Monthly Archives: August 2014

The Perks of Investing in DRIPs

Drip

As a follow-up article to my investment post last week about dividends, today I’d like to talk about Dividend Reinvestment Plans (aka DRIPs).  If you’re unfamiliar with DRIPs, then you are in for a treat because these things are more magical than a rainbow riding unicorn.  A DRIP is a program run by a publicly traded company that you can enroll in if you already own their stock or by buying stock directly from them.  Each time a dividend is given out, that company will automatically purchase more shares (or a fraction of a share) with that dividend money for you.  This is especially useful for someone looking to “buy and hold” their investment.  Over time your investment in a DRIP company will grow exponentially, similar to the effects of compounding interest.  Like I said….magical!  You usually only need one share of stock to participate in the plan, therefore DRIPs are appealing to any level of investor.

Here are the benefits of DRIPs

  • You’re employing the Dollar Cost Averaging method with your stock purchase.  Dollar Cost Averaging means that you’re buying the same stock at different times during a market cycle (sometimes when the share price is low, sometimes when the share price is high) which is less risky than buying all your shares of a certain stock at once when maybe the share price was high and about to go down.
  • Most companies that offer DRIPs allow the purchase and repurchase of shares without charging a commission or fee.  Some even offer the purchase of stock at a discount.
  • In addition to the reinvested dividends, you can also reinvest your own money into the DRIP at regular intervals.  Some DRIPs allow you to reinvest as little as $10 at a time.  Everyone has $10 to spare, right?

DRIPs can be great for someone just starting to build their portfolio, because the longer you can allow your DRIP to grow, the better.  DRIPs can also be an option for parents looking to start a college fund for their children.  Companies such as Johnson & Johnson, Disney, McDonalds, Coca Cola, Exxon, Xerox, IBM, General Mills and 3M all offer DRIPs.   To find out which companies are currently offering DRIPs, check out this online directory.

Photo Credit: Tim Collins

Grocery Picmonkey

Step 1 – Make the List Ahead of Time and Include Meal Plans

When you’re making your weekly list, don’t just list out the staples you always buy at the store.  Make sure you’re being thorough and thinking through what meals you’ll be preparing that week.  Will some meals also stretch to lunch or dinner the next day?  Are you thinking of meals based on items that are in season and therefore cheaper, or based on items you already have at home?

Step 2 – Try to go alone

If you’re the one in your family that makes the list and does the weekly grocery shopping, try to go it alone if you can.  Hands down whenever any of my family members are with me at the store, we end up buying those “extras” that will hurt your food budget.  And you know which ones I’m talking about.  The new cereal to try, the snack foods you want but don’t need, and the ice cream pints and novelties that cost a fortune.  And of course I hate to say no to my husband or kids.  But when I’m alone?  I’m a grocery shopping ninja, whizzing through the aisles saving time and money like a boss.  Ben and Jerry’s is for sissies and pre-cut produce is for amateurs.

Step 3 – Clip Coupons

Coupons are awesome, but remember to only clip ones for items you already buy normally (cleaning products, beauty products, pantry items, snack food, etc.).  Don’t have time to actually clip them?  I’m about to let you in on a miraculous time saving secret that will change your life.  You can go to websites like Lozo, Grocery iQ, and RetailMeNot, enter your grocery list and your zip code and they will find your coupons for you!  Genius!

Step 4 – Shop the Sales

Stocking up on sales is great, especially if you have the freezer and pantry space!   And as long as you’re buying a reasonable amount that you’ll use before it goes bad or decreases in quality, you’ll save a lot of money over the long run.  And since meat and poultry are usually the most expensive ingredients in your meals, this is one of the best things to stock up on it when it’s on sale and freeze it.  But I was surprised to learn how long it will last in the freezer.  For example, did you know that whole chickens stay good up to a year in the freezer and chicken pieces for up to 9 months?  Steaks last around 6-12 months, ground beef and ground poultry for 3-4 months, and most chops for 4-6 months.

