I have seen some investment gurus always mention how good a dividend re-investment strategy could be. Recently I have been following some dividend stock blogs and am a dividend investor myself.
Always interested in mathematics I was curious how the numbers add up and what the compound rate of return would be under different scenarios. Let us start with a simple example:
Investment capital : $1000
Stock Price: $1
Yield : 5%
Dividend growth rate: 5%
Time span: 5 years.
I used the calculator here.
Total value of this portfolio without dividend reinvested would be $1580.88 and with dividend reinvested would be around $1,648.38. The net yield is 9.51 vs 10.51 respectively.
Lets play around with some numbers. Increasing the timespan to 20 years which is typically realistic with dividend or long term investors we can see the difference: 7.4% vs 10.5%.
If the stock price remains the same for 20 years with no variation one can get 5.16 vs 8.35 % for reinvested dividends.
Now if the stock price is 10% down annually in a timespan of 5 years then the ROI for the reinvested dividends is -3.43 which is lesser than -3.16. In my example if I set the stock price move to 5% down annually for 10 years then the dividend reinvestment scheme still proves better.
Overall I feel like a dividend investor should have an exit strategy just like any other investor. If the fundamentals for the company look good then reinvesting in a downtrend might be risky but worth it.
Before I forget, there is a definite tax advantage to these reinvested dividends which is a separate topic itself. But the flip side is that calculating cost basis for re-invested dividends could be time consuming.
What is your re-investment strategy? From most of the examples above it seems that re-investment does make sense unless ofcourse you want free cash flow.
Friday, July 8, 2011
Monday, March 21, 2011
To go , dine in or take out?
Waiting in the line for Olive garden I witnessed atleast ten groups of people marching outside, all of whom had a take out bag with them.
The financial part of me started thinking about the comparative costs of take-outs, dine-in or the to-gos.
A typical dinner menu at a restaurant like Olive garden varies from around $11-$12 to around $20 . This might not include appetizers based on what you chose. For an average price of $15 with taxes and tip we round up around $36 for a dinner for two.
If you take do take left overs home and use it as next days lunch it counts for $36 /4 which on an average is $9 per person which is not that bad. However if your intention is to cover next day's meal with the leftovers then this is not a bad choice unless ofcourse you are too hungry or your whole intention was to spend time together and did not care about take-out.
On the other hand if you go for a buffett at a restaurant at night the pitfall is you pay the price pretty much for that meal and cannot take-out. That being said specials like the Sweet Tomatoes deals for $8.79 dinner specials still end up around the $9-10 average per meal.
Can take-outs be cheaper? Answer is it depends. If you already have some food and want something more substantial to make a meal,say like left over curry, combind with the fact that you want to watch a favourite movie at home then yes it makes sense to take out. Moneywise you might save tip if you are the kind who does not tip take outs.
This is ofcourse comparing restaurants of reasonably similar standards and not comparing fast-food or subway type of food outlets.
Ofcourse at the end it depends where you are comfortable and would like to eat.
The financial part of me started thinking about the comparative costs of take-outs, dine-in or the to-gos.
A typical dinner menu at a restaurant like Olive garden varies from around $11-$12 to around $20 . This might not include appetizers based on what you chose. For an average price of $15 with taxes and tip we round up around $36 for a dinner for two.
If you take do take left overs home and use it as next days lunch it counts for $36 /4 which on an average is $9 per person which is not that bad. However if your intention is to cover next day's meal with the leftovers then this is not a bad choice unless ofcourse you are too hungry or your whole intention was to spend time together and did not care about take-out.
On the other hand if you go for a buffett at a restaurant at night the pitfall is you pay the price pretty much for that meal and cannot take-out. That being said specials like the Sweet Tomatoes deals for $8.79 dinner specials still end up around the $9-10 average per meal.
Can take-outs be cheaper? Answer is it depends. If you already have some food and want something more substantial to make a meal,say like left over curry, combind with the fact that you want to watch a favourite movie at home then yes it makes sense to take out. Moneywise you might save tip if you are the kind who does not tip take outs.
This is ofcourse comparing restaurants of reasonably similar standards and not comparing fast-food or subway type of food outlets.
Ofcourse at the end it depends where you are comfortable and would like to eat.
Tuesday, March 15, 2011
Market correction analysis
In my previous blog I mentioned that I was looking for a market correction around 12000. We did not have a correction at 12000 but we went ahead to around 12400 before make a dive and recent earthquake in Japan has left the down below 12000. If you take a look at a six month picture of the DOW we see a similar pattern in the last market correction in Novemeber 2010 when the DOW corrected from 11400 to 11000.
Should you be buying in this market dip?
Long term investors may look at this as a buying opportunity and short term traders may well think of looking to get in for few days. With previous market corrections some aggressive strategies that did well were finding most beaten down stocks in the current market correction.
Recently I have been following James Stewart from Smart Money. In his latest article he suggest these growth stocks when market makes a 10% correction which means a 2541 on the NASDAQ.
Market bears look at the volatility and uncertainty over impact of the Japan earthquake and predict that markets might go down further.
