Lanny’s Automatic Dividend Investment Strategy

That’s right I am back at it again folks!  Just when you thought that everything can be strategized and plotted out on a map, until you come to this site and realize – you can go deeper, simpler, easier and automatic.  I am trying to make this investing journey an automated process as much as possible, as then you can allow yourself to focus on going forward, the everyday variables, planning further with the future and enjoying more of the moment now.

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new strategy

A new profound strategy in my mind had begun years ago, Bert and I would always yell at each other to just buy a stock if it fits our Dividend Diplomat stock screener.  But, for more than likely 50% of the time, we wouldn’t pull the trigger and instead, cash would sit, earning 0.75% interest.  Then, I fully automated my paycheck into retirement accounts – the 401(k) and the H.S.A.  Full-on automation, it felt incredible.  However, I wanted more of that in my dividend stock investing life.  Heck, how am I supposed to hit these goals that I’ve set for 2017 as it relates to forward dividend income?!   I will call this my Automated-Dividend-Strategy.  With the Automated-Dividend-Strategy in play, one can enjoy the many benefits and also trump the many factors that keep us from being consistently in the market and upset when we don’t make a purchase, the cold-feet-investing syndrome (haha).  Here, I will describe it based on the facets that it overcomes and why it makes sense.  In a nut shell, this is picking a company that fits your screener, and buying them until either you have the position you want or the metrics change.  Here is a deeper look into the strategy:

Research To Set & Forget

Similarly how I said if you max out the IRA for 10 years, that you can set it and forget it, this strategy is similar.  You perform the research on a stock you like, such as one of my Stocks to Look Forward to in 2017, and once you know what price range you’d pay, you can set that stock as the one you want to build a position in.  For example – in that list, I love Johnson & Johnson (JNJ) and if I thought they were fairly valued anywhere under $113.00 per share, as their P/E is less than 16 (and stays less than 16), with the yield I am looking for – then I should continue to make automatic investments into them on a consistent basis until I have the right amount I’d like!  Don’t have $10K coming in every week?  I sure as heck don’t.  But what you can do is – have your brokerage set to perform a trade every time $1,000 enters your brokerage (very easy to set up through your auto-pay at your employer), to trigger the purchase of the stock you’d like to buy.  Of course, you have to be aware if price movements sky rocket or change by a few %, to ensure you switch the plan off, in order to stock pile your fresh capital!  Every dollar counts, always remember that, so big price swings can make a difference.  Also, I have found that notification alerts on stock price movements come in handy when monitoring a few stocks – I’m lucky that I can set those up and I suggest taking a look at it : )

“Sharebuilding” or Asset Building

An example of how to set up this strategy, can be from one of my latest purchases, which I sadly did not end up employing because I’m an idiot (I should have had this “on” for Procter & Gamble (PG)!); is the asset building automated plan.  Luckily my brokerage account is with the former “shareuilder” and it is in fact called the “sharebuilder plan”.  What is even funnier – the trading fees, as it is criteria oriented with how you can trade, is $3.95 vs. the other trades of $6.95.  Therefore, if this is turned on and the cash is in the account, it will trigger the stock on the most-up-coming Tuesday at the market order.  There’s nothing better sometimes then checking at lunch and seeing more shares of a high profitable company in your account that is now giving your more dividends.  So this is two fault – it is the plan that is set up for automatic purchases, as well as lower fees.  Not too bad.

Emotions

This strategy takes out the pure emotion that we have when we are making decisions with our… money.  Yes, so much emotion is tied to the usage of our money it is crazy.  For good reason, I believe, as we worked hard for it and have given up part of our time (most of us) to receive it.  Therefore, I could see why there is an emotional bond to it.  It gets even more emotional when you have potential bills coming up.  However, hopefully you have planned for this and/or have an emergency fund set for it (however, I keep my cash scarcely low!).  Therefore, if all of that is taken care of, one should consider my strategy above, as you remove the emotion and it automatically makes the purchase for you, without thinking about it.  Boom, more stock and more dividends from a strong fundamentally sound company.  Not a bad idea right?  Freedom is that much funnier when it is being taken care of partly behind the scenes, isn’t it?

