I recently ran across a video at Kitco’s Video News page that featured an interview with Kevin O’Leary who is a Canadian entrepreneur who founded SoftKey, a software company that eventually acquired The Learning Company before selling out to Mattel. Apparently, he is also on the show Shark Tank on ABC which I have heard about but never bothered to watch.
I don’t think it is important to watch the full video, but I do think that he made one very important point which I will share with you and which I am working on implementing:
- Never buy a stock that doesn’t pay a dividend!
It is really quite simple and makes a lot of sense. He doesn’t look at earnings when evaluating a stock. He looks at free cash flow and wants to make sure that some of that cash is being returned to the owners (the shareholders) of the company.
A Transition in Thinking
I am starting to see from where he is coming. Much of the market’s return has been the result of dividends. Just take a look at the following graph which I found at The Market Oracle:
If this graph doesn’t convince you of the importance of dividends, which account for over half of the S&P 500′s, then how about I show you another graph that looks at the performance of the Dogs of the Dow vs the S&P 500. In case you didn’t realize it, the Dogs of the Dow are those stocks in the 30 from the DJIA that have gotten so beat up in terms of price, that their dividend yield is among the top 10 of those 30 stocks.
No Lost Decade for Dividends
So had you been holding stocks that paid dividends, there really would not have been a lost decade. You would have received consistent payments of cash to add to your portfolio enabling it to grow and make money. You can just look at the graph and see that the S&P 500 lost money during the decade that saw two major shocks. And yet, stocks that paid dividends (namely, the Dogs of the Dow) actually made money.
Fortunately, it is possible to teach this old dog some new tricks. That is why I am simply working on changing all the stocks in my retirement accounts to dividend paying stocks and tracking my dividend income this year. I did manage to hit my goal for the 1st quarter. Over the next 25 years, I will allow those accounts to grow and reinvest those dividends into more stocks.
In fact, I will probably buy some more STX and INTC this week since they have been holding up quite nicely during this recent market decline. I will also watch the ONXX $46 puts get exercised on Friday so I can start my purchase of Nucor (NUE) next week. I won’t get the dividend for this quarter, but should be in a position to pick it up in the third quarter. The same holds true for INTC and STX since the ex-dividend date has passed. Nevertheless, adding to these positions is just a good idea.
Obviously, I will continue to publish the quarterly update on the dividend progress and see if it continues to grow. According to the charts above, it should be a great plan!
Regular readers of this blog may or may not know that I follow the gold market fairly closely. I am not a gold bug per se, but I do feel that gold is a decent store of wealth as opposed to the greatest investment as some would have you believe. On the other hand, I don’t think that it should be dismissed entirely since it can have some purpose in a broad investment portfolio.
If you have been watching the gold market recently, you have probably noticed that the price has dipped below $1600 per ounce. The gold market has historically been one that has been responsive to inflation expectations due to money supply or geopolitical concerns or even financial crises and a loss of confidence in fiat currency.
But with the gold price having backed off from a high of over $1900 per ounce last August and September, is there something that we should be expecting?
Global Industrial Slowdown?
Here is a recently published article that suggests gold is correlated with global industrial production. That would seem to make sense as inflation, while technically a monetary phenomenon, seems to respond as a result of increased demand as well. When the labor pool is tight, wages increase leading to a broad increase in prices. Likewise, when the cost of oil and transportation and all the other goods that use oil in production increases, the gold market seems to respond to those inflation expectations.
If this is the case, one has to wonder whether the gold market is foretelling some global economic slowdown. Is there another recession on the horizon? Is China slowing down and are concerns about growth coming from that area of the world? Is Europe really going to become a major headache?
On the other hand, is it simply the fact that there is no sign of inflation in the near future and that growth will continue albeit at a more moderate pace? Is this simply a period of consolidation in the gold market?
There is a seasonality to the gold price and summer tends to be a slow time in regards to the price. Is this a factor in the current pull back? Will the price for an ounce of gold make another strong run in the fall?
To be perfectly honest, I really don’t have a clue. So, what am I doing with this information?
Buying More Silver Wheaton Stock
I am buying more Silver Wheaton stock. Silver typically follows the gold price although with some added volatility. This has provided me a decent opportunity to purchase some more SLW which should make a nice rebound should seasonal factors be playing a role or should global economic activity improve.
I have already increased my share count by 6.5% this past month and am looking to add some more when I sell some calls and collect the premium. Hopefully, I will have enough cash to do this during June. I should be collecting some dividends from Seadrill and AK Steel during the month of June so that should help with the needed cash.
The key will be to maintain patience and add to positions when the stocks are down and pare back when they spike. I plan on using the same technique with Silver Wheaton and by extension, the price of gold and silver.
What do you think is happening with the gold market?
Well, I managed to make an extra payment on the Discover Card. I was able to make this extra payment because I took some of the money that I had made from blogging in March and moved it into my personal checking account. I did let it sit for a little while until I made sure that I was going to have enough money to keep up with my blogging expenses for the month of April and the next few. The reason is because I actually lost money blogging during the month of April.
However, I do feel confident enough that I can cover expenses for the next few months, so I went ahead and made the extra payment. It has always been my goal to develop my online opportunities using only my time and not any of my own dollars, and I have been able to do that. Of course, growth has been somewhat slow as a result, but that doesn’t matter as much to me as being able to bootstrap and create something from nothing. I am pleased to say that I have been able to make extra payments and pay off some debt as a result of blogging.
Future Discover Card Payments
My main blogging financial goal for this year has been to get the Discover Card paid off. With recent changes to blogging revenue, I have to wonder from where the funds for this goal might come. I could hope that things improve later this year, and they may. I am also working hard to develop my other online income sources, but that will probably simply help to pay for ongoing expenses. I will just have to see what the next couple of months bring.
I have considered using the money that I have gotten from recycling aluminum cans for making an extra payment. I have also considered using the change that I periodically roll and redeem for dollars to make an extra payment. Of course, I have also considered looking at the stuff that I own and having a garage sale. It would be good to kill two birds with one stone, namely getting rid of household clutter and make some money in the process. The only catch in this plan would be the time involved. I will have to see how this works out.
I am still committed to getting that card paid off by the end of the year. Half of the balance will be covered through the normal monthly payments that I have been making so as long as I can keep up with the extra payments, it should happen. For now I suppose, I won’t be making any major changes, but will have to monitor the situation to see if blogging income totally disappears or if this is just a slight dry spell.
Carnivals with My Blogs
I do want to take a moment to highlight those carnivals that featured an article from one of my 3 blogs. CFM = Cash Flow Mantra, GPM = Grand Per Month, and PT = Penny Thots. Be sure to subscribe to all 3 so you can get lots of great personal financial information.
The cool thing here is that all 8 of my submitted posts were accepted!
And here is another group:
Thanks so much for reading!
