In high school, I referred to February and March as the “dark period” – a seemingly endless stretch of cold weather until spring break. A few public holidays broke up the monotony of the school week. But the continued stretch of cold, dark days went on and on.
To cope, a lot of friends would hang out at the mall after school or on weekends. It was indoors with heating and lighting! But I disliked shopping without a specific need or purpose.
Yesterday, I got back to work after a long weekend in Florida. The 85 degree weather and sunny skies really did make me feel refreshed. It helped break up the “dark period” at work and acted as an early spring break of sorts. And then I got to shopping – but with a purpose.
Balanced Dividends Shopping Considerations
As highlighted in our 2018 goals overview and last month’s passive income update, we’re focusing on increasing passive income derived from non-retirement accounts. Additionally, we’re looking to diversify the frequency and source of our passive income.
With this in mind, we’ve earmarked new available capital toward potential investments that will satisfy the two mentioned objectives. In reviewing potential investments, we’re currently considering the following criteria (among others):
- (1) Distribution Frequency
- (2) Account Allocation
- (3) Price
- (4) Value
Here is a further review of each criteria.
Summary of Criteria
(1) Distribution Frequency – NOT the Last Month of Each Quarter
This is usually not the prime factor for us when considering a particular security. But one of our 2018 focus areas is to diversify the frequency of our holdings. At the moment, the vast majority of our passive income is received in the last month of each quarter (Mar, Jun, Sep, and Dec).
In 2017, over 98% of our passive income occurred in the last month of each quarter. In December 2017 alone, we received nearly 47% of our total passive income for the year.
Related: Balanced Dividends Passive Income Analysis: 2016 vs. 2017
(2) Account Allocation – Tax Efficiency
Due to our objective to increase income from taxable investments, we will be holding this investment outside of retirement accounts. While not the primary driver, I wanted a more tax-efficient asset which would ideally NOT be taxed as ordinary income.
Related: 5 Ways to Balance Account Types To Balance Life’s (Un)known Milestones
(3) Price – Ideally Under $50 Per Share
With relatively small new capital available for purchases, I wanted focus on number of shares (in addition to quality and price). A number of good choices or individual names are priced over $50. But I wanted to establish and/or contribute to reach a position of around 100 shares. There is no reason – this figure just seemed right for us at this moment.
Overall, we had approximately $2,000 extra to invest beyond regular 401(k) contributions. Admittedly, it was difficult to NOT contribute further to our REIT holdings in my Roth IRA due to the recent price adjustments over the last few months. Additionally, our continued investments in Fundrise have also shown good results thus far.
Related: 6-Month Update: Fundrise Passive Income Review
(4) Value – Pragmatic Price to Earnings (P/E) Ratio & Assumed Payouts
I’m mindful of cost or price; however, I don’t mind paying for value. P/E is not the only indicator to utilize, but it’s a helpful guide to consider.
An assumed, realistic expectation of continued dividend distributions in the future is a must though. Increases are nice, but sustainable payouts are key. I didn’t have a particular dividend yield or ratio in mind; I just didn’t want to chase a name with a +10% yield to only later have the dividends get reduced. Or worse – eliminated completely.
Related: 3 Lessons Why “Assumption Is The Mother of All F*ck Ups”
What We Did & Next Steps
We ended up adding to our existing position of AT&T (T) common stock. As of mid-February, it met all four of our respective criteria and investment objectives.
We had acquired an initial position of 40 shares toward the end of 2017; we’re currently sitting with 65 shares. Ideally, we will look to bring it up to an even 100 shares in the coming weeks. All shares are currently held in our taxable account via Robinhood.
Related: Balanced Dividends Apps & Tools
In February, we received $20 in dividends from T. While not groundbreaking, it’s an initial seed that will get a lot of care and attention. We hope to add some new, additional friends in the near future.
Readers, how are you progressing with your 2018 goals? What areas are you focusing on? Any updates to share?
Related:
How We Got To Averaging +$1,000 a Month In Passive Income
Tax Reform & Your PFUI: Applying the 10 Heuristics
Land(less) Landlording: How and Why We Use REITs
FTW! Is it Possible to Invest for Today AND Tomorrow?
Our favorite free financial tool is Personal Capital. We use it to track our net worth, manage our spending & savings, and to monitor our investments. It’s simple and free to use.
hey mike. i just dumped my tmobile shares and swapped them for ROP. TMUS makes plenty of money but doesn’t return any to shareholdhers so i went for div. growth. ROP is predicted to earn 12 bucks a share next year and only pays out 1.65 but that has doubled in the past 5 years, but i don’t think the yield of share price is what you are targeting. i hope that T investment works out for you.
i’ve been looking at PRGO on sale from previous highs but haven’t dove in yet. cheers!
Hey Freddy – thanks for your comments.
I haven’t followed ROP before. When just looking them up, I saw that their headquarters was close to where I just was visiting in Florida. Funny coincidence, I guess. It sounds like an interesting choice based on the criteria you highlighted.
On T-Mobile, we’re actually considering it – but not as an investment at the moment. We might move our mobile plan from Verizon to T-mobile to save some $$ (more capital to potentially invest 🙂 ).
Thanks again for your comments. – Mike
Hey Mike, I like your 4 criteria for buying stocks. I mainly do indexing but when I am buying individual stocks I have the same criteria as it is usually a small investment. I am glad to hear you got some sun in florida.
Hey Steve – thanks for your input. We’re also primarily invested via funds and indexing, but just starting to slowly dip into individual names. – Mike
Hi Mike, Nice post. Having criteria as you have outlined is really important. It helps you cull through the many choices and stay the course when volatility strikes. 2 and 4 are considerations for me as well. Nice buy too. T is one of my larger holdings. Tom
Thanks Tom. We’re considering other criteria, but T is the only individual name we currently hold. Everything else is in funds. And you’re right – the considerations did help guide the decision making process. – Mike
Mike, like your criteria for targeting those individual stocks with common sense return targets. Definitely would come in handy for those who chased Sea Drill in the day. 🙂
Thanks for your comment. I recall Sea Drill a bit, but I’ve also had “fun” trying to chase other individual names for speculative growth opportunities. It usually (read almost always) ended not being “fun”.
Thanks again for reading. – Mike
Hi Mike. Congrats are starting to build up the taxable portfolio. Many in the DGI community have T as an anchor in their portfolios.
I hear you with regard to item #1 on your list. I believe most companies pay out in the 3rd month of each quarter, so you’ll have some work to do to even things out. However, it’s possible, there are just fewer companies to choose from.
Hi Engineering –
Thanks for your comments. We do have other taxable investments, but it is exciting to get out of funds and into single names. I’ve also noticed that T is a popular stock.
Regarding payout frequency, we’ll eventually look back to other names that payout in the last month of a quarter; I just wanted some diversification.
Thanks again for reading. – Mike