Investing In Dividends | Podcast Episode #443

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Hey, I’m Ryan Mallory and this is my swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex, ever changing world of finance.

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Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

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You can succeed at the stock market and I’m ready to show you how. Hey everybody, this is Ryan Mallory with shareplanner.com’s

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Swing Trading the Stock Market. In today’s episode, we’re going to be talking about dividends and how I invest in dividends.

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Today’s e-mail comes from a guy that we’re going to call Leroy and Leroy has some questions about his approach to dividends and asks me as a result from my approach to dividends, which I’m more than happy to tell him.

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Leroy writes. Hi there Ryan, then thank you for making these resources available. I’m new to this community, so I’m sure that this has already been asked, but what percentage of your portfolio do you dedicated to dividend stocks or is there another way that you approach this?

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What are your goals with the portfolio? I’m still on the fence about dividend investing and I’m trying to wrap my head around the pros and cons.

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I’m concerned about capital preservation and risk, especially with newer funds like SPYI and QQ Qi.

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I’m also looking into JEPI that’s JEPI and JEP QJEPQ as well as GPIQGPIX and BST. I’m skeptical of these dividends and whether they are too good to be true and I’m thinking about opportunity cost of just putting money in index funds like VOO or VGT instead.

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I love the idea of using these high dividend yielding ETS to pay for my monthly mortgage, but I’m concerned about the risks in doing so.

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Also to use stop losses on your dividend portfolio. Any advice would be greatly appreciated. Sincerely Leroy.

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Now Leroy is throwing out a lot of stock symbols and some of them I don’t even know anything about them.

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That’s the thing, one thing you don’t want to do when it comes to trading is to essentially chase after everything that that has a high yield or has something that sparkles.

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Because often times the yields that really stand out, like holy cow, it’s a 13 or 14% dividend. Or I’ve seen somewhere they’re like over 20% and people will put money into them because holy cow, I can make 20% return on those a year.

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Those are the ones that are the riskiest.

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Those are the ones that have the most problems to them. So two things I would tell you is that the higher the yield, the less stable they’re likely to be.

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Speaking of the individual ETF or the stock that you’re trading, higher the yield, the less stable that dividend play is likely to be and the more volatile it is likely to be.

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There is a lot of risks that come with dividend trading and Leroy is not wrong there. Answering his first question, he asks me how much of My Portfolio do I put into dividend stocks?

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Well, for one, I, I keep all my different strategies in different account. I don’t go combining everything into one specific account.

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That just would be difficult and frustrating because you can have a really good swing trade trading day, but you can have a bad day on your dividend front or on your long term investment front.

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And so you don’t want what you’re seeing from like a total return on your account frustrating you, even though that your swing trading might be really good.

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You don’t want those other strategies to influence your decisions on your strategy with your swing trading or the exact opposite.

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You’re having a good day in areas of your long term investments and your dividend plays, but your swing trading’s really bad.

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But because those other areas are doing so well, it overshadows the problems that you have in your swing trading.

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And maybe you’re OK with you’re like, I’m still up on the day. I’m not going to worry about it too much.

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And that stock that just blew past its stop loss, I’m not going to worry. I’m up on the day, we’ll see if it bounces back tomorrow.

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And then all of a sudden it continues to drift lower and you never get back out and you’re taking on a much bigger loss down the road.

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That’s why I like to keep things separated. I don’t like to keep them all together.

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So I keep those in separate accounts. Now as terms of percentages, in terms of my total equity exposure, I would say about 15% of my equity exposure goes to dividends.

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We’re not talking about half or a third.

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It’s it’s actually, you know, tucked away in a corner there, 15%, that’s it. And its own little account.

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So even if the entire account went down to zero, yes, that would be a huge blow, but it wouldn’t be life ending.

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The sun would still rise the next day. Again, I’m not trying to say that taking 15% portfolio hits is a good thing, but I am saying that it would be survivable in the grand scheme of things.

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And within that account, one of the things that I don’t want to do is have one particular dividend play that is far too much influential on the overall portfolio.

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So I would say the overall account there’s no position that’s more than 6% in size in and that’s only because I continue to that’s the one stock that I actually have a dividend reinvestment program activated on.

