On August 1, my Dividend Growth Stock of the Month was Boeing (BA). I like the company on many dimensions, including its market-leading position in commercial aircraft, steady defense business lines, overall quality, and decent yield.
I needed to wait until the cash in my portfolio reached $1,000 from incoming dividends.
That happened a couple of days later.
So on August 3, I purchased Boeing.
Here are the details.
Let’s walk through the data in the table so you can see how this works.
1. Shares purchased. I had enough money to buy 7 shares but not 8. So that is my initial stake in Boeing. I may add more shares as the months and years pass. I have started several positions in the portfolio with initial stakes of about $1000.
2. Price per share. I entered a market order and it was filled at $131.87 per share. When I wrote the article on Boeing, its price was $133.66. So I got lucky, getting the stock at almost $2 less than when I wrote the article.
3. Total cost. I did not spend the full $1000 available. I will simply keep that unused cash in the dividend kitty for the next purchase. I anticipate one more reinvestment in 2016, probably in December.
4. Dividend per share. Boeing’s payment is currently $1.09 per share per quarter. They raised the payment earlier this year from $0.91 per share, which was a 20% increase.
5. Yield. Current yield (also called indicated yield) is figured by annualizing one quarter’s payment and dividing it by the current share price. So the $1.09 per quarter annualizes to $4.36 per year. Divide by the $131.87 that I paid, and you get 0.033, or 3.3%.
Obviously, this calculation of Boeing’s yield assumes that Boeing will continue paying on its established quarterly schedule and that it won’t cut the dividend.
6. Next ex-dividend date. The ex-date is the date by which you must own the stock in order to receive the next dividend, even though the dividend was declared earlier. By buying on August 3 with the ex-div date of August 10, I qualify to receive the next dividend. It had already been declared by Boeing and the dates have been established.
7. Next dividend payment date. Sometimes companies announce dividends well before they pay them. In Boeing’s case, the ex-dividend date is almost a month before the payment is scheduled to be credited to my account on September 2.
8. Next dividend amount. The amount that I will receive is $1.09 per share times the 7 shares that I own, or $7.63.
9. Indicated annual dividend. This is the total I expect to receive in a year if Boeing maintains its dividend rate and payment schedule. So $7.63 per quarter x 4 quarters = $30.52 per year. By making this purchase, I have added that amount to my annual income stream.
10. Subsequent payment schedule. Boeing has been paying dividends for many years, and its payment schedule is well established. There is no reason to anticipate a change.
11. Next dividend increase. Boeing’s increases have generally come with the first payment each year, which in Boeing’s case will be next March.
The purchase of Boeing fits perfectly with the objectives of my Dividend Growth Portfolio. The main goal is to generate an increasing stream of income. Increases come from two sources: (1) Companies increase their dividends; and (2) I reinvest the dividends to buy more shares, which generate their own dividends. It is a self-reinforcing cycle.
The purchase of Boeing is an example of the second source in action. I added $30.52 to my annual dividend stream by purchasing shares with dividends that I had already received from other holdings.
It is important to note that I did that without adding new money from the outside to the account. Rather, I reinvested dividends that have been accumulating in the account from stocks already owned.
Making money on money already made is the definition of compounding.
I know that $30.52 per year does not sound like much, but this is how compounding works. You start with small amounts, keep reinvesting them, and over time they grow to large amounts. I got this process started with Boeing by purchasing shares with dividends that I received from other companies.
And even if I never buy another share of Boeing, compounding will continue as Boeing pays and raises its dividends, which I will use to buy whatever I want.
Again, this cash-generating machine operates without me ever adding another dollar from the outside.
As of the end of June, my annual dividend run-rate in the portfolio was $3,363 (per the account’s June statement). So the purchase of Boeing kicks that up to about $3,394. That’s about a 1% increase. My portfolio’s annual income stream becomes 1% more simply through the reinvestment of dividends already received.
That calculation does not take into account the anticipated increase in Boeing’s dividend next January and further increases down the road. When they increase the dividend, the portfolio’s income will rise by that much more.
When I update my Dividend Growth Portfolio at the end of the month, Boeing will be newly listed as a position, occupying about 1% of the portfolio. The addition brings the total number of stocks to 19, versus an eventual target of 20-25 stocks.
I hope that this purchase is the beginning of a long and profitable relationship as part owner of the premier airliner manufacturer in the world.
As always, do not take what I do as a recommendation for yourself. Always conduct your own due diligence before buying anything.
– Dave Van Knapp
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