Step 5 – Shop Your Pantry

I actually really enjoy this step.  It challenges me to get creative with my weekly menu or it reminds me about recipes that are “old-favorites” that maybe I haven’t made in a while.  You should try this step if you find yourself stocking up on sales items as seen in step 4.  And if you need help coming up with meals based on items you have on hand, supercook.com or allrecipes.com can help you find recipes that use those ingredients.  Do you have too much canned pumpkin and cake mix in your pantry?  Looks like your family is having pumpkin muffins for breakfast this week!  I’m also a big fan of the Pioneer Woman’s Pantry Pasta (along with everything else that woman makes).

Bonus Step – For the Serious Saver…

If you really want to shave some significant cash off your monthly grocery budget, take the “Cash Only Challenge”.  After you finish making your grocery list, calculate how much all those items will cost and only bring that much cash to the grocery store.  Give yourself a little margin for error (especially for produce items that are priced by weight) and bring some extra money.  I don’t want anyone to be embarrassed at the check-out counter and start counting out loose change.  But the physical cash in your wallet will bind you to the list you made and you’ll be forced to stick to it.

Photo Credit: Kate Ter Haar

The Divi-Do’s and Divi-Don’ts of Dividends

Money Stack

Ok ladies, it’s time to put on our big girl pants and start talking about some of the high yields that I named this blog after.  And in this case I’m talking about stocks with high dividend yields.  But before I get to those, let’s dive into some dividend basics and what you should know before investing in dividend stocks.

Dividends are a way for a company to say “thanks” to its shareholders by sharing a portion of their profits with them.  Not all public companies pay dividends.  First and most obviously, you have to be profitable to generate dividends.  Second, companies have the option to reinvest those profits in themselves instead of giving them out to shareholders.  This is commonly seen with companies that are just starting out or looking to expand.  Therefore, dividends are usually paid out by established companies and are a sign that a company is financially stable (such as Exxon Mobile or AT&T).  Dividends are paid most often on a quarterly or yearly basis.

Dividend stocks can be great investment option for people of all ages.  For people in retirement, they can be a form of income due to the steady payments dividends provide.  For young people just starting a portfolio, a dividend paying stock can be a great way to turn a small investment into a big one by reinvesting those dividends into more shares of stock.  It is important to know that dividends are never guaranteed.  But many companies strive to offer consistent, if not increasing, dividends over time so as to not disappoint their shareholders.

The Divi-Do’s

Do know the tax implications for any dividend-paying stock you invest in.  Whatever dividends you receive that year you’ll be taxed on.  The percentage the dividend will be taxed depends on how long you’ve held the stock (aka the holding period).

Do research the company just like you would for any other stock purchase you’d make.  You shouldn’t assume that just because the company pays dividends that they make a solid investment choice for you.

The Divi-Don’ts

Don’t be a Dividend Diva and fill your portfolio with only dividend-paying stocks.  Diversification is critical in offsetting risk with your investments.  Many dividend paying-stocks are concentrated in specific industries.  A diversified portfolio includes stocks in a variety of industries or sectors, as well as other assets such as bonds, cash equivalents and mutual funds.

Don’t assume that just because a stock pays dividends that it is a risk free investment.  The price of the share is susceptible to the same kind of market risk that any other share of stock is.

So back to those high yields.  The dividend yield is calculated as the total of all dividends paid in one year divided by the price per share.  Here is a list of the stocks with the Highest Dividend Yield Percentages.  Now you may not recognize many of those companies.  I didn’t.  So in keeping with the advice of the great Peter Lynch and investing in what we know, I’m also providing a link to the Warren Buffet’s top dividend stock picks.  These stocks have dividend yields around 3% and their names will surely sound more familiar (Coca Cola, General Electric, Proctor and Gamble, etc.).

Photo credit: Miran Rijavec