How I Made $5300 Doing Nothing, or — Thank You Dividends.

How I Made $5300 Doing Nothing, or — Thank You Dividends.

Written by Avid Traveller

Topics: Finance

I have been investing in stocks on and off since I was 23 with some success but not enough to really say that I was a good investor. I spent a lot of time reading about finance, but still found myself chasing the ‘hot stock’ and newest investment strategy.

About 3 years ago I became interested in dividend stocks after reading Dividends Still Don’t Lie by Wright and The Single Best Investment: Creating Wealth with Dividend Growth by Miller.

I wanted to learn more so I also checked out the boards at Motley Fool and subscribed to the site

Up to that point I had essentially gave up on picking individual stocks and was just investing in the S&P 500 via Vanguard, and in gold via the ETF iShares. I started investing in only dividend-producing stocks in my IRA starting in January of 2012 using the principles of the above mentioned books and sites.  It has worked out extremely well and I have been using the dividend income to buy more shares – but if I was retired I could supplement my income.

While I am not in it for the capital gain aspect, I still try to pick strong stocks that will maintain or increase in value since the share price drives the dividend payout. My Vanguard 500 fund increased 19.56% over the time period and my total gain was 24.78% — pretty good. This does not include the fact that I also earned $5356 in dividends since Jan 2012.  That’s over $5300 of “free money” that I did not get when I was purely a growth investor.

DividendsIn case you noticed I did make two non-dividend stock choices during that time as well: Amazon (AMZN) and Netflix (NFLX). I am still holding on to the Amazon but the Netflix stock self-destructed, so I dumped it. In fact, I could have lost all of the ground I made in dividend earnings if I didn’t use something that I recommend to everyone….

Use Trade Triggers

Every online brokerage account allows you to use trade triggers. This lets you designate a certain set of conditions which, once met, can either trigger a buy or a sell action. So if you are waiting for a stock to go below a certain price before you buy it, you couls use a trigger. I use them to protect my position in the above stocks.  So for example, I bought McDonalds at about $79. It is currently around $99. If I wanted to make sure I didn’t lose money I could set a trigger to sell all of my shares at $79. I would then have at least made money on the dividends I received during the period. Or I could put the trigger higher, say $89 and then collect some capital gain profit.

Since I bought these stocks for the long term and believe they will continue to do well, I don’t want to accidentally trigger a trade if they have a bad quarter, so generally I set my trade trigger at the 52-week low, even if that is below where I purchased the stock. So far the triggers have never been activated, but it is nice to know I don’t have to worry about getting wiped out if something really bad happens market-wise. In this way I do not have to follow the ups and downs of the market very often. I generally take a peek once a month. I dump non-performers and buy new assets only once a year.

My long-term plan for this investing strategy is to generate supplemental income . It would be great if I can get to at least $1000 per month. So at a typical rate of 3.5% dividend income, I would need about $286,000 in my IRA.

Better start saving.

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