end of 1997: 285.32 shares.
Total Amount of shares at the end of 1998: 436.65 shares.
Total Amount of shares at the end of 1999: 446.04 shares.
Total Amount of shares at the end of 2000: 463.82 shares.
Total Amount of shares at the end of 2001: 474.47 shares.
Total Amount of shares at the end of 2002: 490.23 shares.
Total Amount of shares at the end of 2003: 512.60 shares.
Total Amount of shares as of April 1, 2004: 522.23 shares.
On April 1, 2004 Comerica closed at $54.65, for the total market value of $28,539.87 for 522.23 shares of stock. To put the total $28,539.87 into perspective, an interest rate of 15 percent a year on $3,333.34, compounded annually for fourteen and a quarter years would return $28,282.15.
Since this excerpt from my book Comerica has raised their dividend again, from 52 cents a share per quarter, to the current 55 cents a share per quarter, payable to shareholders of record on March 15, 2005.
I own Comerica stock and I have no intention of ever taking a profit! I will continue being a buyer, as long as the company continues its program of raising their dividend every year.
However, I also understand that in the stock market there are no guarantees! It is for this reason and this reason alone, that diversity is a necessity. If I knew for certain that CMA would continue its program of raising their dividend every year, and that the next 14 years would provide better than 15 percent return on my money, I would only own CMA stock. It is because of this ‘risk of no guarantees’ in the stock market that the rewards for investing in the stock market are much higher than a passbook savings account, CD’s or Bonds.
So, to beat the ‘risk of no guarantees’, and to reap the benefits of a better return, I diversify into other companies with the same historical performance. Through a systematic approach of dollar-cost averaging into my stock positions every quarter, along with my quarterly dividend reinvestment, I increase the amount of dividends paid to me each quarter, from every company that I own. My measurement for success in the stock market is not measured by the amount my portfolio is worth. It is measured by the amount of ever-increasing cash dividends received from every stock that I own. As a matter of fact, when my portfolio dips in net-worth, my dividend income accelerates. The reason for this is simple. The lower my port- folio’s net-worth, the higher the dividend yields of the stocks in my portfolio.
All my personal holdings in the stock market have the same basic theme. They are all purchased commission-free, have a long-term history of raising their dividend every year, and are purchased with the intent of supplying ever-increasing dividend income for my retirement years. The Stockopoly Plan was written with this purpose or goal in mind. The Plan itself uses a timing approach for purchases of more shares each quarter, along with the dividend reinvestments.
Charles M. O’Melia is an individual investor with almost 40 years of experience and passion for the stock market. The author of the book ‘The Stockopoly Plan – Investing for Retirement’; published by American-Book Publishing. The book can be purchased at http://www.pdbookstore.com/comfiles/pages/CharlesMOMelia.shtml