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Posted by Martin February 24, 2016

New dividend stock purchase – Valero (VLO)

I was trailing this stock down since I put it on my radar to purchase. In this post you can review the entire process of using this trailing strategy.

And on February 22nd I purchased 17 shares of Valero (VLO) stock. I like the stock and its data.

 
Valero
 

Two days ago, my price target was hit and I purchased 17 shares. It could have been a better result if the stock showed some more weakness, but I am satisfied with the purchase. I did all I could do to maximize my purchase power although it didn’t play better than I expected.

 
Valero
 

Now, I put my dividend reinvest to autopilot (DRIP) and continue reinvest dividends for the next 25 years or until all my dividend income reaches $1,000 per month. Then I will stop using DRIP and switch to selective dividend reinvestment program.
 
 

Posted by Martin February 16, 2016

Dividend Investor: Buying Valero (VLO) using OTO order in ROTH IRA account

UPDATE 02/19/2016
Today, the stock went up +2.68%. Our new OCO limit order price increased as is shownb in our spreadsheet calculating our entry price:
 
VLO
(Click to enlarge)
 
Since our previous limit price is lower than today’s one ($57.84 previous day limit) we will keep our previous limit in place. We will not be moving it higher as that would cause us paying more for our shares.

If the stock moves higher on Monday, we will probably get executed and buy the stock. If it moves lower, we will continue trailing the price down with the stock.
 
 
 

UPDATE 02/18/2016
Valero sold off today quite a lot. It is now down -3.84%. If I have bought this stock the first day when I posted this article, showing my strategy of buying a stock in a down market, I would be already sitting on a significant loss.

This strategy is now helping me buying cheaper and even more shares than before! Before I could afford buying 16 shares, now I will be able to buy 17 shares of this stock!

I updated my OCO order in my TOS platform. Now it looks like this:
If the last price of VLO is equal or higher than 57.84 then buy 17 shares of VLO at 57.84 limit.

 
VLO
(Click to enlarge)
 

VLO
(Click to enlarge)
 
 
 

UPDATE 02/17/2016
The stock moved down slightly and the new buy limit could be moved lower from $59.28 tp $59.17. The new order will be:

If the last price of VLO is equal or higher than 59.17 then buy 16 shares of VLO at 59.17 limit.

 
VLO
(Click to enlarge)
 

VLO
(Click to enlarge)
 
 
 
 
 

In my last post about how to buy stocks in a falling market I described a strategy how to be buying dividend stocks and squeeze as much money as possible out of the trade and take advantage of a falling price.

Some dividend investors do not care and buy stocks right away when they can, but I like to play with it and wait for the stock price to get to the level I want.

Sometimes you buy a stock and as soon as you buy the stock starts falling. Many times it goes so low that you start questioning yourself why you didn’t wait a few days and buy the stock cheaper.

Sometimes it is greed which makes you to buy a stock too early.

For example, I was greedy to buy Archer-Daniels-Midland Company (ADM) so much that I forget my strategy and bought the stock as soon as I saved my minimum amount for purchasing the stock.

I bought ADM at $37.09 a share. Soon after the stock dropped below $30 a share.

 
ADM
(Click to enlarge)
 

You may say that it doesn’t matter. From 25 year investing horizon time we invest for it doesn’t matter if you buy the stock for $37 a share or $31 a share. In the long term it doesn’t make any difference and in 25 years this stock will be way up from today.

Well, maybe. Maybe it doesn’t matter to you, but it does matter to me. Why?

It’s because of the dividends and limited amount of money available to invest.

See, I bought 27 shares of ADM only when I was buying at $37.09 with my $1,000 saved amount money. If I wasn’t greedy and tracked the price down, I could buy 32 shares at $31 a share. That is 5 shares difference and those 5 shares could bring in $1.5 dollars more in dividends.

