Table of Contents
Welcome back to another month of Dividend Stock Purchases! The last 3 months have been heavy on our investment front. Now the question that the community is wondering – was I able to keep the dividend stock purchase pace up? The journey to financial freedom does not take breaks and one must continue to persevere through uncertainty, put cash to work and push that forward dividend income forward. September was no different, time to dive in!
Dividend stock purchase and dividend income: Path to financial freedom
Investing consistently in Dividend Income Stocks allows you to create & build another income source. Dividend Income is our primary vehicle on the road to Financial Freedom, which you can see through my Dividend Portfolio, which continues to build and build. Further, I have written about every stock purchase and month of dividend income since we started this site, plenty of dividend history for you, the reader!
How do I make dividend stock purchases and screen for dividend stocks? I usually put the stocks through our Dividend Diplomat Stock Screener and trade on Ally Bank’s investment platform (one of our Financial Freedom Products).
Purchasing dividend stocks takes capital or money. How do I build the capital to make these stock purchases? I save anywhere from 60-85% of my take-home pay and strongly believe Financial Freedom does not happen by hitting a home run on an investment. Nothing matters more than your savings rate on your journey to Financial Freedom, plain and simple. Therefore, I work my butt off to make sure expenses remain in check and that my savings rate is meeting our investment and financial independence goals! Then, you rinse and repeat.
Dividend stock purchase activity
My dividend stock portfolio was burnt by dividend cuts and lost over $800+ in forward dividend income. Therefore, I was ready to get back to basics and acquire more shares in the best quality dividend stocks out there.
I was able to make consistent investments for the fourth month in a row. If you recall, I was very quiet on the stock purchases front in the months of April and May. I made the decision to pick up the pace for purchasing dividend stocks on my journey to financial freedom in June! June through August were very consistent, as my wife and I averaged an investment amount of $4,344.96. Was September 2020 dividend stock investments at the same level? Time to see the dividend stock purchases below.
Vanguard High Dividend Yield (NYSEARCA:VYM)
As discussed in the video above, and you’ll see in my stock purchase activity below, I invested quite a bit into a Vanguard Exchange Traded Fund (ETF). In fact, I performed exactly what I stated in our video. I made a weekly purchase of 3 shares into Vanguard’s High Dividend Yield ETF. I had a bonus of 1 share of VYM on 9/21, in addition to the 3 shares. This is due to the price of Vanguard’s VYM flashing signs below $80.
What is Vanguard? They are a registered investment advisor with $6 trillion plus assets under their management. Many companies use Vanguard for their company-sponsored 401(k) plans and many use them for their retirement and/or investment accounts.
Why do so many individuals and businesses love Vanguard? First, they usually have the lowest or near the lowest expense ratios for individuals to choose from. In addition, John Bogle, the legendary founder of Vanguard Group, created the first index fund. The index fund is a tool that millions of people use and love every day.
Vanguard High Dividend Yield has 424 different stocks and 3 of their top 10 holdings are dividend aristocrats, such as Johnson & Johnson (NYSE:JNJ), Procter & Gamble (NYSE:PG) and AT&T (NYSE:T). Yes, that’s 3 of our Top 5 Foundation Dividend Stocks!
This will be different from other dividend stock purchase summary posts and how I breakdown each investment. I usually like to use the Dividend Diplomat Stock Screener and I will do my best to use on the VYM ETF.
- Price to Earnings: Based on Market Watch estimate of a 23.91 price to earnings ratio. The current P/E Ratio of 23.92 is below the S&P 500, which currently stands at 28.5x earnings. Talk about overvaluation in the current stock market!
- Payout Ratio: Remember above, there is an earnings per share of $3.38, due to a P/E of 23.91 with a current share price of $80.93 (Close of 9/30/20). Dividends per year, based on the trailing 12 months is $2.8756. Performing the simple dividend payout ratio calculation of $2.8756/$3.38 equates to 85%. Slightly on the higher side.
- Dividend Growth Rate: Dividend growth rates of over 7%+ over the last 9 of 10 years, with consistent dividend increases, is excellent. There is no wonder why this is considered a high dividend yield fund.
- *Bonus* Dividend Yield: Given the trailing-12 month dividend is $2.8756 and the average share price that I acquired them was $81.47, the dividend yield averaged 3.53%. This is significantly higher than the S&P 500 index and is a dividend yield higher than my overall dividend stock portfolio.