Last few days have seen some selling at high volumes and volatility which means there might be further downside potential. What are your thoughts? Will you be buying in at these levels?
Fibonacci series for this last bull run from 11000 to 12400 for the DOW returns 11544 as the 61.8% mark at which some support could be seen with the DOW bumping on these levels.
As for long investing I would add positions into my long term portfolio.
Should you be buying in this market dip?
Long term investors may look at this as a buying opportunity and short term traders may well think of looking to get in for few days. With previous market corrections some aggressive strategies that did well were finding most beaten down stocks in the current market correction.
Recently I have been following James Stewart from Smart Money. In his latest article he suggest these growth stocks when market makes a 10% correction which means a 2541 on the NASDAQ.
Market bears look at the volatility and uncertainty over impact of the Japan earthquake and predict that markets might go down further.
Last few days have seen some selling at high volumes and volatility which means there might be further downside potential. What are your thoughts? Will you be buying in at these levels?
Fibonacci series for this last bull run from 11000 to 12400 for the DOW returns 11544 as the 61.8% mark at which some support could be seen with the DOW bumping on these levels.
As for long investing I would add positions into my long term portfolio.
Wednesday, January 19, 2011
Market patterns and investing
With the current bull market initiating around March of 2009 we see some dips or selling as the market continues to climb. One of the past two run ups one from February to May 2010 in which the DOW climbed from 10000 to 11200 and then from Sept to November 2010 when the DOW roughly climbed the same amount. If past is any indication of the future then will the DOW have a correction in February around 12000 ?
If you are a buyer: One theory in long investing suggests buying in an uptrend. However as everyone knows market comes down quicker and bigger than when it goes up. Should an investor take a risk in getting in the DOW ride or wait for a correction?
If you are already in a market and want to cash out you might be looking at good exit points:
Technical pundits typically will advise selling a stock when it moves below its 20 or 50 day line. Investors business daily has a small course on sell signals .
If you are a buyer: One theory in long investing suggests buying in an uptrend. However as everyone knows market comes down quicker and bigger than when it goes up. Should an investor take a risk in getting in the DOW ride or wait for a correction?
If you are already in a market and want to cash out you might be looking at good exit points:
Technical pundits typically will advise selling a stock when it moves below its 20 or 50 day line. Investors business daily has a small course on sell signals .
Saturday, September 18, 2010
15 year vs. 30 year mortgage
NPR's marketplace recently had a clip talking about how mortgages used to be 15 or 20 years and the great depression changed it.
The rationale behind this was ofcourse make house affordable, the catch - pay more interest over long term.
With people refinancing or moving this have changed recently but one is likely to end up in some other 30 year mortgage.
Hypothetically if someone buys a house at 35, and then switches to another one at 45 then the0 move could reset the 30 years till 75 past retirement age.
The goal of retirement at typically 70 is be debt free. If that's the case can someone who can afford the mortgage at 45 still be afford when 71? Who's responsbility is it to pay off the mortgage by 70 or retirement age?
One of the answers before the housing collapse would have been that in 10 years someone could have made some money in house price increase and then earn some equity in the next house. With the housing collapse this might make easier for some people who bought their houses way before the collapse and now get a good bargain for their new dream.
Thoughts?
The rationale behind this was ofcourse make house affordable, the catch - pay more interest over long term.
With people refinancing or moving this have changed recently but one is likely to end up in some other 30 year mortgage.
Hypothetically if someone buys a house at 35, and then switches to another one at 45 then the0 move could reset the 30 years till 75 past retirement age.
The goal of retirement at typically 70 is be debt free. If that's the case can someone who can afford the mortgage at 45 still be afford when 71? Who's responsbility is it to pay off the mortgage by 70 or retirement age?
One of the answers before the housing collapse would have been that in 10 years someone could have made some money in house price increase and then earn some equity in the next house. With the housing collapse this might make easier for some people who bought their houses way before the collapse and now get a good bargain for their new dream.
Thoughts?
Saturday, April 17, 2010
How long will the market run continue
Hard to say but one can continue to invest in this up market and have stops in the right places. Small caps might be a hit and miss , so for long term I would recommend large caps.
If you do want to get into small caps then ETFs might be worth the play.
If you do want to get into small caps then ETFs might be worth the play.
Saturday, May 30, 2009
Gold May analysis - recent run up !
After my last Gold technical analysis in April gold has a run up.
Market club's monthly and weekly signals had given a buy since the 90 and 89 levels respectively. This may be mainly due to inflation concerns. 99 might be one big resistance that GLD needs to pass through.
RSI has reached around the overbought area but MACD is showing good promise. Going by last times runup ultimate top was formed when both MACD and RSI were at top.
Buy in next dip might be the right thing to do here?
Market club's monthly and weekly signals had given a buy since the 90 and 89 levels respectively. This may be mainly due to inflation concerns. 99 might be one big resistance that GLD needs to pass through.
RSI has reached around the overbought area but MACD is showing good promise. Going by last times runup ultimate top was formed when both MACD and RSI were at top.
Buy in next dip might be the right thing to do here?
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