Instead of receiving $8.10 dollars in dividends every quarter, I could have $9.6 dollars in dividends. And that is a significant difference to me. Since I am reinvesting dividends using DRIP, I could buy more shares too. My investment could be growing faster! Do you see my point?

I am not going to make the same mistake with my new purchase – Valero (VLO).

Although this strategy is not bullet proof, it still can help you to buy the stock cheaper. Of course, you can get filled into the stock on a reversal and yet later the on the stock may reverse and continue down again. If that happens, I am still OK with this strategy knowing I have done all I could do to buy as cheap as possible.

And here is a reason why I am now going to use this strategy to buy into VLO.

 

 · How is Valero making money

 

Valero is a dividend growth company. It is refining conventional gasolines, distillates, jet fuel, asphalt, petrochemicals, lubricants, and other refined products as well as a slate of premium products including CBOB and RBOB, gasoline meeting the specifications of the California Air Resources Board (CARB), CARB diesel fuel, and low-sulfur and ultra-low-sulfur diesel fuel.

 

 · Why I like Valero

 

As I said, Valero (VLO) is a dividend growth company. It has been growing dividends for 5 consecutive years.

 
VLO
(Click to enlarge)
 
 

VLO
 

VLO
 

VLO
 

The dividend yield, growth, payout ratio, and YOC5 are great. There is only one issue that in 2010 the company seems to cut the dividend. But since then it is recovering and increasing the dividend every year. Recently VLO increased the dividend by 7%, which is impressive.

The stock is now dragged down by market panic and selloff, also oil glut has impact on the stock price as it recently sold of too along with the oil price.

As usually, the stock is going down with oil because of lame investors misunderstanding the stock and its business. Valero is a refinery company and it benefits from low oil prices and per Carl Larry, head of oil and gas for Frost & Sullivan LP in Houston, it is a best bet to be in refinery stocks these days. “They have the luxury of low crude feedstock prices and high demand for their products,” he added.

The longer the prices of oil stay at the lows, the more the refinery companies will benefit from it.

 
VLO
 

There is one more thing I like about Valero: its P/E and PEG. The P/E today is at 7.25 which compared to 8.80 P/E of the industry indicates a good growth potential.

The PEG is at 0.19 which is excellent (0.88 industry PEG).

 

 · Conditional OTO buy order

 

If you read my previous post about OTO order you know that I created a spreadsheet which helps me to calculate the entry price for the stock and then trace the pride down with the stock.

Here is my initial calculation:

 
VLO
(Click to enlarge)
 

Note the order wording at the bottom of the picture above (If the stock price is at or above $59.28 then buy 16 shares of VLO at 59.28 limit price).

And here is how that order looks like when entered in TOS:

 
VLO
 

VLO
(Click to enlarge)
 

Let’s see what happens tomorrow. If the stock continues lower tomorrow and in the following days, I will be tracking my buy order lower and lower as long as the price reverses, the price hits my buy limits and I buy the stock.

I will be updating this post with the new orders until the stock is purchased. Once the stock is purchased, I will use DRIP to reinvest dividends.
 

Posted by Martin December 08, 2015

KMI cuts dividend by 75% slapping their investors face

beating

 
So the news is out. KMI cut the dividend by 75% after the market today. After hours, the stock dropped 6.5% and we may expect more investors abandoning the ship. If you feel like your investment fleet took a beating, don’t worry, you are not alone.

The dividend cut is a blow to all investors who were diligently building their portfolios and such behavior from the management who knowingly brought the company into this situation deserve a punishment. And there will be many who invest in their taxable accounts and they will tax harvest and sell.

But if you are like me, I need a different strategy.

 

 · What are my options and views?

 

  • I have all my stock investments in ROTH IRA account. Tax harvesting doesn’t make sense for me.
  •  

  • Selling now would mean I will be taking almost 60% loss. My cost basis is $35.68 per shares. At current prices I am not willing to take that loss.
  •  

  • Because I own shares in my ROTH IRA account I have more than 20 years time to wait for this stock to recover. In the meantime, I will be reinvesting dividends and even buying more shares to further lower my cost basis.
  •  

  • In other words, I will no longer look at this stock as a dividend growth stock, but a growth stock. At least for the time being.

