My previously mentioned plans for deliberate acts of capitalism following on the return of my money from the Governmugger were put into action today. It wasn’t a HDTV, new golf clubs, or anything similar that I purchased though; I bought more stocks and some more bonds. To make matters potentially less glamorous, I have been buying the kind of stocks that are often perceived as stodgy and boring: dividend payers.
How not true that notion is!
I buy my dividend paying stocks in groups of three, each selected for 1) good fundamentals, and 2) full coverage of the calendar year, such that one of the three stocks will pay a dividend in any given month. Recently, I added into the mix a high yield bond ETF, which I now purchase as a fourth, accompanying position to my stock trios. The purpose is to secure monthly passive income that will grow steadily over time as the companies behind these stocks increase dividend payouts. I’m using Sharebuilder as my brokerage for this endeavor, simply because their system allows one to purchase whole and fractional shares in individual stocks each Tuesday. This allows an investor to invest X amount of dollars, instead of having to buy X amount of shares, which typically means leaving some cash on the table and not in play; idle cash sucks.
Today’s trades are settled, so here’s what I’ve got this time around:
Jan-Apr-Jul-Oct Position: Washington Mutual (Symbol WM), purchased at $40.64/share, $2.20 (5.41%) annual yield (as of today after the market close).
Washington Mutual, a mid-sized bank, has been in somewhat of a funk in the wake of the sub-prime mortgage market woes as of late. The bank reported earnings today, which slid 20% compared to this quarter (1st) last year. Nonetheless, the reported earnings - 86 cents per share - beat the Street estimate by 2 cents a share, which should see the stock jump up tomorrow (albeit temporarily, as a rocky road is no doubt still ahead). Despite the temporary financial flu, the WM board of directors increased the quarterly dividend by 1 penny per share, bringing it up to .55 cents per share from .54 cents, continuing a years-long trend of quarterly increases.
Feb-May-Aug-Nov Position: Computer Programs and Systems, Inc. (Symbol: CPSI), purchased at $30.79/share, $1.44 (4.68%) annual yield.
Computer Programs and Systems, Inc. is a healthcare focused IT company, basically, which specializes in patient record keeping, including financial data tracking, in small and mid-sized hospitals. Their stock has been drifting downward for some time, but recently acquired new contracts should breath some life back into the shares, not to mention the looming shift in demographics toward a majority senior-aged populace. This is not my primary interest in owning the stock, however, as it is the steadily increasing dividend they’ve been able to offer that has brought me onboard.
Mar-Jun-Sep-Dec Position: Newcastle Investment Corp. (Symbol: NCT), purchased at $29.18/share, $2.76 (9.46%) annual yield.
Newcastle Investment Corp. is essentially a Real Estate Investment Trust, or “REIT” for short, composed mainly of real estate-backed financial instruments, mostly featuring commercial real estate as the underlying assets. Their dividend history is not quite as long as my personal comfortable minimum - 5 years of steady increases - but it’s close enough that I decided it works for me. One of the things about Newcastle that caught my eye as I searched for positions to fill this trio was its rumored recent acquisition of a portfolio of sub-prime loans from a flagging lender, which could prove a great value down the road as the purchase would likely be made for a bargain price.
Finally, I purchased more of the New America High Income fund (Symbol: HYB), an exchange traded fund composed mainly of high yield bonds, at $2.37/share, .21 cents (8.86%) annual yield, which pays out all twelve months of the year.
I’ve been an investor in this ETF for years, and through a range of prices from $1.90 per stub up to $2.40, it has consistently paid out 1.75 cents every month, with a little extra paid out at the end of each year in December. I like to purchase this along with my trios to boost current yields as I wait patiently for the yields on the stocks to grow and, in cases where the members of the trio have wildly different yields, to provide a bit of averaging such that the month-to-month payouts are somewhat more uniform between the positions.
Over-all, this trio, plus the bonds, will yield an average of 7.1% right out of the gate. In the case of Washington Mutual, which has found a place in past trio purchases, the yield I was originally receiving on those positions has just gone up. And that is my plan: make purchases at attractive yields, which represents a fixed cost, and watch as the percentage yields increase going forward, meaning an increasing income.
This all boils down to a very simple equation: passive income = freedom.
Don’t be foolish and naive like I was. I went years without shopping around my insurance rates, and one day it dawned on me.. All I had to do was take 5 minutes and get some free quotes and boy, did I ever save some major $$ 