TheBigShow

maybe i'm missing something, but how do you make money with dividend stocks? the stock price just corrects itself on the ex-date, taking into account the cash payout. example: NLY. closes on 3/27 at $16.24. opens on its ex-date (3/28) at $15.72. all you did there was get a commission free withdrawal from your portfolio. you're not actually making any money. someone straighten me out, please, if you can.

bat711

You make money through one of two mechanisms -- capital appreciation, and dividends (growth and reinvestment).

The example that you are using behaves somewhat diffently since it is a mortgage REIT. The price functions similar to a mutual fund in which you are buying in to a underlying asset (NAVs). For NLY the price you pay per share might be at a discount or premium to the value of the assets depending on market sentiment of future short and long term interest rate spreads. Dividend growth in mREITs comes from retained earnings on their portfolio that is reinvested, increases in leverage, and accretive secondary share placements. Dividend reinvestment would also allow you to slowly build a larger position while also earning increasing future dividend amounts (hopefully).

Mr Dave

Dividends are not a get-rich-quick scheme.

Invest in a company you believe in.
Allow that investment to grow over time...both in stock price and with re-invested shares.
Do not take the dividend in cash...just re-invest it in the company.

Fast forward 10 years and you have made money -- both with a stock price well above what you paid, and with a number of 'free' shares from re-investing the dividend.

Mr Dave

Quick example:

If you invested in 100 shares of McDonalds 10 years ago.

$20/share x 100 shares = $2000 investment.


By 2006 you would have 109.42 shares and the stock price would have risen to $40/share ($4376 value).


By now you'd have over 125 shares and the stock price is $100/share ($12500 value).

Those 'free' 25 shares are now worth MORE than your original investment.




That's how you make money on dividends.

rwheelz

Great example. I wish had been buying Miccy D's stock instead of spending my money at the drive-thru back then!

prowess

Great example! This is why I love dividend investing.

Mr Dave

Thanks -- just wish I'd followed that example.

prowess

Haha, yeah. I just started in 2010, but I haven't been reinvesting the dividends since my initial investments weren't anything crazy. Going to start again though when I begin working full-time at the end of the year.

Mr Dave

Just bought into SRF.

Basically it's a closed-end energy fund (US and Canada) that just started up.
It dropped from 25 to 23.50 after IPO (as is normal with funds due to the 2nd market commission fees that don't exist with IPO buys) and they are expected to announce an annual dividend of between 7%-8% in a month or two.

This isn't a sexy buy + sell quick profit...this is more of a long-term re-invest kind of thing.
For those of you looking for that...

rwheelz

Thanks for the info!