 

KMI is a pipeline company owning large infrastructure, it will not go under. I expect this stock to recover when the energy stocks recover too. If the management improves and gets better in managing balance between their debt and other obligations such as dividends and investments the price will go up and the dividends may also go up. If so, I may keep the stock, if not, and my cost basis will be low enough to sell, I will sell.

 
But for now, it is all about a damage management. Lower the cost and wait for recovery. I believe, in the next 20 years it will happen.
 

Posted by Martin December 06, 2015

Should you continue investing in Kinder Morgan (KMI) or run away?

If you are a dividend investor you may be invested in Kinder Morgan (KMI) as I am and you are desperately searching the internet for news about this company to find out why it was falling recently while scared that you may lose your hard earned money.

KMI

Kinder Morgan lost almost 40% from its peak and quite lot of people have gloomy prediction about this company. Analysts started downgrading the company and even Moody’s rating agency joined the group and lowered rating of Kinder Morgan.

When I pick a company to invest in I try to select one in which I can believe for the next 20 years without too much worrying about the stock and studying it anytime it goes down in price. However, the recent drop made me to check what’s going on with this stock.

So I searched internet and found so many people scared and predicting end of the titan. I have seen even experienced dividend growth stock investors bailing on this stock or being ready to jump the boat.

Although these investors have the right to do what they want and see fit to their portfolio, I disagree with those who pushed the sell button and run away from KMI. Here are my reasons for staying invested and even accumulate this stock.

First, let’s see why people were so negative about this stock. What I could find was two main areas of discontent.

 · Bad acquisition

Kinder Morgan acquired a stake in Natural Gas Pipeline Company some time ago and recently they increased their investment in the company (NGPL). Many consider this a bad acquisition and investment because NGPL was a bankrupting company. Some say, KMI overpaid for the company.

I disagree with this view. Although, I am not an expert but considering that KMI is primarily a transporting company involved in natural gas, this was a natural result of capitalist behavior – taking over a weaker company and their infrastructure which under a new stewardship will prosper.

Don’t we see that over and over happening? Even A New England wire and Cable company was taken over because it was weak and making no money! It was more worth dead than alive. NGLP is more worth when navigated by Kinder than on its own.

Moreover, by acquiring NGLP Morgan gained access to locations and areas which would allow the company to better arbitrage and deliver natural gas to places where they can better profit from it.

 · Exposure to oil

I think this is a big misconception and misunderstanding of how Kinder Morgan makes money. This company is not involved in production of oil whatsoever. The company is involved in its transportation. It is an oil UPS version. So, no matter what the price of oil is the company would be making money. While other oil involved companies were losing money (almost the entire 2015) KMI remained profitable showing $186 million profit during the third quarter on $3.7 billion in revenue.

So KMI is exposed to oil indirectly and its price doesn’t influence the company. As long as people will need and use oil, KMI will make money on it. However, majority of the business is in natural gas.

 · Dividend cut

Recently KMI followers and analysts expressed their belief that the management should consider a dividend cut although the financial reports indicate that they can easily cover the dividend. I have seen investors claiming dividend unsustainability of companies for many years. A good examples are Realty Income (O) or AT&T (T) when investors claimed that those companies would cut the dividend soon. I have heard them saying this for many years, yet both companies managed to pay dividends for 40 or more years and increasing it for a similar amount of consecutive years.

Yet the analysts caused a big panic among investors and they sold the stock pushing its price to $16 a share. Is this justified?

The 2016 dividend obligations are expected to be at approx. $4.55 billion, with current cash flow KMI should have $450 million in excess cash flow and $705 million in cash reserves. The dividend is secured at least for 2016.

