Wednesday, November 25, 2015

How To Calculate A Stock's Dividend Yield

When comparing different investments, the most common method used is to compare their yields. The yield of an investment is simply the return you get expressed as an annual percentage. This allows you to do a basic comparison between different types of investments. For example, suppose you are trying to decide which is the better investment: putting money in a bank account or buying a dividend paying stock. These are two very different types of investments with differing levels of risk. But suppose you are investing for the long term and your investment objective is income, i.e. cash flow. By comparing the yields of the two investments, you can tell which one gives you the better return.

Calculating Yield

Yields on savings accounts are simple. The bank flat out tells you what interest rate you will get when you deposit your money. If you go with a certificate of deposit, that rate will be locked in for a fixed period of time. A regular savings account might have a variable rate. Typical yields on savings account these days are in the 1% and lower range.

When talking about stocks, we refer to their dividend yield. As you might expect, this only applies to stocks that pay a regular dividend. A stock's dividend yield is calculated by taking the amount of money they pay out in dividends per year divided by the per share stock price. Almost all stock quote websites on the internet will provide this information for you. Here's a shot from Realty Income's quote page on Google:

I've circled the relevant section. In this case, the dividend and dividend yield are shown on the same line. Other sites might break them out onto their own lines. This is telling us that Realty Income pays out a $0.19 dividend per share. At the current share price of $49.89, that works out to a 4.58% return.

How was that calculated? In order to calculate this, you need one more piece of information that is not shown. Realty Income pays their dividend monthly. So over the course of a year, you will get $0.19 x 12 or $2.28 per share in dividends. $2.28 divided by $49.89 = 4.57%.  Why does Google show 4.58% then?

Here we get into the idiosyncrasies of dividends,particularly for Realty Income. A lot of companies that pay dividends declare them to fractions of a penny. In this case, Realty Income's actual dividend is $0.1905 per share. That translates to $2.286 per share of income and $2.286 divided by 49.89 is 4.58%.

Here's a shot of the info for Microsoft, which is a more typical dividend paying stock:

Microsoft pays their dividend quarterly, so $0.36 * 4 = $1.44. That divided by the $48.88 share price gives you a yield of 2.95%.

Using This Information

Now that we know how to get a stock's dividend yield, we can compare our two investments. A typical savings account will pay 1% or less. Realty Income is paying 4.58% and Microsoft is paying 2.95%. Seems like a no-brainer to go with Realty Income, right? Not really. Next time, I'll go into another important concept - risk.

Wednesday, November 18, 2015

Retail Credit Cards Are Robbing You recently released their annual survey of credit cards rates for retail branded cards. Retail branded cards are those issued by stores, such as The Gap, Apple, Macy's, or Staples. The results are not good news for consumers.

The average interest rate on retail credit cards in 2015 is 23.43%. Zales Jewelers has the highest rate at 28.99% and Staples comes in second at 27.99%. For comparison, the nation average for "regular" credit cards is 15%. How much will this save you? On a $1,000 balance, if you pay the minimum amount on a card with a 23.43% interest rate, it will take you 6 years to pay off the balance and you'll pay $838 in interest. Think about that. You got $1,000 of merchandise for $1,838. You almost doubled your cost. I hate to be the one to tell you this but.. Shopping? You're doing it wrong.

If you instead used a normal card with a 15% interest rate to make that $1,000 purchase and paid the minimum amount, you'd have it paid off in just four and a half years and would only pay $370 in interest. That still sucks. You've still paid 37% more than you should have, but at least you saved over $450 with the lower interest rate card.

Many times, stores will offer benefits for using their retail credit card, either discounts, cash back, special sales, etc. If you pay of your balance in full each month, these can be worthwhile. However, if you carry a balance, odds are you will be losing money in the long run.

Carrying a credit card balance on any type of card is one of the worst things you can do financially. But if you have to carry a balance, at the very least, get a card with a low interest rate and don't fall for the gimmicks stores use to try to get you to use their card. No matter what incentives they offer you, if you carry a balance on their card, you will end up losing money. Guaranteed.

Wednesday, November 11, 2015

Save Money By Challenging Yourself

The biggest monthly expense in our household is our mortgage payment. This is probably true for most working families. Our second biggest expense is food. Even if you only include the money you spend at the grocery store and exclude what you spend at restaurants, if you track your spending for a month, you'll most likely find the same thing. If you are on a budget and trying to save some extra money, it make sense to look at your biggest expenses and see if you can reduce them. Now refinancing your mortgage is probably not something you can do to reduce your expenses that often. And if you rent, you probably won't have a ton of luck asking your landlord for a reduction each month (although you can and should try to negotiate a lower payment each year when your lease is up, especially if you are a good tenant with a history of good payments).

That leaves food as your next biggest expense to tackle. You can go the coupon route and try to save money that way, but those savings are usually small. (Extreme couponing not withstanding - I'm not one to work that hard at couponing though.) Cutting back on eating out at restaurants is another way to cut your monthly food expense, although, as I mentioned earlier, even excluding this cost, you'll food bill is still likely high.
So what is another way to save money at the grocery store? First, stop buying prepared or boxed food. Try buying most of your groceries from the edges of the store - the produce department, the butcher department, the dairy department, etc. Buy food, not boxes. Yes, you'll have to spend more time making each meal, so if you don't have that time, this might be a difficult change to make. You also might not have much skill cooking. Experience is the best teacher. Just start doing it. You can't surf the internet for more than ten minutes without coming across some website about food and cooking. Find one that has recipes that sound interesting to you. If you don't have much experience cooking, start with recipes that are fairly simple. Over time, your skills will increase. You'll not only get better at cooking, but you'll get quicker at it and you'll start to look at ingredients and think "What can I make with that?"

