Traders, are there any Investor? Or those thinking about planning for the long term future.
I want to post about long term investing.
As my favorite divvy stock NYMT (a REIT) just gave a huge buying op. Actually most any REIT offering over 10% probably did. ARR, RSO, NYMT, CIM or PMT. These are the 5 top REIT's right now. This is not a recommendation to buy, it's an attempt to help understand long term investment opportunities of the REIT market.
So here the skinny. If one holds a 15% divvy stock for 5 years it doubles their money. $10k becomes $20k, $20k becomes $40k; ETC. as long as you re-invest dividends.
Not all dividend stock offer or are dividend re-investment stocks. Or DRIP's "dividend re investment program". So depending on the stock you choose, you may need to use your divvy return to manually buy more stock. But if the stock is a DRIP sign up and it's automatic.
Automatic can be cool if lazy but, you may increase your ROI by buying when you see a price fall on your own. This is personal. Either way you need to buy more before the next Ex-Dividend Date.
This may seem counter productive to a trader. Adding to a falling price or "averaging down" is one of the dumbest things a trader can do. It's like toughing good money after bad. If your looking for short term gain. As price decline in a traders stock means the company isn't doing well. But with a long term hold investment stock it lowers you basis and thus increases you ROI over the long haul. So with a divvy investment one likes price declines as long as the company continues to pay the same dividend.
Basis is the price you own the stock at. Say you own 1000 shares @ $7.50 and the yearly dividend is $1.00. You ROI is 13.3 percent. Now you buy 1000 shares @ a dip for $6.50. Now you own 2000 @ $7.00 basis. OR 14.3 percent. You just increase your ROI from 13.3 to 14.3. And because we don't care about price, we care about dividend return. This was a good move. You don't need to worry about price direction as much as keeping the divvy payout the same.
If you see the divvy start to reduce, this doesn't mean panic sell. But it does mean watch it! as loosing .5% or 1% isn't really that bad, when all other investments offer under 5%. Remember we're talking REIT's with over a 10% divvy.
One more thing about signing up for a DRIP dividend paying stock plan. They re-invest your dividend the day after the dividend payout usually. And with divvy stocks, the open price falls the same percentage as the payout, at the open of the next days market. SO, with a DRIP, you do get a small decrease in basis every payout re-investment. Be it quarterly or monthly payouts.
The over all theme to remember about long term investing, in REIT's is. 15% doubles you money in 5 years and re-investing dividends compounds gain. If you keep dividends in the account or live off them, the second 5 years will equal the first. But quad the second, if re-invested. Because you would hold twice the stock at the end of 5 years. So the original $10k which became $20k, can become $40k account balance the second 5, not another $10k gain, but a $20k gain.
So if your goal is income, don't reinvest, spend dividends yearly, but if it's retirement, re-invest and gain the synergy of compounding. In 15 years $10k can become $80k maintaining a 15% divvy basis.
