June and July were heavy dividend stock purchase months. Now, the question that the community is wondering – was I able to keep the pace up? The journey to financial freedom does not take breaks, and one must continue to persevere through uncertainty, put cash to work, and push that forward dividend income forward. August –
Dividend Stock Purchase and Dividend Income: Path to Financial Freedom
Investing consistently in Dividend Income Stocks allows you to create and build another income source. Dividend income is our primary vehicle on the road to financial freedom, which you can see through my Dividend Portfolio, which continues to build and build. Further, I have written about every stock purchase and month of dividend income since we started this site, plenty of dividend history for you, the reader!
How do I make dividend stock purchases and screen for dividend stocks? I usually put the stocks through our Dividend Diplomat Stock Screener and trade on Ally Bank’s investment platform (one of our Financial Freedom Products).
Purchasing dividend stocks takes capital or money. How do I build the capital to make these stock purchases? I save anywhere from 60-85% of my take-home pay and strongly believe financial freedom does not happen by hitting a home run on an investment. Nothing matters more than your savings rate on your journey to financial freedom, plain and simple. Therefore, I work my butt off to make sure expenses remain in check and that my savings rate is meeting our investment and financial independence goals! Then, you rinse and repeat.
Dividend Stock Purchase Activity
My dividend stock portfolio was burnt by dividend cuts and lost over $800+ in forward dividend income. Therefore, I was ready to get back to basics and acquire more shares in the best quality dividend stocks out there.
I was able to make consistent investments for the THIRD month in a row. If you recall, I was very quiet on the stock purchases front in the months of April and May. I made the decision to pick up the pace for purchasing dividend stocks on my journey to financial freedom in June! June and July were consistent with heavy investments and August was even STRONGER. Time to see the dividend stock purchases below.
Vanguard High Dividend Yield
As discussed in the video above, and you’ll see in my stock purchase activity below, I invested quite a bit into a Vanguard exchange-traded fund (ETF). In fact, I performed exactly what I stated in our video. I made a weekly purchase of 3 shares into Vanguard’s High Dividend Yield (NYSEARCA:VYM) ETF. I had a bonus of 1 share of VYM on 8/31, in addition to the 3 shares. This is due to a minor and first-time discussion of a SALE. I reinvested part of the sale proceeds into 1 more share of VYM.
What is Vanguard? They are a registered investment advisor with $6 trillion plus assets under their management. Many companies use Vanguard for their company-sponsored 401(k) plans, and many use them for their retirement and/or investment accounts.
Why do so many individuals and businesses love Vanguard? First, they usually have the lowest or near the lowest expense ratios for individuals to choose from. In addition, John Bogle, the legendary founder of Vanguard Group, created the first index fund. The index fund is a tool that millions of people use and love every day.
Vanguard High Dividend Yield has 426 different stocks and 3 of their top 10 holdings are dividend aristocrats, such as Johnson & Johnson (NYSE:JNJ), Procter & Gamble (NYSE:PG), and AT&T (NYSE:T). Yes, that’s 3 of our Top 5 Foundation Dividend Stocks!
This will be different than other dividend stock purchase summary posts and how I breakdown each investment. I usually like to use the Dividend Diplomat Stock Screener, and I will do my best to use on the VYM ETF.
- Price to Earnings: Based on Market Watch estimate of a 23.15 price to earnings ratio. The current P/E Ratio of 23.15 is slightly below the S&P 500, which currently stands at 30x earnings. Talk about overvaluation coming up in the market!
- Payout Ratio: Remember above, there is an earnings per share of $3.62, due to a P/E of 23.15 with a current share price of $83.79 (close of 8/31/20). Dividend per year, based on the trailing 12 months, is $2.745. Performing the simple dividend payout ratio calculation of $2.745/$3.62 equates to 75%. Slightly on the higher side.
- Dividend Growth Rate: Dividend growth rates of over 7%+ over the last 9 of 10 years, with consistent dividend increases, are excellent. There is no wonder why this is considered a high dividend yield fund.
- *Bonus* Dividend Yield: Given the trailing 12-month dividend is $2.745 and the average share price that I acquired them of $83.26, the dividend yield averaged 3.30%. This is significantly higher than the S&P 500 index and is a dividend yield higher than my overall dividend stock portfolio.
In total, my dividend stock purchases of VYM totaled $1,332.11, acquiring 16 total shares. This added $43.84 in forward dividend income. I will continue this going forward, 3 shares per week. This will allow me to stay invested and have time in the stock market, versus timing the stock market.