Even if they cut the dividend and the price drops lower, I will continue investing in KMI as I will show later.

 · Stay the course

You may do whatever you want, but I stay the course, keep the company, reinvest dividends into the company, and even put more capital in it. Why? As I mentioned above I do not think that this crisis is anything KMI wouldn’t sustain.

In the past, I have seen companies being bashed, downgraded, predicted to bankrupt and yet they survived. One example is Johnson & Johnson (JNJ) which a couple of years ago had a significant products recall hurting company’s revenue, cash flow, and profits. Analysts and investors were predicting an end of JNJ, being spun off into several smaller companies and the losing one either sold or dissolved. The dividend was predicted to be cut or even suspended.

Any of it happened and JNJ which fell hard in price now doubled and its dividend continued growing.

KMI is now compared to another Enron and bankruptcy is predicted. Such comparison is obviously ridiculous and shows that the investor making such comparison has no understanding of KMI business.

There is however, one big issue why I stay the course (and which goes to the JNJ example a few years ago): consider your investment time frame. Are you invested in this company for the next two to five years? Are you already retired? Or are you at the beginning having the next 20 to 25 years ahead of you?

If you are a retiree, a portfolio adjustment can make sense. To me, it doesn’t make sense at all. I started investing in this company three years ago, accumulating slowly, and reinvesting dividends into it. I believe in this company and its management and I am in it for the next 20 or 25 years. I believe, that five years from now, this crisis will be forgotten.

So, even if KMI cuts its dividend, I will continue investing in it and reinvesting dividends because once this panic and “crisis” is over, the stock price will be going up again and all I miss on dividends now I will make in capital appreciation later. Even if it takes two or more years to wait. I have a plenty of time. And in the meantime, I believe, KMI will start raising the dividend again.

What do you think about KMI? Are you bailing out or going to weather this panic? From my trading experience, trading SPX I can see what the market can do when it is in a panic. It can recover as quickly as it fell down. Since the price action of KMI is a panic reaction, five years from now, nobody will remember this the same way as no one remembers JNJ crisis anymore.
 
 

Posted by Martin June 04, 2015

PPL spun off to a new Talen Energy. Shall I keep it or sell it?

PPL changesIf you own shares of PPL Corporation, you are most likely a new owner of a brand new company Talen Energy. I bought 66 shares of PPL a few years ago, I think it was in 2013, and since then my holdings grew up 12% plus I enjoyed a nice dividend at around 4% annually.

PPL has been increasing the dividend for 15 consecutive years. Its 3 year average dividend growth is at 2.1%. The last year dividend growth was at 9.85%, which is impressive. And PPL’s current yield of 4.70% is also attractive.

In the past, the dividend yield and growth fluctuated significantly. In 2013, the dividend growth was negative (-7.69%), in 2012 it was positive (5.93%), etc. I think in the near future, PPL will enjoy a positive dividend growth and it will be a great and shiny dividend growth company. Why?

I believe, it is because of a recent spin off.

You may be interested in:
Talen Energy Corp. established as PPL Corp. energy generation spinoff by Kurt Bresswein
Talen Energy
What Should PPL Corp. Shareholders Do With A 65% Stake In Talen Energy? by Chronic Bull at Seeking Alpha

In 2013 PPL announced it will spin off a portion of its business into a new company. And the new company is Talen Energy (TLN). So why PPL did it and why it seems that it will help PPL to have more consistent revenues and thus dividend growth?

PPL made money, originally, in two major segments – power (energy) generation (unregulated segment), and energy delivery (regulated segment). PPL owned several power plants (coal/gas/ oil fired plants as well as nuclear plants) around the country such as in Kentucky, Pennsylvania, Montana, as well as in the United Kingdom. In many of the States, and in the UK, it was also involved in energy (electricity, and in some locations natural gas) delivery to the end users.

