It's dividend time!

I’m learning in real time the highs and lows of dividend investing.

Photo by Hans Eiskonen on Unsplash

Another round of dividends has landed.

The number of companies that provide our payouts is shrinking, but the money arrives like clockwork. It’s why I can’t help but to love investing in dividend-paying companies.

I’ve narrowed my stock portfolio to 27 companies and ETFs (exchange-traded funds). Of those, 15 pay a dividend. Soon, I’ll trim my dividend-payers to seven in an attempt to pare down my long-term portfolio and focus more on index investing. I’m holding the eight positions I’ll part with for at least a year to build my buy-and-hold discipline and give them a chance to return to profitability.

But my biggest dividend-payer will remain in my portfolio for the foreseeable future. With a $35.78 payout from the Altria Group this week, I’ve now amassed $530.80 in total dividends.

I’ve only been investing in the stock market for one year. At this rate, I’m on pace to surpass my preliminary goal of $1,000 in dividends sometime in 2024. The next target: $10,000.

Studies differ on the value of dividend investing, with my rudimentary understanding of the case against being there are more effective ways for one to deploy investment capital. That’s not my concern. Far from it as a newbie investor.

I’m nowhere near the point of needing to chase the highest returns. It dawned on me only 13 months ago how much banks were getting over on me. I have a long way to go in my investing journey before losing sleep over additional percentage points here and there.

Dividends made it fun for me to become an investor. Sharing in companies’ profits rewarded me for being a steward of my money. The quarterly, and sometimes monthly, payouts instilled in me delayed gratification and a date which I could eagerly anticipate. There’s also a lesson on compounding, with how the dividend payouts can grow just by reinvesting dividends.

If dividends drum up excitement to dive into investing, why discourage them?  Since my first payout from AT&T last year, they’ve helped to build my financial discipline and make it easy to decide how to direct my money.

Equity over eating out. It’s an easy equation.

I’ve collected $121.18 in dividends from Altria, and I just started buying shares Oct. 10, 2022. This week’s dividend reinvestment bumped my position to a little more than 37 shares, for which my cost basis is $1,668.16. That’s money I previously would have spent frivolously but funds I have turned into a cash-producing investment. By simply pressing a few buttons, I generated an additional $600 over the past 12 months.

Of course, the risk is a stock price plummeting, which is one reason I’m actively reducing my exposure to such positions. As a cigarette manufacturer, Altria’s future as a profitable company has me concerned more than whether it’s an ethical investment. Adults make their own decisions. At some point, I think smokers will tire of the skyrocketing price of cigarettes. A mass exodus might be good for humanity, but it will be horrible for Altria’s bottomline, thus my dividend.

But I’ve also learned how dividends don’t always rise like my Altria payout. I’ve had others fluctuate or flat-out plummet, like Chesapeake Energy. Despite owning the same number of shares of the company, I’ve watched my Chesapeake quarterly dividend drop from $32.41 in March to $30.16 in June to $14.92 in September.

I’m still learning the ins and outs of dividends, why they fluctuate and where safety is versus the traps. I also can’t honestly say I comprehend the dividend yield and ratio computations given I can’t explain them enough to make sense to a 5-year-old. Still, I’ve learned to avoid investing in a company solely because of a high-dividend yield. When the stock price falls, the dividend won’t soothe you.

I’m keeping a close eye on my chosen ETF for Parker’s primary account and one I hold in my Roth IRA, the Vanguard High-Dividend Yield ETF, ticker symbol VYM. I selected it largely because of its dividend payout. As it has fluctuated over the past year and I’ve learned more about dividends, I’m hopeful I didn’t park her funds in the wrong place.

So far, Parker’s account has collected $231.40 in dividends from her VYM position. She’s up to a little more than 89 shares, currently valued at about $9,100. Thankfully, her dividend payouts have consistently increased.

We’ll see what December brings. We’re still learning how this all works.

But we know our money is doing better than it ever did sitting in the bank.