I have always liked to cook. I remember making scrambled eggs for myself for breakfast when I was 12 years old. When I lived in a dorm as a college freshman, I snuck a gas camping stove into my room and cooked breakfast on it on the weekends. (This was probably not the safest thing in the world and I don't recommend it. I will say I did at least pry open the window for some ventilation.)  For most of my married life, I've been the first one home from work, so I became the one who cooks dinner most nights. I know that doing that five nights a week has definitely has improved my cooking prowess.

OK, but what does this have to do with saving money? Let me tell you.

No New Food Challenge

A couple weeks ago, my wife and I were looking at our budget seeing where we could come up with some extra money to put towards a vacation we are saving for next year. She saw our grocery budget and couldn't believe it was that high, so we tried to come up with a way to cut back a bit. She came up with a good idea: One week, make our dinners out of stuff we have in the house. For one week, don't buy any new food at the grocery store for use in dinners for that week.
I immediately saw the challenge in this and my mind started racing with possibilities. We always have a core group of staples in our pantry - rice, beans, pasta, etc. I buy meat when it is on sale and freeze it, so we had some frozen meat I could use. I always have homemade vegetable stock frozen and we had some frozen vegetables - not as good as fresh, but for one week, they would do. So we tried it. And I'm pleased to say, we did it! We still did buy groceries that week because the challenge only applied to dinner and we had to buy food for our lunches (my daughter, my wife, and I all bring our lunches to work / school), but dinner that week was made solely from stuff we already had in the house. And our grocery bill for that week was just 15% of what it normally was.

And you know what? It was fun! I have enough experience with cooking to be able to look at what I had on hand and figure out how to make meals out of it. We'll probably do this once a month now. And since I know I'll be doing this, I keep my eye out for special deals. Last week, my grocery store had a sale on both chicken and beef. Chicken is normally $3/pound and it was on sale for $0.99/pound. I picked up a couple packages. I found two large roasts that were more than 50% off. I bought those and cut them in half when I got home (because a whole roast is too big for my family). I threw both the chicken and beef in the freezer and I'm now stocked up for the next challenge week.

Because meat is usually pretty expensive (when it's not on sale), another possible challenge is to go a week eating all vegetarian meals.

If you are looking for food or recipes sites, these are some of the ones I follow:

Wednesday, November 4, 2015

Goal Update: End of October 2015

At the end of each month, I post an update of my goals, including a brief discussion of any notable events that might have occurred during the month. The latest month's figures can always be found under the Featured menu in the menu bar at the top of the blog.

Last updated: End of October, 2015
Current value: $18,142
Change from last month: +$1,676
Percent of Goal:  16.68%

Note that the funds in this account are invested in stock, so there will be fluctuations in value that are outside my control. I never withdraw money from this account, so any dips are purely due to stock price changes.

Events Of Note Last Month:

Income this month from my online courses sales was $363. I also received $100 from blog advertising. That's the first advertising payment I've received in over 2 years, so yeah, not making a lot of money from my blogs. Of course, I'm not really trying to. I don't do any SEO and have very, very limited ads, so this isn't too surprising. On the other hand, when I do get a payout, it comes as a nice surprise. Another nice surprise was a $150 quarterly bonus payout from my work. And one more nice surprise was a $100 check from a class action lawsuit settlement against a tour bus company in New York City. We had bought tickets for a bus tour when we went there for Thanksgiving in 2013. Apparently, there are two big tour bus companies in New York, but they are actually owned by the same company, so they were creating a false sense of competition when the company really had a monopoly on the business and kept the prices high.

Once again, my account had a nice jump in value due to the rising stock price of Realty Income (O). This month I crossed the $17,000 and $18,000 marks for the first time - the second month in a row of hitting a record high!

My plan all along has been to shift my investment from stocks to a hard money (real estate) loan once I hit $20,000. I'll keep funneling new funds into stock, but I plan to move money into higher paying mortgage loans in $20,000 chunks. Right now, my partner can get between 7% and 8% interest, whereas the Realty Income stock dividend is yielding about 4.5% (yearly dividend of $2.286 per share, at the current share price of about $50). Now that doesn't take into account stock price increases, of course, but since the stock price fluctuates, I'm just using the dividend payout as my gauge. (This isn't the most accurate measure, but it will work for my purposes. I'll do a post about this in a few weeks.)

I have been a little concerned about this plan over the last 6 to 12 months. My partner had seen the deals coming his way dry up and he had more money to invest than places to invest it. I was glad to hear this month that that situation has now reversed - he now has more deals than he has money for. It's looking like I might be able to start lending with him in a few months. Looking forward to that, as it means I'll almost double my monthly income. Things will really start to snowball then.

I'll also take this moment to point out I have added a contact page here so you can send me an email, if you so desire. Just click "Contact" in the menu bar.