And here was the problem. The unregulated segment of energy generation was very volatile and dependent on natural gas, oil, and coal prices. The volatility was responsible for unstable revenues and as I believe, dividend growth. The company was able to overcome bad years and keep the dividends growing, but the history of the dividend growth shows the picture of the struggle quite clearly.

PPL still increased the dividend, but due to a huge slump in 2014, the growth was very small. And thanks to low oil prices in 2014 – 2015, it will most likely be small in 2015 as well.

From this perspective it looks like the spin off was a good move. By doing so, PPL got rid of all its unstable energy generation segment and a new company, Talen Energy (TLN), is now completely involved in energy generation while PPL in energy delivery.
 

 

Every holder of a PPL stock received 0.125 shares of TLN. My 66 shares of PPL earned me 8 new shares of TLN at $16.3112 initial purchase cost (I actually didn’t pay for it, but this was the spin off initial price reported to my broker by the new company). At a current price of $19.30 a share I am immediately gaining 18.32% profit.

It is nice, but as a dividend investor, I look at it from the dividend perspective. And that perspective shows that Talen is not paying a dividend and most likely will not pay a dividend. From the CEO speech at the initial conference call it is clear that this will be a growth company focused on M&A (mergers and acquisitions) rather than on dividends.

And here comes my dilemma. Should I sell the new stock and invest all proceeds back to PPL or keep the stock and let it go?

Reason to sell

The reason to sell TLN is simple. No dividend, no holdings. Why holding a stock which may (and also may not) sometimes in the future make me money. The power generation sector is so volatile that it has big up swings as well as huge down periods, just look at oil price chart in the last 20 years and you will see what I am talking about. What if I need the cash and the stock will be down? A never ending problem with 4% withdrawal rule, right?

Reason to hold

The reason to sell TLN is more pragmatic, while the reason to keep it is more from the land of dreams. Once I read a story about an old woman who died a few years ago, but lived long enough to remember both world wars, but most importantly, she died very rich.

When she was born sometimes in 1902, her father bought her 1 share of AT&T company (at that time the company’s name was Bell Telephone Company). The old lady held the stock until her death, but over the years, she not only held the original stock, but many more shares of all the spun off companies (such as AT&T, Lucent Technologies, NCR, and others). She also ended up holding many shares of AT&T company (as the company split stocks several times over the years).

And of course, she was receiving and reinvesting fat and growing dividends from many of those companies she held.

Grace GronerI do not remember details and all names of those companies, or how much she ended up having in her portfolio. I couldn’t find her story on the Internet anymore. But there was a similar story about another woman named Grace Groner who purchased 3 stocks of Abbott Laboratories in 1935. In 2010, at the time of her death, all her holdings grew into $7 million dollars thru dividend reinvestment, stock splits, and spin offs.

A great example of compounding. Yes, she was compounding for 75 years, and even though it looks like she never used the money, it clearly shows that over time and with the right dividend growth stock your investment can grow substantially.

Both women kept all the spun off stocks and let them grow over the years. That’s was impresses me and makes me think to keep TLN. Although TLN can be a volatile company due to the nature of its business, it may grow, split, and spin more, and more, over time.

Getting the shares didn’t cost me a penny. I didn’t have to sell PPL or any other stock to buy TLN. I didn’t have to add more cash to my account to buy TLN. It was given to me. I still hold 66 shares of PPL, enjoy nice dividend and the price of the stock is still 12% up amid a small turbulence after the spinoff and current tornado in the stock market.

You may be interested in:
The Problem With Grace Groner (And Stories Like Her’s) by Nelson Smith at Financial Uproar

I can easily pretend that I haven’t received any new stock. But there is still that little doubt back in my head that now I have additional $154 which I can add to my savings and later (once I save more money using my commission free ETF strategy) buy a dividend growth stock. It could either be PPL or COP.

Keeping the stock is very appealing to me, but the pragmatic voice is strong too.

This is why I am asking you, my readers, what would you do in this situation? Hold TLN or sell it?

