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I like Realty Income and I would definately buy realty income shares if it traded at a bargain price. That’s the problem, I don’t like the idea of buying shares in good companies when they’re expensive. Even if they are solid companies if they are highly priced you won’t see a good annual return because the company’s strong market position is already baked in to the stock price. I’m not going to spend anytime talking about the effective market theory in this article but I am going to talk more about this subject in a future article.

Back to realty income. What do they do? They own commercial properties and rent it out and reward their shareholders with monthly dividends. They have a growing and relatively secure income from their properties. The main reason for that is that they own commercial properties in central spots around in the US and they negotiate deals for the long term. The leases are almost always several years long.

Realty Income, key statistics:

Price per share: $31.08.

Dividend: 5.60%.  $0.143 Dividend per month.

I would buy if it dropped below $25 without a doubt, in my opinion it would be undervalued if hit dropped below $25 per share. I’m fairly certain with some market worries Realty Income will drop quite fast. It’s in the real estate sector so the drop will be harder because of the media bashing. Beware realty income investors. However, Realty income is a great long term dividend stock with a fairer price.

I really hope coca cola drops below $50 per share. I am a buyer at <$50. You can always count on coca cola generate a safe and growing income. Income investors should put coca cola on their stock watch list. It just might tank below $50.

It does feel like with this market anything can happen. All it takes some bad news about the unemployment, gdp and dow jones will drop 10-15% very quickly. Hopefully coca cola will follow the market mood so I can buy cheap coca cola shares!

The company has strong brands and was punished for the cadbury-nonsense. Steady growth and reliable dividends makes this company a good DRIP. I like the fact the stock was lowered because of disappointment with the managment. But the facts remain that Kraft Foods is a strong company with growth and relatively low P/E of 16.75. Income investors should consider adding Kraft Foods to their portfolio.

Kraft foods hasn’t performed well since it’s IPO:

This is one disappointing graph for investors. The stock price is even lower today then it was since its IPO.

But the profit and the dividend of kraft foods has been on a steady rise during this period. The reason why Kraft Foods hasn’t performed well is because the P/E ratio when it first went public was relatively high, the profit growth was already priced in the stock.  Looking at historial performance for Kraft Foods can be a very misleading indicator on how the future will be. I think that Kraft Foods will perform way better than the past 10 years. I’m saying this because now it’s trading at a lower P/E than before and Kraft’s profit is still growing. With a divided yield of 4.10% and a yearly dividend growth between 7-10% makes Kraft Foods a good high dividend paying stock with growth potential. My estimate is that Kraft will outperform dow jones and S&P500 for the next ten years.

I have bought Kraft Foods shares for my DRIP portfolio. My plan is to regurarly buy more KFT shares every month, I believe it will be great DRIP stock.

I finally got started with drip investing. My plan is to put away roughly $100 per month in:

Coca Cola

Kraft Foods

PepsiCo

Mcdonalds

Nestle N

Procter&Gamble

That’s $100 each so I’m putting away a total of $600 in to drip stocks. And Ofcourse all dividends are automatically reinvested.

I’ve already started my portfolio:

Conservative portfolio except lloyds bank. I think Lloyds Bank will be a good investment in the long run and I can afford one risky investment in my portfolio considering how safe the other companies are. Also note that reason it’s approximately 900 shares is because I bought the Lloyd shares on the london exchange where the price differ quite alot.  My first minor goal besides the obvious million dollar goal is to receive $100 in dividends every quarter. I will probably achieve that goal fast. My DRIP portfolio is worth $3200 at the moment.

Status:

Net Worth: $51000

Holdings,

Cash:

$12800 - I will invest it soon.

Stocks/Funds:

$4200 in emerging markets funds.

$3200 in DRIP stocks.

Real estate:

One apartment, market price = $105000

Loans:

$71583 real estate loan.

$800 cash loan.

I have been thinking about DRIP investing for a long time now. There are 3 companies that keeps popping up in my head, coco cola, pepsi and yum!. I also noticed that these 3 high dividend companies all outperformed dow jones, s&p500 and other major indices. High dividend companies in general usually outperforms indexes like S&P 500 and dow jones but these 3 high dividend companies really stood out in the crowd of blue chips.