Cisco Systems (NASDAQ:CSCO) has been on my dividend stock watch list many times before. For those that do not know about this technology driven dividend stock, they provide the WebEx services, VPN network, and other IT infrastructure for small and large businesses across the world.
Of course, I run Cisco through the Dividend Diplomat Stock Screener each and every time I buy them. This is how Cisco stacked up within the stock screener:
- Price to Earnings: 27 analysts are projecting $3.10 for FY 2021 earnings and 22 analysts are projecting $3.33 for FY 2022. Therefore, based on a weighted average purchase price of $42.38, the price to earnings on 2021 projects is 13.67 and, for 2022, is 12.73. This is significantly below the S&P 500, currently, as well as other technology competitors, I am looking at you Microsoft (NASDAQ:MSFT) and Zoom (NASDAQ:ZM). See the analyst projects below.
- Dividend Payout Ratio: At a dividend per year of $1.44 and earnings projections stated above for 2021 and 2023 in the amounts of $3.10 and $3.33, respectively, the dividend payout ratio may be perfect. We love the dividend payout ratio in the 40%-60%, which we consider the perfect payout ratio sweet spot. Cisco’s dividend payout ratio is 43%-46%, depending on which analyst projection you would like to use. This shows that Cisco likes to pay out half of their earnings back to shareholders, but also reinvests back into their business for growth.
- Dividend Growth: Going on 9+ years of consistently increasing their dividend, Cisco is approaching the 10-year milestone. In fact, they also have increased their dividend DURING the global pandemic of the coronavirus:
- Their dividend increase wasn’t as strong as their 5-year dividend growth rate of 12.27%, but they managed to increase their dividend by 3%. Definitely is below their average, but is extremely appreciated during this difficult time period. Many companies cut their dividend or suspended for a few quarters, but it shows signs of confidence when Cisco increased their dividend.
Overall, I purchased 14 shares of Cisco at an average price of $42.375 for a total capital deployment of $593.25. This added $20.16 to my forward dividend income projection.
In total, I now own ~134 shares of this technology beast. My dividend stock position with Cisco now pays me $193.21 in dividends per year. From a dividend reinvestment standpoint, I stand to add 1 share of CSCO each time I receive my dividend payment! I would not be opposed to rounding off my position to 150 shares at the current prices!
ViacomCBS (NASDAQ:VIAC) is a combined beat between, you guessed it, Viacom and CBS. Together, they have formed one of the BIGGEST entertainment behemoths in the industry.
ViacomCBS recently released second quarter earnings and they were MUCH better than expected. ViacomCBS recorded record revenue across their revenue, subscribers and consumption across their streaming services. If you have not realized, the wars in streaming have been FULL steam with Netflix (NASDAQ:NFLX), Apple (NASDAQ:AAPL), Disney (NYSE:DIS), and you know ViacomCBS has begun their march. They also offer a free Pluto service, which makes them stand apart from others. Here is a summary from ViacomCBS’ earnings release:
Therefore, per usual, we ran ViacomCBS through the Dividend Diplomat Stock Screener:
- Price to Earnings: There are 23 analysts projecting earnings to be $4.55 for ViacomCBS for 2021. Therefore, at a purchase price of $26.00, this equates to a VERY favorable price to earnings ratio of 5.71. Now, I typically don’t see the valuation ratios this low, but they are also trading at $28 now. Therefore, the ratio is starting a slow climb back up. See the analyst projects below.
- Dividend Payout Ratio: ViacomCBS currently pays a dividend $0.96 in total for the year. Based on analyst projections of $4.55, this leads to an extremely LOW dividend payout ratio of 21%. In fact, even if we use what they currently should earn this year, or even in 1 quarter alone, they are covered. ViacomCBS dividend appears safe, by a significant margin.
- Dividend Growth: Now, ViacomCBS does not have a track record yet established, since they are a new entity. The dividend went up 33% in 2019. However, I could see ViacomCBS holding dividend growth for the next year or two. Saying this, they may surprise investors with a dividend increase in December of 2020, as they have a significant amount of room to do so.
Overall, I purchased 20 shares of ViacomCBS at an average price of $26.00 for a total capital deployment of $520. This added $19.20 to my forward dividend income projection.
In total, I now own ~147 shares of this entertainment monster. My dividend stock position with ViacomCBS now pays me $141.71 in dividends per year. From a dividend reinvestment standpoint, I stand to add 1.5 shares of VIAC each time I receive my dividend payment! I would not be opposed to rounding off my position to 150 shares if prices come back to at or below $26.00 again.