In total, my dividend stock purchases of VYM totaled $1,140.63, acquiring 14 total shares. This added $40.25 in forward dividend income. I will continue this going forward, 3 shares per week. This will allow me to stay invested and have time in the stock market, versus timing the stock market.
General Dynamics (NYSE:GD)
General Dynamics has been on my Dividend Stock Watch List many times before. GD is a dividend aristocrat and is one of the biggest companies in the aerospace and defense industries. One of the other competitors, which I also own, is Lockheed Martin (NYSE:LMT).
Of course, I run General Dynamics through the Dividend Diplomat Stock Screener each and every time I buy them. This is how GD stacked up within the stock screener:
- Price to Earnings: 22 analysts are projecting $12.01 for FY 2021 earnings. Therefore, based on a weighted average purchase price of $141.625, the price to earnings on 2021 projection is 11.79. This is significantly below the S&P 500, currently, as well as other competitors. See the analyst projections below.
- Dividend Payout Ratio: At a dividend per year of $4.40 and earnings projections stated above for 2021 at $12.01, the dividend payout ratio is close to being perfect. We love the dividend payout ratio in the 40-60%, which we consider the perfect payout ratio sweet spot. General Dynamics’ dividend payout ratio is 37%. This shows that GD likes to pay out almost 2/3 of their earnings back in the business, but also returns to their shareholders.
- Dividend Growth: This dividend aristocrat continues to increase their dividend, year after year, after. How does General Dynamics do it? Winning massive contracts consistently, of course. In fact, GD earned a $1.2 billion contract to build air defense systems for the arm, see this snip from a Defense industry publication:Their dividend increase is strong this year at almost 8%, just a tad below their 5-year dividend growth rate of 10.11%. A dividend stock, increasing the dividend during a global pandemic is music to an investor’s ears. Many companies cut their dividend or suspended it for a few quarters, but it shows signs of confidence when GD increased their dividend.
Overall, I purchased 4 shares of General Dynamics at an average price of $141.625 for a total capital deployment of $566.50. This added $17.60 to my forward dividend income projection.
In total, I now own ~31+ shares of this dividend aristocrat. My dividend stock position with General Dynamics now pays me $138 in dividends per year. From a dividend reinvestment standpoint, I stand to add 1 share of GD during the year! I may have room for 1 more share at the current price levels under $140.
Orrstown Financial (NASDAQ:ORRF)
Orrstown Financial – a name you more than likely never heard of. In fact, they are an extremely small community bank in the Pennsylvania and Maryland areas and they are less than $5 billion in total assets. If you recall, my prior life was an external auditor, auditing financial institutions just like this community bank, in the asset ranges of $100 million to $10 billion.
Orrstown is another community bank helping others through the pandemic. Receiving their stimulus and unemployment deposits, as well as lending through the SBA Administration on the Paycheck Protection Program or PPP, for short.
You are probably asking yourself – why in the world did I purchase such a small community bank? Well, let’s analyze them through the Dividend Diplomat Stock Screener and we’ll also add in the price to book value ratio, a common metric for banks.
- Price to Earnings: Orrstown earned $0.58 in Q2 and they have earned $1.04 YTD in 2020. To be conservative, let’s anticipate that earnings are $2.00 per share now and/or going forward for 2021. The average share price I acquired Orrstown was at $13.60. Therefore, the P/E ratio stood at 6.80, significantly low. In addition – the price to book value ratio (Share price/net equity per share) = 0.68, which is unreal to be at or below 1x. They are trading at a discount to their balance sheet, currently.
- Dividend Payout Ratio: Now that the expectation of $2.00 in earnings has been set, Orrstown pays an annual dividend of $0.68 per share. This equates to an insanely low dividend payout ratio for a bank at 34%! Definitely shows great signs of safety and room for increases.
- Dividend Growth: Now, Orrstown was going through a few issues in the early-to-mid 2010 due to management problems. However, they were able to get the OK from regulators and reinstated the dividend in 2015. They are now going on 6 years of increasing dividends, as even in the year of dividend reinstatement – they increased it as well! The best part, the 5-year average dividend growth rate is a blistering 40%+! However, I anticipate upper single-digits to low double-digit growth for the next few years.
Overall, I purchased 37 shares of Orrstown Financial Services at an average price of $13.60 for a total capital deployment of $503. This added $25.16 to my forward dividend income projection.
