The original Sharpe Income post can be found here.
The Sharpe Income category be found by clicking on that red ‘Sharpe Income’ tag next to this post title, or by clicking here.
We continue the discussion from the last entry.
The International Business Machines (IBM) dividend posted to the project yesterday. The dividend has been noted and recorded on the spreadsheet that tracks the project. From what we shelled out for the purchase of IBM stock (and yes, that includes the commissions), we have collected enough dividends so that we have a yield on our cost of 1.45%.
Just a tad bit better yield for six months work, than what you would receive at a bank on your cash here in the United States (which for the same time period might offer you 0.375%).
Also, we’re up on the position itself by 2.21% (and yes, that includes the commissions), with more dividends incoming. This 2.21% gain on the stock itself, transitory as it is, means that as we’ve allowed some time to pass and collected some dividends as we have both begun to reclaim our cost of purchasing the stock, which seems to have been at a good price point. The concept of time passing, as you purchase an instrument for income and looking for appreciation in the stock, is absolutely vital to understand.
Capital gains, to an income account, are absolutely vital.
Because if we have to adjust, or possibly even sell a position down the road? We’ll have the maneuverability. I see new investors make this mistake time and time again. They will buy stocks for income, with no regard or thoughts to the instruments price. They repeat that they are ‘investing for income, not capital gains‘ so often, as if repeating this phrase allows them to escape from the corner they are painting themselves into.
That … is a mistake.
If the company gets into serious financial trouble down the road and they are forced to sell (or worse), then when they do sell the stock, they lose a great deal of money. Money they could use to purchase more income.
One way to combat this from occurring (though the possibility can never be eliminated) is to look to purchase your income for the best price imaginable. In 2012 I sold some dividend stocks I owned that I had held for years. I didn’t like the financial metrics of the companies I held.
When I sold those stocks, I made a great deal in terms of capital gains.
Why? Because when I bought the stocks, I made sure that I had a tremendous amount of maneuverability.
For the time being, I can see no bias to massage for IBM’s price, but I’m not interested in picking up more IBM at these levels.
International Business Machines (IBM) – Weekly Chart (tradingview.com)
We continue the Sharpe Income project with this next entry.