Cashflow: Dividend paying closed end funds
September 12th, 2006 by KenricIt’s been a while since I looked at my stock portfolio. That’s mainly because most of my money is in cash now and I just don’t have time to follow stocks. In my account I have mainly high dividend paying stocks. I guess this is part of my cashflow investing.
FMN (Federated Premier Municipal Income Fund) is a closed end bond fund that I have had for many years. This fund pays $0.88 per share per year dividend. What is nice about it is that it pays monthly and its dividend is tax free.
As of today its price is $15.73 making its yield 5.50%. If you look at its chart below you can see that it is fairly stable hovering between $13-$16 for the past five years. If you purchase 1000 shares of this today for $15,730.00 you would receive $73.33 a month tax free into your brokerage account. You can choose to withdraw it but I reinvest my dividends each time so I automatically purchase additional shares monthly. In this case I would buy 4.66 more shares ($73.33/15.73 = 4.66 shares).
In month 2, you would have 1004.66 shares and you would receive $73.63 and so on. Over the period of a few years your shares start to accumulate and you will be buying a significant amount of shares monthly.
Now, I must warn you that as with any stock or fund the dividend or share price can go down. When I first purchased this fund, the dividend was $1 per share and it was priced at $13.50. The yield was 7.4% or 10.8% equivalent if you figure that it was tax free. This was unheard of back in 2003 when ING and HBSC were only giving 1.9%! In Sept 2005 they decided to lower their dividend from $1/share to $0.88/share. The fund took a hit of $2 right away but slowly recovered.
My other main dividend paying stock is BP. This stock is paying a dividend of $2.36 per share per year. It’s current yield is only 3.6% and its taxable. This is one of those bought for cashflow but you’re holding for appreciation stocks.
There is a website out there that lists stocks which pay high dividends and their payout dates. It’s a unique concept that is based on the fact that there are thousands of dividend paying stocks out there and that if you structure your portfolio correctly you could be receiving a dividend payment every single week or everyday. While the concept of the website is great I won’t be mentioning its name or recommending it due to a little incident I had with the owner when I was a member five years ago. But I’m over it, LOL.
I didn’t realize it then but before real estate my cashflow investing was based on high yield stocks.
Posted in Finances | 
Stumble it!
Am amazed, how similar our approach is.
I’m concentrating more and more on dividend and dividend/growth titles as well, i.e. Altria, Citi, Samsung and so on.
Too bad, that I only stumbled over rich dad, poor dad in june. It would have saved me so much time and effort:
http://nomads-vagabonds.blogspot.com/2006/06/retire-young-retire-rich.html
Cheers,
Chris
;-)
By Chris on Sep 12, 2006
I really like REITs, since they typically pay a high dividend and invest in real estate, thus providing a nice combination of cashflow and real estate. Particularly, I like SFI. Their dividend yield right now is 7.35%, but when I got started with them several years ago, it was in the low ten percents. They haven’t dropped their dividend - in fact, they have never decreased their dividend since they’ve been in existance. (They tend to raise it each year, although I can’t say for certain if they have raised it *every* year.) Instead, their stock price has risen, driving down the yield. I hold this in a Roth IRA, so the dividends are tax free. They are currently paying $3.08 per share a year in dividends.
By Shaun on Sep 13, 2006
When a stock pays out its dividend, the price automatically drops by the amount paid out. So, a $10 stock paying a .25 div, would open at $9.75 on the payout date.
By Soggy on Sep 25, 2006
Soggy, what you say is not true. The stock movement is not specifically tied to the dividend payout. If it were, FMN would slowly decrease $.07 a month. Look at the graph, that is not happening.
Stocks do tend to move down on ex-dividend dates as traders by a few days before and hold through the pay out date and then dump.
By monarchcrest on Sep 25, 2006
You guys should look into PEY constituents. PEY is a dividend focused ETF that is comprised of only stocks which have increased their dividends every year for the past 10 years. The yield is only 4%, but if you plot dividend growth in excel of some of these companies, you will find that increasing dividends also increases share prices as well as payments creating a nice total return for you.
Final Fantasy Fan,
Max
By Final Fantasy on Nov 27, 2006