I’m excited for this one. I actually decided to release it a day early due to a related post in our community. After several months of researching, monitoring, and debating, we’ve finally pulled the trigger over the last week to get our second individual dividend-paying security.
After establishing a 500 share position in AT&T(T) (and creating a current annual income of $1000 for us), I decided it was time to have our Dividends Diversify a little and not have all our single-name exposure in a single holding.
Background
Dividend Diplomats know it’s important to be patient and to consider appropriate criteria for a security within one’s respective portfolio. Each holding should serve a specific purpose, but also be part of a larger picture.
Engineering Dividends can be done – it’s just important to realize that it takes Time In The Market to make progress. Overall, for us, dividends play an important part of our Winning Personal Finance plan. And despite being a Damn Millennial, this stuff is very important to me.
For our most recent purchase, we considered the following aspects (among others):
- (1) Distribution Frequency
- (2) Account Allocation
- (3) Price
- (4) Value
While the above might not be the only Four Pillar Freedom items to consider, they’re an important part for our Dividend Portfolio. Enabling dividend growth and sustainability helps in our Passive Income Pursuit, as well as to Think, Save, Retire for the future.
Here is a further review of each criteria applied toward our new holding.
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.
Our newest addition currently pays out dividends in the second month of each quarter (Feb, May, Aug, and Nov).
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.
We almost considered a monthly payer, and there are many good candidates. But considering the asset would be held in a taxable account, we opted to stick with adding a quarterly paying name.
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.
Earlier in the year for T, 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 several months. Additionally, our continued investments in Fundrise have also shown good results thus far.
For our new holding though, our entry point did NOT meet this criteria. Again, this is not a show stopper – especially at what I still consider an attractive entry point.
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.
T also met this criteria for us. And I’m excited for what potential events result from the recently announced merger. But our new holding also has greater additional growth potential.
Related: 3 Lessons Why “Assumption Is The Mother of All F*ck Ups”
What We Did & Next Steps
We ended up acquiring an initial 20 shares of Abbvie (ABBV) common stock via two purchases for an average cost of 94.92 per share. As of mid-July, it met the majority of our respective criteria and investment objectives.
Ideally, we will look to add to our position in the coming weeks or months. All shares are currently held in our taxable account via Robinhood.
Wrapping It Up
I’m satisfied with our initial position in ABBV right now. We’ll continue to monitor going forward. Overall, I do intend to hold onto our shares of ABBV for quite a long time, as well as add to our position with new capital. We might also DRIP income from T into ABBV, but we shall see.
Readers, do you have any recent updates? What areas have you been focusing on? What do you think of this purchase?
Related:
Balanced Dividends (Shopping) Update: T and Me (Part 2)
Balanced Dividends Shopping: 4 Considerations for February
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i’ve got 30 shares of abbv. analysts are predicting eps next year of almost 9 bucks and they’re paying out 2.63 and that’s after a big dividend hike this spring. the dividend has more than doubled the past 5 years and they appear to take care of shareholders. we turned off DRIP a few months ago to deploy those dollars more strategically too. well done.
Nice position, Freddy. Thanks for your input. I like that you’re open to DRIPing to feed other positions. We’ll potentially do the same as our single name holdings grow. – Mike
Mike, Great minds think a like, I added to Abbvie this week at $94.50 a share. Nice 4% dividend yield. The dividend growth won’t likely be as dramatic as the recent past, but that’s okay. Let’s hope we look back in a few years and we are discussing our profits from this very fine company. Tom
Haha, thanks Tom. I seriously almost fell out of my chair when I read your post. That’s like the third or fourth time where we’re writing on the same thing at almost the same time.
I do hope it will be a good long-term purchase. Your entry point mentioned in your article would be great. And agreed on the dividend growth – it likely won’t be nearly as strong like the last several months. – Mike
Great stuff and loved the wordplay. 🙂
I recently opened an position as well this company and expanded within a month. Currently holding 18 shares which I hope to increase in the future.
Thank you!
Glad to see others identifying ABBV as a potential buy around this price. It took a bit of a downward move today, but it’s just that – one day. – Mike
I really like ABBV, if I had some room in my large cap allocation, I’d probably pick some up right now.
Thanks for the callout and I enjoyed the wordplay! This is definitely a great community where everyone is super nice, welcoming and best of all supportive. It’s awesome to see everyone doing well and growing in a multitude of ways.
I think my first post got lost somehow!
I really like ABBV at this price and would pick up more if my large cap position wasn’t already overweight.
Thanks for the call out and good wordplay! This community is great to be a part of since everyone is so welcoming and best of all supportive. It’s great to see so many people grow in more ways than one.
No worries, Time! Thanks for the feedback and for your continued contributions as well.
Looking over the last couple of days, ABBV has dipped a but further, so we’ll likely add to our position soon. I hear you though on your respective holding – it can be tempting to continue to load up but I think it’s good you’re considering your overall portfolio weighting. -Mike
Thanks for the shout out!
Have you considered buying these individual names in your Roth IRA? Tax efficiency will help your overall portfolio grow faster in the long term. I understand wanting it in the taxable account though if you will be living off of it.
No worries!
I did consider holding in my Roth. But we’re looking to access the funds / income prior to then. If we do buy some type of monthly payers, we’d likely hold in a Roth due to the tax implications for us. – Miks
Nice post, Mike. Loved how you incorporated all the site names in the Background section… including mine. Thanks!
Glad to see stock #2 has made its way into your portfolio. I think you’ve made a solid selection. ABBV offers growth and yield that’s hard to find. I think the future you will be very happy with this purchase.
Thank you! And I’m glad you enjoyed it 🙂 .
I’m hoping ABBV will be a bit of a growth candidate as well. I don’t think we’ll see nearly as large of a dividend increase in the near future as earlier this year. But hopefully the overall price will continue to see decent long-term growth. – Mike