Coca cola is a great company but is the stock price relatively cheap? Hard to say. KO has resisted the financial crisis increadibly well. Trading at $53.66 per share, I would say this one of the few blue chip that was barely touched by the recession. Coca cola has one of the most powerful brands in the world and has steady increased its dividend over the long term. Coca cola is a good DRIP investment in my opinion. Coca Cola’s dividend is 3.00%.

Pepsi reminds of me coca cola ( duh! ). I can barely taste the difference between coke and pepsi. But keep in mind that Pepsi’s main income is not from selling the pepsi drink, the majority comes from other products like snacks, other soft drinks, etc. Coca cola’s major income is coke however. Pepsi’s dividend growth is similar to Coca Cola’s. I wouldn’t be surprised if they both performed roughly the same over a long period of time. Pepsi’s dividend is currently 2.90%.

Yum! Brands is probably the company I will least likely open a DRIP in of three mentioned in this article.

I’m not saying Yum is a bad company, I actually find it to be a very strong and reliable dividend payer. But I do believe both Pepsi and Coca Cola are better DRIP investments than Yum. For those of you that are not familiar with Yum, they own and specialize in quick service restaurants like: KFC, Pizza Hut, Taco Bell, Long John Silver, and A&W All-American Food. They have strong brands. Yum’s dividend is standing strong at 2.40%.

The above companies doesn’t really qualify as high dividend companies. But with their continous growth in dividend only time will tell when they are qualified as high dividend stocks.

Note that moneypaper has a fee on the Coca Cola DRIP program:

But Pepsi only has a enrollment fee after that it’s totally free.

Coca cola’s fee on reinvesting is really going to get costly in the long run. This makes more biased towards pepsi’s DRIP plan.

Good luck fellow DRIP investors!

We all like high dividend paying stocks. Who doesn’t?

Studies show that high dividend paying stocks outperform S&P500 in the long term but one should avoid these rookie mistakes:

1. Buying a stock that has totally crashed in stock price that results in a high “dividend yield.

Example: Company A that has serious problems announces that next quarter profits and has to make som writeoffs will probably go down in stock price. The dividend yield however increases as the stock price declines because the company hasn’t slashed its dividend yet. A random investor buys the stock with a dividend yield of 10% at that moment. One week later the company announces that dividend will be suspended.

This happened to many financial stocks during the storm of the financial crisis. The majority of them cut their dividends and went further south. Anyone who thought about high dividend investing during that period would have lost a substanial amount of money.

A good example of a high dividend stock that declined in price thus yielding very high and later got its divdend suspended is Capital Trust.

Capital Trust was a typical pseudo - high dividend paying stock.

2. A moderate company with no growth prospects. The company hasn’t raised the dividend in the last 10 years but the dividend yield is higher than average. In my book it’s still a stock to avoid. A company that doesn’t grow nor raises its dividend will probably not beat the major indexes over the long term.

I rather buy a company with a future and a dividend below average that is growing with more than 10% a year.  It’s also a known fact that dividend growers beat the general stock indexes over the long term. The dividend growth is another discussion.

I am a bit surprised that nobody has pointed out my fatal mistake…. People have even been thanking me for advising them on Rubicon minerals. Rob Mcewen and RBY is a good combination for making money without a doubt. Just to let my new readers understand what I’m talking about I made this graph:

My old readers will probably remember that I started talking a lot about Rubicon when I first bought the stock. I didn’t dump my shares because I stopped believing in Rob Mcewen or Rubicon I sold because I needed the cash for a down payment on my apartment. Even after I sold my RBY shares I still made some bullish posts about it. Even though I missed alot of the action I am still proud that a few people profited on my advice.

For those who can’t see the graph:

“Bought @ $1.31 per share”

“Sold @ $1.50 per share”

“Banging my head” ( when I point at the top of the graph where the stock is priced at $4.50. )

Final note: RBY is currently worth $4.57 per share.

Texas Pacific Land Trust is a stock that I would call a value stock. Asset stocks like Texas Pacific Land Trust should be loved by the conservative investor. This is a asset stock that I would definately keep in my watch list.

They own alot of land with zero debt. They actually have cash sitting in the company. The cash in the company equals to $0.84 per share. The stock is currently valued at $30.81 per share by Mr.Market.