Not an all or nothing strategy

What’s even better about this – is that you don’t have to throw the boat on an investment.  Like an at-bat in baseball, this can allow you to swing a few more times as well; so you can do $750-$1,000 at a time, consistently, at a lower trading cost (in my case).  Therefore, if the stock of, let’s say Target (TGT) was at a price point you liked – $70 per share and you bought some at $750; but then it gets lower – you now have a better chance of having more capital to buy again if it drops, in this case it’s at $63 and change, so you can buy it again, automatically and lower your cost on average.  Remember, I never try to predict the stock market and the direction it’s going!

 strategy conclusion

That will be the strategy of 2017.  I want to automate more of the actual “Action” and still maintain or increase my research.  As long as a stock is undervalued – why the heck not?  If something in life comes up, then you can switch this off and use your capital elsewhere, where needed.  What’s nice about this – is you can now focus on today, tomorrow and the next day without wondering if you’ll make any time for making a stock purchase or worrying that you’ll miss buying one of your watchlist stocks.  What’s unique, in my situation, is the lower fee cost, as I am not sure I’d do a lot of this at a higher trading cost; as 10 trades at $6.95 = $69.50 and 10 trades at $3.95 is $39.50; quite a bit of difference if you ask me.

However, it’s all relative in this game – as think about the pure act of what we are doing – we are saving money and buying assets that produce cash flow – we are doing something right in the fortunate situation that we are in.  What do you think of this situation?  Am I too crazy in the head trying to reduce the emotion and time it takes to invest?  Am I trying to simplify things in a “too simple” fashion?  Do you also have a unique characteristic to your brokerage where you can reduce your fees in a plan such as this?  I would love to hear your thoughts related to the topic!  Thanks again everyone, best of luck and happy investing!  Talk soon.

-Lanny

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30 thoughts on “Lanny’s Automatic Dividend Investment Strategy

  1. Hey Lanny,

    Interesting article on how you’re going to approach reinvestment of portfolio cashflow in 2017. Like it????

    I make use of my broker’s Portfolio Builder program to reinvest dividends and bond income. This arrangement allows for inexpensive trading once a month at £1.50 per trade. I find it a useful and inexpensive way to build my personal portfolio through time and put portfolio cashflow to work.

    Best,

    • Neal –

      Nice.. at $1.50 per trade that’s pretty damn amazing. Do you pay any other fees? Would love it if a brokerage offered what sharebuilder/C-One has with DRIP, partial shares, etc.. for that low of a price. Hold on to that place.

      -Lanny

  2. Automation is such a time saver and I love how there are so many restrictions you can put on this. Something I will definitely be looking into for my taxable accounts. As you probably know, employing a macro into a spreadsheet can save you HOURS of work so why not do it with investing too right?
    Looking forward to seeing your results man.

    • Stefan –

      Appreciate the comment always. Automation has to be one of the great things technology has enabled us to do. You have many restrictions and all you have to do is verify where price points/valuations are at, as well as capital. Agreed – having a built in macro function to update your portfolio to reflect those metrics is key, as that saves boatloads of time. Appreciate it Stefan, talk soon.

      -Lanny

      P.S. – in the two instances where I’ve employed this on dividend aristocrat stocks this year, it has worked favorably thus far.

  3. Interesting articles on your strategy. Automation is one of the easiest way to make sure you invest your money. You are right to cut the emotion out of investing. Invesment bring a lot of emotion and they should not be in the equation when you decide how to invest.

    • FinTech –

      You got it right. Decrease emotion, increase automation, the ingredients there should bode well. Investing is a pure numbers game and buying value. If there is more value than your cash sitting, then buy that value. Easy right? Sometimes, we make it very, very hard to do this.

      -Lanny

  4. It’s not that strange at all. Although I have only seen it so far with portfolio’s holding trackers instead of individual stocks, like with following the dollar cost average strategy. Does make sense though to do it as well with dividend stocks. We are currently aiming for doing less payments a year (but with higher amounts) because we want to reduce transaction fees.

    • Divnomics –

      Thanks for the comment. Yep, 2016 was the year with bigger chunks, to avoid the fees.. I think I have a unique situation with a few free trades, as well as the fee at $3.95 – helps quite a bit; i.e. I can trade 25x and I’m still under $100 i.e. every two weeks! I wanted to take the overthinking out of it and let it “do it’s thing”; so far so good : ) But have to do what works for you, in the end.

