This Perfect Strategy for 2022 Doubles Your Dividend (and Loves Volatility)
We are preparing for a volatile 2022, which means this is the perfect It is time for us to present the proven technique of dividend investing which we are going to look at today.
It works well during periods of blood. But when the markets become unstable, this “buy low” method really shines. It’s our way of buying more stocks when our favorite dividend-paying stocks are in the trash. We can think of it as the ultimate market timing tool for income investors.
You’ve probably used some version of this technique to build your current nest egg. The methodical investment of a specified amount of money is known as the average dollar cost (DCA). We will be relying on DCA to maximize our dividends and prepare to potentially double our cash flow (or better!).
More specifically, here is what this “DCA dividend for 2022” strategy will do:
- Let’s buy stocks gradually, reduce our volatility (and let us sleep at night, no matter what the economy or Jay Powell does);
- Give us bigger dividends than people who buy the same stock at the same time. If we reinvest our dividends, we have a “dividend impulse machine” that rolls around on its own, “automatically” increasing our payments each quarter. without us having to do anything.
- Boost our earnings by letting us invest our extra money in our preferred dividend payers on withdrawals (the signal of when it’s time to do so couldn’t be any clearer, as we’ll see in a second).
Average dollar costs on steroids
The best way to show you how this savvy approach works is to bring it into play with the stock income research type. always Looking For: A high performing business with a stable payment backed by a ‘recession proof’ business.
King of Consumer Staples General Mills
GIS is also the perfect stock for our strategy as it tends to increase two steps forward, one step back, which gives us many likely to buy low, then move higher on the next wave of the stock price.
GIS gave us a lot of Windows buys in ’21
So let’s set up a scenario where we had $ 600 to invest in the GIS at the start of each month in 2021. In five of those months (January, February, March, August and September), the stock ran out. traded below $ 60 (you can see these declines in the chart above), so our $ 600 would have given us 10 stocks per month, more than other months.
That, in turn, would have prepared us well to take advantage of the stock’s big gain in Q4: as you can see above, from the time of our last ‘bargain’ purchase in September 2021, the SIG took off, and we were well prepared to move forward, having built up 86 shares before this year-end surge began.
During this surge, when the stock price hit the north of $ 60, we naturally would have bought fewer stocks, thus protecting ourselves from the risk of overpaying.
This is not the end of our DCA magic either: because we bought monthly over a period of almost 12 months, the medium the purchase price for our 12 monthly GIS purchases was $ 59.84. That’s well below the current price of $ 65.99 and the average share price over the year of $ 62.40.
A clear signal that it’s time to buy more
It gets even better, because if we had kept some dry powder on hand to get into the stock when it pulled out of the previous month’s purchase price, we would have increased our payout even further!
Take in September, when the SIG fell back to $ 57.70 from $ 59.37 when we bought in August (you can see the drop in the chart above). Increasing your purchase would then have earned you a return on your purchase of 14% over the next four months, beating the stock’s 12% gain. throughout the year.
A natural “dividend amplifier”
Then, of course, there is the dividend. During the year, we would have “automatically” bought 170 shares of General Mills which would now earn us $ 346.80 per year in dividends.
Divide the annual payment per share of the stock ($ 2.04) by our average purchase price of $ 59.84 and you get a return of 3.4%, which is about 10% higher than the current return of the share of 3.1%. And of course, you can pay your dividends back to General Mills (or some other high yielding stock or fund!) And increase your income stream even further.
Brett Owens is Chief Investment Strategist for Contrasting perspectives. For more great income ideas, get your free copy of his latest special report: Your Early Retirement Portfolio: Huge Dividends — Every Month — Forever.