Let me know, what you think!

Image credit: WNEP
 
 

Posted by Martin May 18, 2015

My Cheat On Commissions At Work Again

I was able to save a few bucks again ($100) and deposit to my ROTH IRA account. Yes, my ability to save is limited therefore I depend on increasing my income and thus I trade options to make more money. But if you are just starting the investing journey and you only have a few dollars to invest, I hope this will be a good inspiration for you how you can start with small money.

There are other strategies out there, but this one works best for me.

I invest a few dollars into commission free ETF which pays dividends and save money this way. Once I save enough (I have a minimum limit of $1,000 per stock purchase), I sell the ETF and buy a dividend growth stock.

I use RWX ETF for this purpose which pays around 3% dividend and so far I was able to make money with this ETF, unlike the others where I mostly lost money.

Tomorrow, I will be adding 2 shares for free to my RWX holding. That means I will have saved $765.17 dollars. I will need to save another $234.83 dollars to have $1,000. After that, I will be able to sell RWX and buy another stock in my ROTH IRA.

Which of the following stocks would you buy if it were you?
 

Which stock would you buy with $1000 now?


View Results

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Thanks for voting! And if you have any other stock idea, use comments below to share your tip!
 

Posted by Martin May 17, 2015

Dividend yield or rate?

As my dividend account is small my goal is to maximize income to get as much money out of my invested dollar as possible. Then the question comes, how to achieve it? I know I need to invest in companies providing higher yield to get more money in and reinvest them.

I also understand that by investing into higher yield stocks I am taking bigger risk. A true dividend growth investor would prefer investing into lesser yielding stocks but he wants to have a maximum possible security as far as income from the dividends goes.

Chasing yield can be dangerous, but there are stocks out there which offer security and high yield. There are stocks which are still acceptable such as some REITs (Realty Income O), MLPS (a former KMP now KMI), then stocks such AT&T (T), or now my favorite energy, oil involved stocks such as ConocoPhillips (COP) or Chevron (CVX).

The latter two companies were heavily sold off lately due to investors’ panic and them freaking that oil price war may hurt them if not liquidate them whatsoever. And if you look at the price of Conoco, it is still declining:

COP

Or look at Chevron (CVX) and its decline as investors are dumping the stock:

CVX

If investors are dumb enough to sell stocks which pay dividends, both provide great yield (CVX yields 3.90% and COP 4.50%) both have great dividend history and their decline is just temporary. Over the course of 5 or 10 years the stocks will be higher and paying a great dividend as they have been paying for the last 20 years.

So, if you want to dump the stock, go ahead. I will gladly buy it.

Why COP or CVX?

As you may remember, I created a proprietary screener which calculates value for every stock. COP and CVX are now ranking as the most undervalued stocks. See a screenshot of my screener:

Stock Picker

As you can see in the table above COP ranks as the most undervalued stock as the screener evaluated my entire watch list and calculated the rank for each stock. I decided to publish the result of the screener every month and invest into those stocks. How?

My stock pick investing strategy

I use two ways to invest into those stocks. My first way is to invest into those stocks by buying them all at once. How can you buy them all? It would be difficult to buy them all if you only have, let’s say. $20,000 dollars to start with. Fortunately, there is Motif investing (which by the way offers $150 promotion if you open an account, but the offer will end soon)which offers an opportunity to build a motif with your favorite stocks and invest in them all at once.

You can invest as little as $250 and buy the entire motif (portfolio), and you can purchase partial shares of each company. It works exactly like investing into a mutual fund. The good thing here is, that you can create your own mutual fund and start investing. That’s what I did here, created a motif “Undervalued Stocks” and invested my own money in it.

Turn Ideas Into an Investment. Customize or Build Your Own Motif.

My second way, or strategy, is buying high ranking individual stocks from the screener. Every time, I have money available in my ROTH IRA account, I check the screener and buy the highest ranking stock with the highest yield.

Dividend yield or rate?

