Stock Purchases

Last week, I wrote about the way I’ve earned money in pajamas with my first dividend in my passive income account. Passive income comes in whether I’m working or not. While I only earned $0.64 on my first earnings report, I’ve continued purchasing stock in some pretty strong companies the past week. I’ve been buying stocks through a Loyal3 account before this week.  I intend to continue buying the companies that Loyal3 services through their platform because of the fee-free structure. However, the biggest weakness with this broker is the fact that purchases are limited to the 65 companies that Loyal3 works with.

To broaden my horizons and purchase stocks that are not offered by Loyal3, I decided to open up an account with TradeKing, which is a low-cost online broker that allows users to make straight-up stock purchases for $4.95. They also offer options, but I am not comfortable utilizing this service at this point. Many passive income bloggers advocate saving up around a grand to minimize the cost. This is a good idea, but I had just $500 to invest after cashing in some US savings bonds that were purchased for me more than 20 years ago.  If I were to throw all of the funds that I had available at one stock on Loyal3 or on TradeKing, that would have put all of the money at risk if the one company I bought into were to go belly-up. I try to invest in solid companies with solid earnings and solid track records, but changes in the market can lead to crazy things like Bear Stearns becoming a non-entity in really short order.  I wanted to diversify quickly to cut down on the risk that comes from having all of one’s eggs in a single basket.

I threw between $150 and $200 into all of my Loyal3 holdings, with the exception of my latest purchase in Kellogg, which I am hoping to build to that level. I wanted to move into three different sectors of the economy that I had no exposure to. I wanted the companies to have a strong history of paying dividends. I also wanted to see that I was able to get stocks at a relatively good price after the recent drop in the market. The price/earnings ratio of each of these stocks is attractive based upon the broader market and based upon their own P/E ratio from earlier this year.

Oil and energy stocks have been hit hard in recent months as the Saudi government has been trying to squeeze American suppliers out of the market. I went back and forth between a purchase of Exxon-Mobil and Royal Dutch Shell. I decided to go with the latter. Shell (RDS.B) has not cut a dividend since World War II, and this includes all sorts of market conditions. With my $4.95 brokerage fee, I bought 3 shares at a total cost of $156.72, or just over $52 per share. The current annual dividend is $3.76 per share. I do not expect this to increase this year because of the market conditions in the energy sector. However, I also expect oil prices to rebound in the coming year or so.

via Wikimedia Commons, Ralf Roletschek, CC BY 3.0
via Wikimedia Commons, Ralf Roletschek, CC BY 3.0

My second purchase was in the financial sector. I decided to go with a Canadian Bank that started paying out dividends more than 25 years before the US Civil War started. The Bank of Nova Scotia has been paying investors since 1833, and they just announced an increase of their dividend to $0.70 in Canadian dollars per quarter. From what I’ve been reading, Canadian banks are more conservative than American banks because of regulatory requirements. Despite this conservative bent, the banks are quite profitable, and the “Big Six” Canadian Banks (a group that includes BNS) controls about 90 percent of the banking industry in our northern neighbor. BNS held their dividend steady during the 2007-2009 financial crisis, but they’ve been steadily increasing their payments to shareholders in the years since. I was able to purchase 3 shares, and with my brokerage fee, the total cost was $140.31. My 3 shares should bring approximately $2.19 per share in terms of the dividend payout, although this is subject to vary with fluctuations in the currency exchange rate.

My final purchase was an American telecom giant. AT &T (T) has been increasing dividends each year for more than three decades. They just purchased DirecTV, and along with Verizon, they are definitely a leader in the telecommunications industry. I went back and forth between VZ and T, and finally decided upon T. I purchased 5 shares of T, and these shares set me back $171.35. The annual dividend that AT & T pays out is currently $1.88 per share.

These three purchases give me international diversification in three solid companies from three different countries (four if you count the Anglo-Dutch nature of RDS.B). These companies have a strong history of rewarding their shareholders. They also gave me exposure to three different sectors of the economy. I chose to enroll in dividend reinvestment in each. Although my dividends will be small in the short term, each payment will go toward buying additional shares of these stocks. These partial shares will pay dividends as well, which will supercharge the rate of compounding. I don’t expect Shell to yield more than 7 percent for long, but in the short term, that should help me build my position a bit quicker than usual.

Combined, at the current payout rate, I should earn approximately $27.25 in additional dividends over the next year. This brings my annual total for expected passive income from dividends to $46.27, which is just under $4 per month. This is obviously well below my budget, but I plan to put additional capital to work and anticipate these companies increasing their dividends over time. I figure that I’ll need to supplement my retirement accounts and Social Security, and passive monthly income from dividends will be a great way to do just that. I now have positions in eight different companies, and I hope to build upon this in the future.

DISCLAIMER: I am not a licensed professional advisor, and the information on this site is merely for informational and educational purchases. Make sure to consult a professional before investing in securities, as you can lose money. 

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