January’s Dividend Income & How The Subprime Mess Has Affected Me.
I’ve been traveling for the past month so this post is a little late. I had already posted my online income which was $778. I finally got a chance to add up my monthly dividend income from my stocks, Canroys, CDs and savings accounts.
The grand total for January was $764.10 from a dozen different stocks. Its lower than it was for December because some of my stocks pay out quarterly dividends. But overall, the amount of dividends is trending up due to the Dividend Reinvestment Program (DRIP).
A DRIP allows you to re-invest your dividends back into the stock. You don’t have to pay a brokerage fee for this, so if you don’t need the income its a good way to put your make back to work. Not only that, but many companies will actually give a discounted share price on stock purchases made through DRIPs.
If the company doesn’t have a DRIP, your brokerage company should be able to set up automatic dividend re-investment for you. Unless you’re getting a few thousand dollars a month in dividends, this is a cheap way to reinvest your money. According to Prof. Jeremy Seigel’s excellent book The Future for Investors, you should avoid trendy growth stocks in favor of stable companies with sustainable cashflows which is returned in the form of dividends. Using historic data, he also proves that the reinvestment of such dividends is the true source of superior stock returns.
, you should avoid trendy growth stocks in favor of stable companies with sustainable cashflows which is returned in the form of dividends. Using historic data, he also proves that the reinvestment of such dividends is the true source of superior stock returns.Added in this $764.10 is the $31 in interest payments that I received from my Prosper loans. In addition to the $31, I also received another $158 in principle repayments.
I was also receiving about $300/month from investments in various commercial real estate projects that were diversified by being in different projects in various states. Unfortunately, I’ve been informed that the funding for commercial lending has taken a severe hit and the developers are unable to refinance to cash me out. This means, that my money is going to be tied up for a while. I’ll get more info when I get back, but I caution everyone against lending money for any sort of real estate projects. This also includes borrowers on Prosper who are lending for real estate investments or related projects. I was hoping to put this money to good use to buy more Canroys, some of which are yielding 15% right now. Thats not likely to happen soon. 
I had stayed away from investing in trust deeds on residential properties thinking that they would have a higher likely of default. But in the past few months we’ve seen that subprime mess has caused the market to lose faith in the credit rating system. This has caused lending for everything to dry up, including municipal bonds, which has prompted Buffett to offer to buy these AAA rated bonds at a discount and thus “rescue” the borrowers. Unfortunately, its also negatively impacted commercial developers.
Hopefully I can get my principle back from the developers. If not, my loan will convert to an equity stake in the project and it’ll probably be a long time until I get cashed out. Let’s see how this pans out.
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February 20th, 2008 at 2:41 am
At last, a post pointing out the value of dividends/income in a time of falling share prices!
I don’t mean on your blog, I mean on the finance blogosphere.
I’ve spent the past hour reading people across the Net talking about how they’re net worth has fallen. But if you’re buying income, falling prices just mean you get more for your money, right?
February 20th, 2008 at 10:02 am
Thank you Nirav for this idea (DRIP). I’m still learning from you a lot! Just enroled in the program (I have PGH and AAV).
February 20th, 2008 at 5:26 pm
I agree, it appears to be a good time to pick up some Canroys. I like HTE, it has an incredible dividend and the recent price appreciation is icing on the cake.