I recently invested into COP as it is high ranking, high yield stock. I am saving more cash for my next purchase and I was thinking what would be my next purchase? Should I invest again into COP or should I pick the next high yielding and high ranking stock?

Then I saw CVX and what caught my eye was its dividend rate. I noticed CVX is paying $4.28 a share, while COP just $2.92 a share.

Wow, that’s almost twice as much as COP! And I want my portfolio to grow faster so investing into CVX would pay me more money, right? Well, it depends. Sometimes just looking at the numbers only without putting them into perspective can be deceiving.

I was completely decided to make my next purchase into CVX because of the higher rate I can get. But then I used a simple math.

If I invest $1,000 dollars (as is my minimum limit) I would be able to buy 15 shares of COP (at current price of $65.76), but only 9 shares of CVX (at $108.03 a share).

COP then would pay me $43.8 annual dividend, but CVX only $38.52 annual dividend.

I get more money investing into COP with a lower rate for invested dollar. That means, that I will continue investing into COP as long as it stays in my screener as “BUY”.

Well, this small exercise may seem obvious, but the point is that the numbers can be misleading and before investing, always look at them from a different perspective. Don’t invest into any stock just because one number looks better than the other one. It actually may not be.

What do you think? Would you invest into COP or CVX?
 
 

New buy in my ROTH IRA – RWX addition for free

Today, I could once again add one share of RWX to my holdings for free. Yes, saving money for my next dividend purchase could be commission free with a non-transaction fee ETF. I can buy even only one share and it will cost me a zero.

Dividends received

This week, I received a few more dividends from the following stocks:

VNR Vanguard Natural Resources, LLC $4.00
LGCY Legacy Reserves LP $28.00
KMI Kinder Morgan, Inc. $11.52
O Realty Income Corporation $9.29

Addition of these dividends to my account increased my available cash so I could buy a new share of RWX. I am saving $1,000 in RWX so I can buy a new stock. I already have saved $635.46 at 2.39% profit and while waiting I am collecting 2.95% in dividends.

Happy trading & investing!
 
 

New buy in my ROTH IRA – RWX a commission free saving

When I started dividends investing in 2012 I had no goal or strategy and I was purchasing stocks with every penny I had. It was long before I realized how futile way of investing this was. Whenever I received a few dollars in dividends or contributed $50 to my ROTH IRA account, I immediately invested that cash into a dividend paying stock.

It was tempting as I hate my cash sitting in the account doing nothing. I wanted every penny to bring in the dividends.

I didn’t see how expensive that was.

For example, if I purchased a stock for $44.00 a share, I got hit by $9.95 commission. Such transaction got me into a staggering 22.61% loss! The cost basis of such transaction was immediately $53.95 a share.

The stock would have to move from $44.00 a share to $53.95 a share to just get break even. A horrible deal, right? And yes, I was doing that!!!

Over time I found that an acceptable amount to invest is at least $1,000 a transaction or of course more if you have more. But a picture of $800 sitting in my account waiting until I save another $200 to be able to invest and doing nothing was painful. To me this wasn’t acceptable. Mainly, at times when saving another $200 could take me a few months (at some point I could only save $50 a month!).

So, what to do if you can save only $50 monthly and you do not want your money sitting in the savings account, making puny 0.90% or in your brokerage account making 0.001% when you can make 3%?

A solution could be investing into commission free ETF paying dividends. To me, RWX REIT commission free ETF is the answer to that question. Of course, you need to verify with your broker whether they offer a commission free ETFs and which pay dividends.

RWX is one which does that. I can buy a single stock and pay nothing on top of my purchase price and the fund pays 2.9% annual dividend. Now, anytime I receive a cash or contribute to my ROTH IRA account I buy RWX. I do that as long as I save $1,000. Once the total market value of RWX in my portfolio is $1,000 or more, I sell shares of RWX and buy my desired stocks. A few weeks ago I used this strategy to purchase COP stock.

