In my Dividend Growth Portfolio (DGP), I reinvest dividends once per month, in the middle of the month.
Between reinvestments, I let my dividends accumulate in cash to fund my next monthly purchase. The amount varies each month, but it is usually in the $500 range.
Last month, in May, I started a position in Merck (MRK), the pharmaceutical giant. I bought two shares, making Merck my newest and smallest position.
This month, I decided to build that position. Dividends had accumulated to $497. So on Wednesday, June 16, shortly after the market opened, I entered an order for 6 shares of MRK.
Merck was my High-Quality Dividend Growth Stock for May (see it HERE). It has a lot to recommend it for a dividend growth investor such as myself.
Here is the company in a nutshell. Note the “perfect” quality score and steep price discount.
Merck’s price has been moving basically sideways since early 2020. That’s OK with me. As I said when I purchased it last month:
Long-term, I want Merck’s price to rise along with its earnings. Short-term, I’d be happy to see it remain “dead money” for a while longer.
That puts me in league with Warren Buffett:
The logic is simple: If you are going to be a net buyer of stocks in the future, … you are hurt when stocks rise. You benefit when stocks swoon.
As I’ve stated repeatedly, finding a high-quality stock with rising earnings and a flat price is one of my favorite scenarios for establishing a long-term position.
Here’s the summary of the purchase.
Impact on My Portfolio
Here is how my total Merck position will appear in my portfolio table when I update it at the end of the month. New information is highlighted in yellow.
Focusing on the portfolio’s income, here’s the impact of adding the six additional Merck shares:
The additional shares of Merck will add $16 to the portfolio’s annual dividend flow, or about 0.3%.
And here is my monthly lecture about dividend reinvesting: I know that $16 sounds small, but if I make 12 such reinvestments per year, that amounts to more than a 3% increase in income without doing a thing other than reinvesting the dividends.
That is compounding in action.
And don’t forget, the increase from reinvesting dividends is layered on top of the increases from the companies themselves. Merck already increased its dividend for 2021, by 6.6% in January.
These purchases are examples of opportunistically investing in excellent companies at attractive prices when you have the money to invest. It is always great to find a high-quality company that fits my investing goals and is available on sale.
That’s generally how I invest. I keep surveying the landscape for companies that fit my needs and are well-valued, and I grab them when I have dividends to reinvest.
I don’t care what order I buy stocks in. Over time, “chasing” quality and value wherever you find them results in a diversified portfolio.
Here is my reinvestment program so far this year. You can see that I’ve been spreading the money around.
After the purchases, I have $35 in cash remaining in the kitty. That rolls over to July for next month’s reinvestment.
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— Dave Van Knapp
Source: DividendsAndIncome.comWe’re Putting $2,000 / Month into These Stocks
The goal? To build a reliable, growing income stream by making regular investments in high-quality dividend-paying companies. Click here to access our Income Builder Portfolio and see what we’re buying this month.