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Most of the other positions are somewhere between 2:00 and 4% and I do add to positions over time as well.

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But if it’s a bad performing one, I won’t, I won’t add to that position at all. I’m just not going to.

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I, I don’t want to throw good money at a bad position. And what that also does as well as the portfolio grows in size, it minimizes the downside to that because I don’t use stop losses in my dividend account.

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And that might come as a shocker to you because you’re like, holy cow, why wouldn’t you?

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Well, I managed to risk different ways. If you look at how I do swing trading, always using a stop loss, never holding through earnings when it comes to dividends, I managed to risk in different ways.

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I manage it through diversification.

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And it’s not just like, hey, I got 10 stocks, you know, if this one goes to crap, you know, I’m, I’m going to be down 10%.

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If I have 10% allocated across, now I have like 30 or so stocks. I don’t know what the exact number is off hand, but it’s somewhere between like 25 and 30 stocks and the portfolio.

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So if one does go to trash, I’m not overly worried about it.

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Yes, I don’t necessarily like losses, but in the grand scheme of things of how it affects the overall portfolio, I’m not that worried about it because one, I know I’m not going to add more money to that position when it’s just going to crap. 2, I’m pretty well diversified to where at most it’s going to be like a 2 or 3% hit to the overall portfolio.

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If the absolute worst happens and it goes to 0, which I’ve not had any of those actually do that. I’ve had some bad ones and I still actually have some bad positions in the portfolio.

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They’re paying out a good dividend. And that’s, that’s the other thing I would say too, is, is that if you have a stock or ETF that goes 20 or 30% against you, but it’s paying out like a six or seven dip percent dividend per year.

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Yeah, it may take some time, but you’ll that money does tend to offset it from the dividend.

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Assuming that they keep the dividend, it will help offset some of those losses.

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So diversification.

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And there’s one thing that I do. The other thing is I’m not adding to losing positions.

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The stock is just, you know, crap in its pants. I’m not going to keep throwing good money at bad money and the dividend also assuming that they still are not getting their dividend cut, the dividend is helping to offset some of those losses as well.

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And then I’d take that money instead of putting it that dividend money back into the stock, I’m putting that money in stocks that are much better performers.

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So then that dividend that I receive from the bad stocks being applied to a good stock, which will also produce dividends from the dividend money that I put back into a good company.

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So the way I manage, it’s definitely a lot different than how I manage swing trades.

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I do sell some of these every once in a while. One just recently that I sold was INTCI was in it because they had like a dividend of like 5 or 6% really appealing.

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And then they decided to cut the dividend and of course the stock was going down.

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They were having some troubles. The stock went down initially and then it went on just like 100%. It doubled in value just, you know, over the course of a few months.

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And I sold half of it for like a 90% gain.

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And then it, when it came back down, I was OK with keeping half of it. But then when it made another pop, I think I sold it for like the the second-half for about 20%.

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So I made a good return on the trade. And then there was another one and I still have a little bit of regret about this one to this day.

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Perhaps I’m a little bit on the fence about whether it was the right decision or not, but I had CVX that was making about a 8% dividend and I it went up over 100% and I sold it.

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I made a good return on it. Now, am I better off at this particular moment having sold it?

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Yes. If it goes back down to where I originally got in or even halfway down and I get back in, I would be thrilled.

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That could be a really good opportunity to re establish myself in that stock.

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But if I never get back into it because it just keeps on solving, yeah, they’ll probably be some regrets there.

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Another one, just recently they cut their dividends and they haven’t done that. I think it was something like 60 years or so.

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It was MMM and like INTC, they went through the roof after doing that. So it’s been one of my best performers.

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So weird things do happen in your dividends. Some of them for good, some of them for bad.

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One of them that’s not doing great for me at all is Walgreens. That thing could just keep going down every day.

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I’m starting to wonder if that might be the first one to go to 0 on me and the dividend portfolio. But it stinks.

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It absolutely stinks. It still pays like an 11% dividend, which I’m a little bit leery of how long that’s going to last where they cut it.

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Maybe it’ll do what INTC and MMM did and start to go crazy again to the upside.