The company owns roughly 963,248 acres land in Texas.  The market cap is $309.73 minus the cash sitting in the company, its enteprise value is:

$309.73m  -  $8.44m ( cash ) = $295.36 million dollars.  So in other words if you buy land indirectly through TPL you are buying it for:

296.36m/963,248 = $308. The price per acre is $308. That might seem like an increadible good deal for novice land investors but even I who has very limited experience in land knows that it isn’t as cheap as it seems. Last time I checked the average price for an acre of land in Texas was pendling between $330 and $350.  In my opinion the stock is not currently trading at a large discount from its net asset value, but it is trading at a small discount. The reason why big land holdings have a very low price per acre is simple, the marginal utility decreases greatly after your first 0.10 acre of land.  I won’t get into a microeconomics lesson in this article, but I will explain the marginal utility term later.

TPL pays 0.19 cent per stock in dividend. A whopping 0.63% dividend yield. I know that it’s not an impressive high dividend paying stock but the dividend has been increasing at a faster than inflation pace the last 3 years. You don’t need worry about the dividend growth ending because of the company’s very strong balance sheet and high return equity. The company should be able to maintain a faster than inflation growth dividend in the coming years.

TPL makes money by leasing out its land to the ranching industry for grazing purposes.  The company was founded in 1888 and have survived this long. I would say this is a low risk stock but the potential is not huge. I have hard time seeing TPL being a multibagger in the short term.

I am on the hunt for good DRIPs and I love Tim Hortons.  I am a true coffee lover.  Tim Hortons is a typical Peter Lynch type of company, “Buy what you know”. It doesn’t take a genius to understand that Tim Hortons is a very popular franschise. Just go to your nearest Tim Hortons and look at how many customers they have.

Starbucks is nothing compared to Tim Hortons, if you don’t believe spend a few hours trying both Starbucks and Tim Hortons. You will realise how overvalued Starbucks is relatively to Tim Hortons after your first hand experience. If you decide to invest in Tim Hortons I strongly recommend going to your nearest Tim Hortons cafe and see it for yourself first. 

I haven’t opened a DRIP account yet at Tim Hortons but I am going to open a drip account. Is $28.01 per share a resonable price to pay?

14.98 forward P/E and 1.30% dividend with a spectacular dividend growth potential. I will watch where THI goes and jump on it when it feels right.

I’ve talked about this before, should I count my website’s value to my net worth?

I think I should because a website is almost like an income property.  The similiarities with real estate are many:

- Steady cash flow. Ads revenue income for website. Tenants paying rent every month.

- Appreciates in value over time. There has been a study that shows that a typical website with an active webmaster gains about 10-15% value a year. That’s a high average but you have to remember that’s not a passive return on capital. Real estate traditionally goes up in value with inflation.

If I take my site for example and compare it to real estate:

I created my website for $96 the first year, both the domain and web server costed $96. That’s $96 in total costs. I won’t count the hours I’ve worked on the site as a cost because frankly it is a hobby. The first year I actually exceeded $100 in ad revenue. I think it was $127 exactly the first year in ad revenue. That’s sligthly over $10 a month in ad revenue. This year I don’t know much I will make but it will be definatley over $127. This blog is only 1,5 years old.

So I made $31 dollar profit on a $96 investment. My return on capital was approximately 32% and I haven’t even calculated selling the website with a profit yet! The return is very high compared to both stock and real estate “average” returns.

My conservative income growth prediction is around 30% ( it will most likely be a lot more ). That might sound high for stock / real estate investors but for new started blogs that’s considered very low. So how much is my website worth if I want to sell it:

-Forget about growth and expected growth when evaluating a website.

-The simple valuation model is 10-12x month revenue.

- 30% more this year means around $13,5 a month. This website you are surfing on right now is worth between $135 - $162 . But let’s be pessimistic and say $135. That $127 in revenue and a selling price of $135.

$135 + $127 - $96 ( the cost ) =  $166 profit on $96 investment. That’s a 173% return on capital after one year. I don’t care if you are real estate guru who has made a deal with the devil you won’t beat that kind of return on capital.

It might sound like it’s easier to make money in flipping websites than flipping real estate, but it’s not that simple. Just take my example above, it’s easy to have a high growth the first years of a blog but you will never make any real money in absolute dollars. Because your initial investment is only around $100.   

Comparing websites to stocks won’t do you any good because websites requires you to be active, stocks gives you a passive income. I have written over 100 articles since this blog started. Having 173% return on capital during a financial meltdown is actually quite bad given the amount of work I’ve sacrificed.