Investing 102

[Vegas69]

I'm stoked, I employed your philosophy about 14 months ago. The money I used to "let the bank rent for nothing" is now up 11.5% over that time. It's starting to snow ball into some real money.

[GregWeld]

Originally Posted by Vegas69

I'm stoked, I employed your philosophy about 14 months ago. The money I used to "let the bank rent for nothing" is now up 11.5% over that time. It's starting to snow ball into some real money.

There ya go!!

[silvermonte]

So I have an update and a question. CASY is the stock I am referring to for anyone that wants to look it up. Almost 2 years ago I bought a small amount of a stock $1500 worth, at the time it had a dividend of 1.3%. I was super happy with the stock for all the reasons listed earlier in this thread. Now this stock has had the growth I was looking for but the dividend is going down. The share has grown $20 apiece and the dividend is now down to .97%. Is this a normal rate? I know as one goes up the other will go down.

I guess what Im asking is, is this is normal or should I continue to hold on to it? Or is it time to sell and buy something with a higher dividend. I feel the company is not even close to done growing and I have been continuing to buy more, just in much smaller chucks to keep everything balanced within my account. Im happy in every way with this company. I just wondering if there was a smarter way to be using my money.

[GregWeld]

Miles --- you've got TWO fundamental mistakes in this line of thinking... and I'm not calling you out or flaming you on it. In fact... it's good because others can learn from this post.




#1 -- The dividend did not go down. IN FACT the dividend has gone up! It was paying .18 a quarter - it's now paying .20 per quarter.

What you're doing is a failure to understand the way dividends are looked at for a comp. The dividend is paid in DOLLARS -- and figured as a PERCENTAGE. The dollar amount stated has to get calculated into a percentage AT CURRENT SHARE PRICE. So as the share price goes UP -- the PERCENTAGE that the dividend represents appears to go down. It works the other way in a falling stock market - as the price of the shares drop - the percentage of the share price the dividend represents goes up.

You - having paid a lower price per share - are getting a higher percentage of dividend rate on your money invested. So you always need to do your own calculations on what YOU PAID - and what you're currently receiving. I don't know what you paid so can't calc that for you.

The MATH for doing that is:


The ANNUAL DIVIDEND amount (4 times the quarterly amount) in this case the annual amount is .80 (4 x .20) DIVIDED by the share price. And move the decimal two places.


So let's use this actual stock and price.


.80 dividend by 82.63 = .009681

Move the decimal point -- and you have .97 %


#2 -- You've fundamentally made another mistake in your thinking by not looking at the TOTAL RETURN. Remember that if we're going to "accept" a low dividend percentage - then we need the offsetting GROWTH in the share price so that our TOTAL RETURN is appropriate. TOTAL RETURN is the ultimate goal here - and should alway be the main consideration for ANY investment regardless of whether or not it's stocks - bonds - or real estate etc.

CASY has a TR of almost 10% for one year -- 62% for 3 years - and 184% for the last 5 years.

While this year isn't particularly stellar - overall this stock is a grower and if you're happy with them - I'd continue to hold or add to the name. Their earnings are growing (as reported) and that's a very good thing.

Originally Posted by silvermonte

So I have an update and a question. CASY is the stock I am referring to for anyone that wants to look it up. Almost 2 years ago I bought a small amount of a stock $1500 worth, at the time it had a dividend of 1.3%. I was super happy with the stock for all the reasons listed earlier in this thread. Now this stock has had the growth I was looking for but the dividend is going down. The share has grown $20 apiece and the dividend is now down to .97%. Is this a normal rate? I know as one goes up the other will go down.

I guess what Im asking is, is this is normal or should I continue to hold on to it? Or is it time to sell and buy something with a higher dividend. I feel the company is not even close to done growing and I have been continuing to buy more, just in much smaller chucks to keep everything balanced within my account. Im happy in every way with this company. I just wondering if there was a smarter way to be using my money.

[silvermonte]

Thank you Greg for getting me straightened out. You are 100% correct about me being confused about how the dividend payout works. What you said makes perfect sense and I feel much better about it now. I was just doing my 6 month review of my holdings. Im well in the green on this one, but had a thought that maybe it was time to review this particular holding and look for something better.

[GregWeld]

Originally Posted by silvermonte

Thank you Greg for getting me straightened out. You are 100% correct about me being confused about how the dividend payout works. What you said makes perfect sense and I feel much better about it now. I was just doing my 6 month review of my holdings. Im well in the green on this one, but had a thought that maybe it was time to review this particular holding and look for something better.

EXCELLENT!

[WSSix]

congrats Todd and Miles! Glad to hear you guys are having success with this.

[toy71camaro]

Originally Posted by GregWeld

You - having paid a lower price per share - are getting a higher percentage of dividend rate on your money invested. So you always need to do your own calculations on what YOU PAID - and what you're currently receiving. I don't know what you paid so can't calc that for you.

The MATH for doing that is:


The ANNUAL DIVIDEND amount (4 times the quarterly amount) in this case the annual amount is .80 (4 x .20) DIVIDED by the share price. And move the decimal two places.


So let's use this actual stock and price.


.80 dividend by 82.63 = .009681

Move the decimal point -- and you have .97 %

This brings up a good reminder. When you log into your brokerage accounts, your not going to see your "Total Return", and this could play tricks on your mind! hahaha.

I ended up writing my own tracking spreadsheet using Google Docs. Where I document each purchase I make for each stock (price/qty/total amount), and also note each dividend payment. It then calculates my total shares, my Avg Cost on those shares. Then it automatically grabs the current share price. I then have a "Summary" tab/sheet (I have a "sheet or Tab" for each stock), where it monitors the daily basics such as todays price +/- %, todays Dividend %, MY dividend % based on my original purchase, plus the TOTAL RETURN.

Just as an example, when I log into my brokerage account and take a quick peek at my page, it shows I'm DOWN 0.22% on my AT&T. Bummer right? Well, not really. My Total Return for it is actually 28%. There's a HUGE difference there.

Once again Greg, thanks for taking time out of your day to keep us all on the Up and Up and moving forward with this stuff. It's made a huge difference in my retirement accounts since starting this within the last 2 years.

[GregWeld]

You're more than welcome Albert! I'm so happy this is working out well for you.

Correct data - and correct thinking are CRITICAL Albert. Good for you for doing the work on the spread sheet.

The thing with stocks - versus other types of assets such as housing etc... is that we tend to look at them all the time. It's like a moth to a flame... we like to see our investments all going green all the time. Of course - it doesn't work like that. But really understanding where you're at is key.

I've said it here many times -- if you're UP 30% over a two year period -- and suddenly the market "tanks" and goes down hard (10%)... you must put that in perspective. You can't open your account and go HOLY CRAP! I'm down 10K! When in fact --- you might be up 40 over all.

[silvermonte]

I would like to ask some theoretical questions. Lets say a year or even 2 years from now a stock has has no growth and the dividend payout has not increased at has been a low value. My money could be put to better used in a best of breed. Now assuming the company is not doing anything wonky behind closed doors, what would be a reasonable time frame for a person to wait on a stock to start doing something again?

I can use my CASY stock as an example. I bought in 2 years ago and it has had great growth and I'm well in the green on it. So if for some reason it was to just go stagnant and nothing would change for a year, how long should I wait if there is no news coming in from their side on what is going on.

That's not what is going on with this but I was just using it as an example. I could see myself saying well I've made X and if I wait a bit longer I might make more. That would be the emotional side taking over with investing. What clues should a person look for to know its time to move to greener pastures?