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But to use the words of Rocky one, when Mick comes into his apartment, it stinks, stinks in the stock.

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It is not a, it’s not been a good play impact to the whole portfolio. It’s minimal.

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The whole portfolio is providing a good return. I don’t expect the portfolio to just soar in value.

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My my main goal is to make the returns on the portfolio through the dividend. I was talking about how some stocks, they’ll go down on you.

10:00
They’re still a good company and you might be down 15 or 20%, but over the years you’ve made enough in dividends to more than make up for that fact.

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Is that kind of cut into the the value of those dividends when the stock goes down? Yeah.

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Especially if you sell it, it definitely cuts into those returns. One perfect example of that is Verizon.

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I’m about 15% down on Verizon, but over the years it’s paid over a 6% dividend, so I’m doing OK with that one.

10:26
I’m actually in the positive on that one and it’s still growing. Others have continuously done well over the years and continue to provide a good return.

10:30
That’s the optimal ones. Good return, good dividend.

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That’s why I sometimes regret having sold Chevron because I was getting a really good return plus a really good dividend.

10:41
I’ll feel much better about it if it goes back to, you know, somewhere closer to where I originally got in at, but it has a long ways to go.

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Probably have to drop about 50% in value. One thing that does not drop in value that is swingtradingthestockmarket.com.

10:53
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Another interesting one that I’d like to tell you about is BOXX. This was one that I recently got into, but I’ve since then got out.

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This one has exposure in in the bond that looks like a 45° angle when you get into it cuz they essentially it’s like a tax shelter to where you can benefit from the bonds but not have to pay taxes on it because they keep reinvesting it back into the share price or into the ETF.

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So you only pay the taxes when you actually close out the stock.

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But they did a dividend that no one was really expecting and I couldn’t it may have been, you know, fine and able to be explained away, but I couldn’t figure out where they explained it away at.

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I looked at the tweets. The tweets didn’t set well with me.

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I didn’t lose any money on it. But what I don’t like is when a stock that I’m investing in, whether it’s a swing trade or a dividend play or a long term investment play, they start getting hokey and they start doing things that make the hair on the back of your neck tingle.

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And that’s what BOXX did. I didn’t understand what they did.

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I couldn’t find explanation for it. It didn’t make sense to me.

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They paid out a dividend when they’ve never paid out a dividend before.

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And so I went ahead and closed it. I’d rather be in something like TBIL than B, MB OXX where I’m like, what are they going to do next? I don’t like that feeling.

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So keep that in mind when when you are dividend investing and and something just doesn’t feel right. They’re not doing what they’re supposed to be doing or what you expected them to do, I guess is probably the better way to put it.

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And that’s what happened to me on that one.

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Now, obviously when you’re in dividends, you never want them to cut. You want them to raise the dividends each quarter.

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That’s ideal. But when you come across one that does cut their dividends, let’s say they cut it from like 5% down to 1/2 percent, you have to ask yourself, why am I in this one?

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Because I still think it’s going to go much higher.

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Well, if that’s the case, that sounds more like a long term investment that you that you believe in, not necessarily one that you’re trying to extract profits from.

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I’m running into that right now with MMM because they had a really good dividend, but they’ve cut the dividend down to 2%.

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And I’m like, but the stocks is doing really well. I’m up like 30% on the stock, but I don’t like the fact that the dividends 2% now.

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So now it kind of puts me in a situation to where, you know, I’ve been considering in, in recent weeks going ahead and, and sell in the position because 2% is really not what I signed up for.

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Now, one thing that still has me thinking about it is the fact that prior to that dividend cut, they had I think like 6 decades of dividend growth.

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So over the next 20 years, could that dividend come right back up? Yes, But usually when companies are raising dividends, you know, each quarter and I don’t know when they’re going to start raising it again, but when they when they cut their dividends and then they start raising it, they’re going to be very cautious.

14:23
They’re going to be very careful.

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So that’s a current situation that I’m in right now where I’m thinking to myself, I don’t know if I want to continue to hold MMM, it’s up a lot for me right now.

14:35
That’s great and get out with a nice profit, but the dividend sucks.

