Sunday, September 28, 2014

Are you really an income investor?

Would you be happy with this performance?  Invest $207,336 during 2011; hold it for 3 years and your value is up nearly 50% to $309,843.    Moreover, the money you invested creates nearly $10,000 per year and your income has increased nearly 19%.   See the table below.

Now, let's look at a more recent measure consisting of three investments:  (1) Dividend Machines, (2) VIG a dividend increase ETF, and (3) SDY a dividend yield ETF.  

Invest $63,490 dollars during 2014 in the Dividend Machines I write about and your money would be worth $64,698 for a gain of 1.9%.    Invest in VIG and your money would be worth $64,698 for a gain of 2.35%.  If you invested your money in SDY your investment would be worth $64,868 for a gain of 2.17%.   See the table below.

Gain, however, is only one measure of your portfolio.   In all cases you need to look at income and income growth. If you are a real income investor, the first thing you look at is which portfolio pays the most and which one has the best income dividend increase.  Notice that the portfolio of Dividend Machines is creating $2,436 per year.  VIG has a bigger gain but not a bigger income.  SDY's gain is not as good as VIG but better than Dividend Machines. SDY provides $1,518 per year just over half of Dividend Machines.    VIG provides only $1,369 per year.

Investment costs are important but almost insignificant in this case as the SDY and VIG charge almost nothing and your Dividend Machines have only one expense when you buy it.

IT reminds me of a conversation I had recently with a man who is so thrilled his 5 year investment in SDY is still at 20%.   What is the income buddy and what is the income gain.

Growth investors will look only at capital gain/loss but we income investors need cash flow.  At the end of 2014, this portfolio will be closed.   We will make no more buys or sells.   I will report on dividend increases throughout 2015 and beyond.   I will track all three SDY, VIG, and my 2014 Dividend Machine stocks.

Very Truly Yours,