Dividends received

Last week, I received dividends from the following stocks:

AGNC American Capital Agency $31.02
MA MasterCard $2.56

These dividends increased my free cash in my account to a level allowing me to buy one share of RWX.

RWX new purchase

For tomorrow (Monday 11th, 2015) I placed a buy order to buy one share of RWX. After the purchase, I will own 14 shares and my current market value will be $579.28. I will be half way to saving the desired $1,000 limit for a new stock purchase. While waiting to save the rest, I will collect 2.9% dividend.

RWX is not a dividend investment to me. It is a cheap saving vehicle, since I do not use a DRIP.

Why I do not use the DRIP?

I want to be free in choosing my next stock purchase and use all collected dividends and contributions to do that. With a DRIP, I will be limited to investing contributions only. And I do not want that.

What do you think about this strategy? How do you deal with little cash in your account? Do you invest it or let it sit until you accumulate enough to buy a new stock?
 
 

Posted by Martin April 11, 2015

New purchase in ROTH IRA – ConocoPhillips (COP) for 4.60% dividend yield

UPDATE: (04/14/2015) Yesterday, ConocoPhillips price dropped a bit. That allowed me to lower my limit price lower to $67.55. Today, the trigger order fired and executed my limit order. I bought 16 shares of COP today!
 

In my ROTH IRA account I use a commission free ETF to save money for my next purchase. Because of free purchases of the ETF I can buy one share and sell one share and pay nothing. This allows me to save all dividends and my small contributions into the ETF and once I have saved enough I sell the shares in ETF and buy a dividend paying stock.

Last Friday, I saved my minimum amount for purchasing a stock – $1,000 so I could sell the ETF (without paying any commission or trade fee) with 4% profit, release the cash, and now I am placing a purchase order for Monday to buy ConnocoPhillips (COP) stock.

Conditional order

On Monday I will initiate my first position in COP. But I will use my trigger order strategy to buy this stock. That means, that I will place a conditional order to purchase this stock only if it moves higher. If it starts moving down from the current levels, I will not buy and my limit order will be lowered to a lower price. That means that I will be able to track the price down and buy into a position only when the stock reverses (or continues higher from the current price.

See the white board below:

Conditional orders

As you can see, I place my initial limit order slightly above the current price (P1). It is a conditional order, basically saying “if the price is equal or greater than P1 then enter a limit order to buy at P1 price.“.

So if the price of the stock goes higher, hits the P1 limit, the conditional order gets hit and it activates a limit buy order. The stock gets purchased.

If however, the stock goes lower, I will lower my limit price to P2, and then to P3, and P4, etc. If at the bottom the stock reverses and hits my target (P5), the stock gets purchased and I will ride it up.

Of course, this is not a 100% bulletproof strategy, but works most of the time to capture a better price.

Sometimes you will get filled and short after the fill the stock reverses back down and continues in a selloff. That’s a reality of the market. It happens and you cannot do much about it. But at least we tried to get the best price, right?

To eliminate a negative impact of this, I never use an all-in purchase but buy a small portion of the entire position. So if the stock reverses and continues lower I can repeat the process to add to my position.

Trade detail

On Monday, I will have the following conditional order out:

If COP last is equal or greater than 67.71 then
Buy 16 COP at 67.71 LIMIT GTC

Total shares holding after the purchase: 16
Estimated annual dividend: $46.72
Consecutive Dividend Increase: 2 years
Dividend yield today: 4.60%
Dividend 5yr Growth: 8.45%
Dividend paid since: 1934

This stock may also provide a nice capital appreciation when oil price returns back up. This stock may also move back up to ~$80 level and make a nice ~$12.30 capital gain per share. In the meantime, I will be collecting a nice dividend, which I will be saving into a commission free ETF, saving money for my next purchase.

What do you think? Would you agree with COP stock or do you prefer a different energy stock?

Happy trading and investing!