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It’s 2% and I like the sweet spot of those dividends that are paying somewhere between like 4 to 6%. Some of them are paying higher like Jeffy pays higher.

14:51
DSU is one that I’m in that one pays higher as well.

15:02
But from a equity standpoint, I like, you know, good value plays from my equity positions that have solid dividends.

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You take a stock like Dow, Dow Chemical, there’s not a lot of hype, there’s not a lot of excitement behind that stock, but it does pay out like a 5.4% dividend pretty good.

15:18
If they cut the dividend, though, Adios Machacho, I’m not going to be in that.

15:27
And then when it comes to Drips, like I said, I only have one stock that I use the DRIP program on, But for none of my positions do I use the DRIP program.

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What I do is I that money gets deposited back into the account. So like it one like Walgreens where I tell you I’m getting beat up, beaten up on when I get the dividend from it, I take that money and I applied to better place, better stocks.

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And another thing that I’d like to remind people of is that some stocks right now are not worth pouring more money into because the dividend isn’t going to give you that good of a return.

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But if it never does fall some, it can provide a much better dividend.

16:00
At 80 plus dollars a share, it’s not a good dividend stock. At that point I don’t want to be putting more money into it.

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So doesn’t mean that it’s not a good company or a good stock. But for the purpose of extracting a dividend from it at $80.00, definitely not as attractive to me as it was at 48.

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You won’t see a ton of like tech stocks or growth plays.

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And my dividend portfolio. And the reason why is because I one of the litmus tests that I have for a stock is that is that if the world goes to crap, will this stock probably still be around yet?

16:29
Like for instance, waste management. I don’t have waste management, but I always use waste management as just a, a good understanding of what a value play is.

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If the world was to go the crap tomorrow, you would still need somebody to pick up trash. There would still need to be a trash service, right?

16:40
If you have a depression or a recession, there’s still going to be garbage trucks going around to collect trash.

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It’s one of those things where it’s it’s a recession proof kind of a company. The stocks may go down some may suffer some, but ultimately it’s more than likely to rebound.

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It’s going to be a very slow, it’s going to be a very boring play. That’s why they call it value.

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But it can survive some very difficult times where a lot of your growth companies can really struggle during hardships and and recessions or depressions.

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Now, the other question that Leroy asked was, well, why not just put all the money in the Boo, that’s the Vanguard S&P 500 ETF, similar to SPY.

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You’re not wrong for thinking that. That’s also why I have a separate long term account, because in the long term account, I do have SPY, I do have Russell, I do have the NASDAQ or QQQI.

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Invest in those ETFs and that’s in a separate account.

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But you take something like VOO, if your goal is to extract dividends from the market, VOO is only going to give you like a 1.3% yield.

17:50
Maybe for some people that’s great. For me, I’d rather put my dividend capital to something different.

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So the, the question here, it’s not whether you should put your money in, you know, like a Dow Chemical or a Kraft Heinz or Doo it really.

18:05
I think the real question that Leroy’s trying to figure out for himself is do I want to have a dividend portfolio in the 1st place?

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Am I willing to take on the risks that come along with a dividend portfolio? I’ve had?

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For me personally, I’ve had stocks that have cut their dividends. So far it hasn’t been that bad experience, but when they do cut their dividends, it messes up the dividend play where I’m usually getting out of them at that point.

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I’ve had dividend plays that they’ve kept their dividends, but the stock goes, you know, S on me.

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But that’s why I think whether you’re in dividends long term or swing trading, managing the risk is important and having a plan for managing the risk is critical.

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And so even though I go about it a little bit differently than my swing trades, I’m still managing the risk.

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I’m still looking after the capital. If you enjoyed this episode, I would encourage you to leave me a five star review on whatever platform it is that you’re listening to me on, whether it’s Amazon or Google or Spotify.

18:53
That’s my favorite 1 Apple, leave me a five star review.

19:02
I greatly appreciate those. I do read them.

19:04
Also. Let me hear your questions.

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19:21
It would be a great help to the podcast. It means a lot to me as well.

19:25
Thank you guys and God bless.

19:30
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19:38
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19:45
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19:56
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20:05
All the best to you and I look forward to trading with you soon.