Dividend Stock Purchase Summary (Plus the ~$500 and Less)
Now that most of us here in the U.S. has the ability to trade, my stock purchases can be smaller than usual. The brokerages really have paved the way to make it “easier” or at least, less costly, for investors. Thank you Robinhood, Charles Schwab, E-Trade, you name it! I easily have saved hundreds of dollars this year alone in trading fees.
Given that, I don’t want to dive into so much detail on smaller purchases. Therefore, the remaining dividend stock purchases will be reflected in a screen shot below. The screen is directly from the brokerage that I use – Ally Investing.
Here are the screenshots from my July Dividend Stock purchases!
Roth IRA: No purchases in the Roth IRA for July.
Sales for the month:
I sold Tupperware (NYSE:TUP) at $16.00 per share, took a loss, and reinvested part of the proceeds to VYM. TUP did not fit my strategy anymore, nor did I foresee a dividend reinstated. Therefore, it was time to say goodbye to a small, no point of having, position. Total proceeds were $160.00.
One new position was in fact added to my dividend portfolio. NetApp (NASDAQ:NTAP). They are a hybrid cloud and data management company. Sadly, again, I only was able to acquire 4 shares, at an average price of $42.42. Let’s just say, the stock is up almost 12% since that stock purchase. They currently yield over 4%, and I’ll look to acquire more when/if the price comes back down to near $42.
In addition, due to the global pandemic, it’s definitely easier to buy dividend aristocrats, especially those stocks that are set to do very well during this time period. In the video, showcased below, we talk about insurance and banking industries to persevere through COVID-19. Given the dividend stock purchases of Aflac (NYSE:AFL), Cisco, and People’s United (NASDAQ:PBCT), I picked up stocks to buy in the post-pandemic world!
In total, I deployed a total amount of $3,236.16 and added $116.41 to our forward dividend income, equating to an average dividend yield of 3.60%.
My Wife’s Dividend Stock Purchase Summary
My wife has accounts where we also make dividend stock purchases. Though we are married, we are still running two separate, individual, taxable accounts. All is good, especially because we use the same platform, but just haven’t wanted to deal with the administrative tasks of combining. In actuality, I don’t think it’s even possible to combine on the retirement-based accounts.
Over the last few months, we definitely started to add more capital to my wife’s dividend investing account. The dividend income added from Dividend Aristocrats, including one of our TOP 5 Foundation Dividend Stocks for YOUR Portfolio, is in the mix. As stated earlier, we are also acquiring 3 shares of VYM per week, to stay invested in the market.
Roth IRA: No stock purchases in the IRA this month.
We purchased 1 share of Johnson & Johnson, good old reliable! Yes, they are one of our Top 5 Foundation Dividend Stocks, no doubt about it.
Further, We picked up 1 more share of Coca-Cola (NYSE:KO). Being able to add to her a Dividend King in her portfolio is very exciting. We also picked up shares of NetApp, and continued to acquire more shares of Consolidated Edison (NYSE:ED).
Lastly, we added a few shares to Walgreens (NASDAQ:WBA), another dividend aristocrat that showed signs of undervaluation, not to mention the 2.2% dividend increase we received. My wife’s portfolio is typically full of safe and sound dividend investments and since we’ve been together, her portfolio has been blossoming into an extremely significant part of our family’s finances.
In total, $2,178.67 was put into investments, producing $78.52 in Dividend Income going forward. This is an average dividend yield of 3.60%.
Summary & Conclusion
August maintained the momentum from June and July, being the heaviest month of them all. We plan on keeping the strategy of investing into Vanguard, each week, 3 shares at a minimum. The stock market at all-time highs will make things a little more difficult/interesting here. Combined, my wife and I invested $5,414.83 for August and added $194.93 to our forward dividend income total (3.60% yield overall)!
I will maintain my main message. Stick to the strategy that works for you, but review if there is anything that may impact your strategy going forward. You are in control, and the emotion button is hard to turn off. Persevere and stay consistent, if you are able to. Time to lock in and stay ready for further opportunities. This was one step closer to financial freedom, and I hope to continue making strides. Lastly, my dividend portfolio has been updated to reflect all dividend stock purchases above (outside of my wife’s).
I am continually looking at my September Dividend Stock Watch List and always keeping an eye on the stocks on Bert’s expected dividend increases that he will release later this month. It is all about the road to financial freedom, and I cannot wait to have that crossover point. That crossover point where the passive income, from dividends, overcomes the total expenses in a given month.
I know I’ve said it many times, but each and every month, we do make inches towards the financial freedom goal. We will get there and we are very excited you have joined us on the journey.
Thank you for stopping by, good luck and happy investing out there!
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.