Now before I talk about my investments, let’s be very clear – they’re not massive. At all. My single biggest personal account right now is indeed my trading account. But in the grand scheme of savings and investments, it’s barely a quarter of what I currently hold.
My mission is a simple one; to have a savings pot for a rainy day. For example, there’s a line of thinking that you should have enough money in savings to cover you for three months’ worth of time out of work. I do not have that. Yet.
But then I have a secondary mission – to build up a wealth pot that can earn me regular dividends. That’s the “passive income” thinking, or “making money whilst you sleep”. Again, I’m nowhere near that – yet. I need to find a way of “topping up my wages” because they’ve not kept up with the rate of inflation nor my vast level of experience or expertise. And in a time when there’s a “cost of living crisis” I’ve tightened my belt to live at the lowest levels of expenditure ever but I sill make room for savings and investments in my household budget.
To put this all into perspective, a blogger I knew nearly twenty years ago is now earning $50,000 a year in dividends. He got into the dividend investing arena back in 2007 and now he’s reaping great rewards. On the other hand, I only started in 2021. My earnings are 0.1% of that.
Before Dividend Notifications
So my investing strategy up until now has been what you might call “exploratory”. Having wanted to invest in shares since I was about 13, and only eve buying one share at great expense for non-investment reasons in the nearly 40 years after that, I’ve come to the game quite late.
I started out in 2021 investing in a few shares of a company who were in the building I worked at in Woking a few years ago. I also invested in Tesla. In Microsoft. My old employer Johnson & Johnson. Then I saw the dividend yields and invested in Vodaf9ne and Direct Line. Vodafone shares have since lost almost 30% of their value, but are making a mild recovery right now, and Direct Line stopped paying dividends over a year ago.
So, as you can see, I’ve got a couple of “duffers” in my portfolio. I divested over half of what I held in Direct Line, and reinvested elsewhere, and I’ve held my nerve with Vodafone to see a 30% decline recover to ~24%. Direct Line are having a resurgence, so I could maybe have held on to those stocks. But never mind.
Everything else is a mix of banks, insurance companies, REITs, supermarkets, media companies, construction firms, energy and utility firms, and even the odd manufacturer, and even a fashion brand.
The common thread with nearly all my investments so far has been that they pay decent dividends. In 2021, when I started investing on the app, the Bank of England base rate was 0.1% – it is now 5.25%
So when I started investing, savings accounts were offering a very poor rate of return. Stocks, on the other hand, could provide dividends of up to 10% at the time. THAT is why I decided to invest in stocks and shares, it was a “no brainer”.
Dividends were few and far between. Here’s one reason why…
If you have holdings in shares and you buy them after the ex dividend date, you do not earn that dividend. You could be waiting over a year to benefit from your investment and anything could happen in that year. If the share price holds, everything is fine. But waiting so long to earn your dividend, you might as well have put that money in a boring old savings account.
Since Dividend Notifications
Since discovering a tool that notifies me of dividend pay-outs, I’ve changed my investment strategy. The tool informs me, on the declaration date, of the ex-dividend date and the pay date.
The benefit is that, for shares I already own, the tool tells me the value of my current next dividend, based on the number of shares that I hold right now. I then check the markets to see how the declaration has affected demand, and if there’s not too much of a “gold rush” then I can safely invest more. Of course, the down side can be that if too many people are chasing the div, they can push up the share price. Once they reach the ex-dividend date, there’s often a sell-off, the share price drops, and those speculators get
- Their increased share price, that they helped drive up, and
- The dividend
Sometimes, if the share price drops too far and too fast, you can end up with your dividend, but a reduced share value. Sometimes that price drop can wipe out the gains from the divs.
Other times, the share price could stay high, maybe only drop a little. Then you end up with both a higher value share and your nice dividend.
I recently indulged in investing in one stock that had a “special dividend” of 15% – I saw an influx of investment, the price shot up 20%, the speculators got their +20% share price on sale and their 15% dividend, and then as they all pulled out on ex-div day, the price plummeted. It since recovered, and so I still made a 6% price gain plus a nice dividend. (It has since dropped again this week, but this is a long-term investment for me, so I continue to hold – the share price has looked strong for a good year now)
I try to invest enough to push my returns over a certain threshold. This is all tracked in a spreadsheet and I have “golden shares” that give me the best returns.
No longer am I buying shares at times when I won’t see a rise in the dividends I earn. I can now see if it’s worth investing ahead of the dividend date, and get a bigger, quicker return on my investment. So I now manage to make a further investment to increase my dividends, rather than previously waiting up to a year to see any increase in income.
Conclusion
Buying shares when you can, and buying shares when you want to, is OK.
However, as stated, there’s the possibility that you could wait over a year to see a rise in your dividend earnings, and a lot could happen in a year. In cases like that, you might as well be putting money in savings accounts, if you can handle the “safer” rates of return.
When you keep an eye on the declaration date, ex-dividend date, and pay dates of your shares, you can invest at a more appropriate time and benefit from increased dividends quicker.
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