Many people who invest primarily for income are doing so with an eye toward building wealth for retirement. And people who are investing for retirement often blindly hand their money over to a financial advisor. Well, there’s a way to invest for income and avoid paying the high costs that come with paying a financial advisor: do it yourself (DIY)! By becoming a DIY income investor, you not only save money but free yourself to make your own choices in building an income-generating portfolio.
Investing on your own, for income or otherwise, can seem daunting, particularly if you’ve never done it before. But by simplifying your approach, you can make DIY investing manageable, and even fun!
With that in mind, here are four tips for the DIY income investor:
DIY Income Investor Tip #1: Invest in High Yield Blue Chip Stocks
Many investors who want yield without (too much) risk have successfully found it using high dividend blue chip stocks. Telecoms AT&T (T) and Verizon (VZ), for example, both yield over 5%, but also trade at a beta of less than 1 (meaning they’re less volatile than the overall market). Utilities are some of the highest paying dividend stocks, but most are very low risk. Southern Company (SO), the electric utility for much of the Southeastern U.S., yields 4.9% and trades at a beta of 0.06.
Cabot Dividend Investor solves the biggest problem investors face—generating enough income to meet your retirement income needs in this low-interest environment (with tons of market risk) without selling your investments to make ends meet.
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Some non-cyclical consumer stocks also offer consistency and high dividends. Philip Morris International’s (PM) high quarterly dividend of $1.04 yields 3.5% at current prices, and the stock almost never pulls back more than 15%, even during the market’s worst corrections (the benefit of selling a highly addictive product.)
The highest paying dividend stocks don’t always have to be high risk. By investing in familiar names like the ones above, you can get high yields without having to sacrifice the potential for strong returns.
DIY Income Investor Tip #2: Invest in Dividend Aristocrats
Dividend Aristocrats are companies that have increased their dividends at least once per year, every year, for no fewer than 25 straight years. Thus, when you invest in a Dividend Aristocrat, you can count on receiving a quarterly dividend payment that increases with every passing year. There are currently 51 such stocks in the S&P 500.
And Dividend Aristocrats don’t just pay more reliable dividends than their peers—they also have higher average yields and outperform their peers over time. The average yield of a Dividend Aristocrat is 2.2%, higher than the 1.9% yield for the average stock in the S&P 500. Share price appreciation for Dividend Aristocrats is also better than average, outpacing the S&P over the last three-, five-, and 10-year periods.
DIY Income Investor Tip #3: Use an Ex-Dividend Date Calendar
As a DIY income investor with a portfolio full of dividend-paying stocks, it can be tough to keep track of when your next dividend payment might arrive. If you’re retired and relying on that income to live on, it makes sense to spread those dividend payments out. That’s where an ex-dividend date calendar can come in handy.
An ex-dividend calendar tells you the date that each stock in your portfolio (or stocks you’re considering buying) will pay its dividend, as well as when the stock trades ex-dividend. The Ex-Dividend Date is the first day the stock trades without its dividend, thus ex-dividend. The ex-dividend date is the date by which you have to own the stock to get the payment. That means you have to buy before the end of the day before the ex-dividend date to get the next dividend.
The day before the ex-dividend date is really the all-important date for investors to know.
So if a stock’s ex-dividend date is July 10, only those who own it on July 9 will receive the dividend.
The key is finding stocks with ex-dividend dates in different months. That way you can have a portfolio in which you have at least one dividend payment in all 12 months, so that you always have a steady stream of dividend income.
DIY Income Investor Tip #4: Subscribe to Cabot Dividend Investor!
Just because you decide to income invest on your own doesn’t mean you couldn’t use a little help. If you want some advice along the way without having to pay regular fees, I highly recommend subscribing to our Cabot Dividend Investor advisory.
Run by dividend expert Chloe Lutts Jensen, Cabot Dividend Investor features a portfolio full of income-generating stocks, preferred stocks, REITs, MLPs, closed end funds and utilities, while emphasizing risk, dividend safety and growth. Chloe’s portfolio currently includes 10 double-digit winners, with an average yield of 3.1%.
Chloe also offers plenty of education along the way to help her subscribers become better income investors.
If that sounds like something you’d be interested in, click here.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!