      -Lanny

    • Brian –

      Thank you, actually – I have a savings with CapitalOne360 and it directly speaks to it for a way to put it. I have it set to instantly transfer $800 every week into the brokerage, lucky that i have the accounts with instant transferability. However, even if I did not – you are still able to do so, by performing a routine/scheduled transfer from any outside account to your brokerage account. I.e. if your pay goes to Chase, then that same day you can have it transfer to your brokerage based on your transfer settings.

      -Lanny

  5. Lanny – I don’t automate, probably because I let my ego overtake my brain! I applaud you for finding something that’s works for you, and I can certainly see the merits. I guess as close as I get to automating is using DRIPS, which I do only if a discounted share price is offered as an incentive. Right now of my 34 stocks I DRIP seven. Enjoy the rest while the computer does the heavy lifting!

    • Dining –

      Thanks for the comment. Haha.. Ah… the EGO, I know too well about that, I thought I could always time each purchase and that the price points will trigger, only to watch it drive back up and too stubborn to move, not a bad thing, but sometimes wasn’t working as well, so I am doing this now. Which 7 are you dripping, if you don’t mind me asking? Curious to see! And discounted share price, eh? Sounds very, VERY nice : )

      -Lanny

  6. Hi Lanny,
    There’s nothing wrong with this approach I think, especially if it’s helping you to stay fully invested. Have you looked around at other brokerages offering no trading fees e.g. Merrill Edge?
    I used to use the Sharebuilder plans but I stopped using them. I personally prefer to select my purchase manually on the day I have funds to buy. But that said, I’m not planning to buy many shares this year as I do my automation with mutual funds.
    Best wishes,
    -DL

    • Dividend Life –

      Thank you very much for the comment! Merrill Edge, eh? I think I’ve stuck with sharebuilder due to low costs, no reinvestment fees and they do the partial shares – plus no misc. one time fees here and there. Have you used Merrill before?

      Do you prefer larger manual purchases? This year I am trying to see if this works better than in the past and like you said – keeping me fully invested, while maintaining lower fees. One month in.. more to come!

      -Lanny

  7. Lanny,

    Just out of curiosity, what do you guys think of Target right now. You mention them briefly here and I think they’re on your Always Buy list. I’ve been watching it all the way down and I’m really intrigued at this point. Is there a reason you guys seem to be staying away?

    Thanks!
    Ben

    • Ben –

      It’s a great value right now. Really ripe. I just own a crap ton of them! i.e. almost 100 shares. If it drops into the $62’s… I may make another move, but have quite a bit right now. An aristocrat that has been beaten up. Love their stores, branding and programs they have. 45+ years of increases…

      -Lanny

  8. A fitting analogy would be do your Indians draft the best player available or for positional need. Nothing wrong with either strategy and there are pros and cons to each. If this one works for you that’s all that matters.

    • Charlie –

      Thanks for the comment. Exactly – agreed about doing what works best for you and seeing/testing it. As for the Indians… we have dropped some coin on Edwin this off season, our pitching is looking to be solid again, just need to be healthy!! World Series 2017?!?! Early to tell…

      -Lanny

  9. My main account is at Scottrade and they have what they call a flexible drip, all dividends get pooled into one account and then I can reinvest into any stock I want to without paying any commission.
    And with new money I try to buy in $1,000 amounts, so the $7 commission is only a .7 percent load.
    And I don’t mind paying .7 when I’m buying a ticker that is 15-20 percent off the 52 week high.

  10. I seem to not have this problem when it comes to capital sitting in my account. I get so excited for my purchase! I typically spend a lot of time planning an entry point once I’ve honed in on which company I choose to purchase into. I typically purchase in at 12pm as I’ve noticed premarket Is kind of whackey. I have however practiced a bit more control qith my most recent purchase of QCOM. I was simply waiting for a positive correction before initiating the purchase! Keep up the great work guys.
    Side note, I have set up automated check deposits into an Ally bank account which I use to pay mortgage insurance, taxes and car insurance! I love the automation and simplicity!

    • Diligent –

      Nice, Nice. As long as you are on top of it with limited emotions, then awesome. And nice work with the automation, seriously, it’s clutch. I bet you are getting one heck of a savings rate with Ally, one of a few banks that actually provide an interest rate!

      -Lanny

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