Monday, September 4, 2017

small dogs of the aristocrats

here's what i'm thinking is a good way for newbie investors to get involved with investing with very little money: 
robinhood + dividend aristocrats 
in particular, i'm thinking that a small-dogs of the aristocrats approach is a safe and smart way to invest. 

firstly, what i mean by dogs is that you list the dividend aristocrats in order of descending yield, so that the highest yielding stocks are listed first. then, you throw away all but the top ten. 

what i mean by the  small-dogs is that you sort the aforementioned list of dogs in ascending order of price. then you set aside the 5 highest-priced dogs. when i do this i get the list: 
hcp, t, ko, tgt, emr
open a robinhood account (you will get a free share of stock, i got znga using the link i provided (ok, i do get a free share of stock for every referral, but that costs you nothing) and fund it ... slowly, which, i think, is as much as many people can manage these days (there is no minimum balance and no low-balance fee.) then, as funds allow, you go down the list buying 1 share at a time. since there are no commissions, there is no cost-basis disadvantage to buying 1 share at a time, so why not? 

start with hcp which currently prices for only $30.14 but yields almost 5%. then move down the list until you have 1 share of each small-dog. then purchase a second share of hcp, rinse and repeat.

this is buy and hold investing but there is no minimum holding period, you can sell whenever you want without penalties, even same-day. basic robinhood accounts do not have margin, so there are no funky day-trading restrictions. 

why this list? because these are low-priced/high yield stocks of companies that have raised dividends every year for at least 25 years. the increase of the dividend is very important because it increases your effective yield and tends to lift prices.  these are stable companies and their yield tends to be stable, so when there is an increase in the dividend the price of the stock tends to lift as well.

what happens if the price goes down? this can happen. it is not a disaster although it will feel like it. just keep buying shares, prices tend to cycle. buying on the down-low will improve your cost-basis and you will feel smart when the price recovers.

what happens if the dividend gets cut? this can happen too. i recommend selling if the dividend gets cut. this is because our premise of ever-increasing dividends has been broken. don't smoke the hopium that the dividend will be restored any time soon. pick another dog (abbv, xom, gpc, ed, cvx) to put into the buy-cycle.