Dividend stock Purchase Summary (Plus the ~$500 and Less)
Now that most of us here in the U.S. have the ability to trade, my stock purchases can be smaller than usual. The brokerages really have paved the way to make it “easier” or at least, less costly, for investors. Thank you Robinhood, Charles Schwab, E-Trade, you name it! I easily have saved hundreds of dollars this year alone in trading fees.
Given that, I don’t want to dive into so much detail on smaller purchases. Therefore, the remaining dividend stock purchases will be reflected in a screenshot below. The screen is directly from the brokerage that I use – Ally Investing.
Here are the screenshots from my September Dividend Stock purchases!
Sales for the month: No sales for the month.
One new position was in fact added to my dividend portfolio. Orrstown, which was discussed heavily above. However, you may have noticed another two unique names I have added to my current positions. First, Diageo (NYSE:DEO), the liquor, beer and spirits giant, has shown slight signs of undervaluation and my position with them was and still is small. However, I added ~$259 in investment, acquiring 2 shares. In addition, I added 2 shares in CVS (NYSE:CVS), due to the share price plunging below $60. I believe the combination of them + Aetna will be a powerful combination and dividend increases will resume (2021, maybe?).
In addition, due to the global pandemic, it’s definitely easier to buy dividend aristocrats, especially those stocks that are set to do very well during this time period. In the video, showcased below, we talk about insurance and banking industries to persevere through COVID-19. Given the dividend stock purchases of Aflac (NYSE:AFL) and Cisco (NASDAQ:CSCO), that you see above, I picked up stocks to buy in the post-pandemic world!
In total, I deployed a total amount of $2,961.49 and added $112.82 to our forward dividend income, equating to an average dividend yield of 3.81%.
My Wife’s Dividend Stock Purchase summary
My wife has accounts where we also make dividend stock purchases. Though we are married, we are still running two separate, individual, taxable accounts. All is good, especially because we use the same platform, but just haven’t wanted to deal with the administrative tasks of combining. In actuality, I don’t think it’s even possible to combine on the retirement-based accounts.
Over the last few months, we definitely started to add more capital to my wife’s dividend investing account. The dividend income added from Dividend Aristocrats, including one of our TOP 5 Foundation Dividend Stocks for YOUR Portfolio, are in the mix. As stated earlier, we are also acquiring 3 shares of VYM per week, to stay invested in the market.
We purchased 3 shares of Johnson & Johnson (JNJ), good old reliable! Yes, they are one of our Top 5 Foundation Dividend Stocks, no doubt about it.
Further, We picked up more shares in dividend aristocrats! Those dividend aristocrats are Cardinal Health (NYSE:CAH) and Walgreens (NASDAQ:WBA), to continue to average down positions. In addition, I love water companies, as they supply one of the most finite resources – water. Therefore, we picked up one share of Essential Utilities (NYSE:WTRG).
My wife’s portfolio is typically full of safe and sound dividend investments and since we’ve been together, her portfolio has been blossoming into an extremely significant part of our family’s finances.
In total, $1,926.25 was put into investments, producing $73.90 in Dividend Income going forward. This is an average dividend yield of 3.83%.
Summary and Conclusion
September maintained the momentum from the last 3 months and we finished the quarter strong. We plan on keeping the strategy of investing into Vanguard, each week, 3 shares at a minimum. The stock market at all-time highs will make things a little more difficult/interesting here. Combined, my wife and I invested $4,887.74 for September and added $186.72 to our forward dividend income total (3.82% yield overall)!
I will maintain my main message. Stick to the strategy that works for you, but review if there is anything that may impact your strategy going forward. You are in control and the emotion button is hard to turn off. Persevere and stay consistent, if you are able to. Time to lock in and stay ready for further opportunities. This was one step closer to financial freedom and I hope to continue making strides. Lastly, my dividend portfolio has been updated to reflect all dividend stock purchases above (outside of my wife’s).
I am continually looking at my October Dividend Stock Watch List and always keeping an eye on the stocks on Bert’s expected dividend increases that he will release later this month. It is all about the road to financial freedom and I cannot wait to have that crossover point. That crossover point where the passive income, from dividends, overcomes the total expenses in a given month.
I know I’ve said it many times, but each and every month, we do make inches towards the financial freedom goal. We will get there and we are very excited you have joined us on the journey.
Thank you for stopping by, good luck and happy investing out there!
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.