Looking for monthly income from blue chip stocks? Chuck Carlson, editor of DRIP Investor, explains how to develop a portfolio—based on “Dividend Aristocrats”—that pays you every month of the year.
Steven Halpern: Our guest today is dividend and income investing expert, Chuck Carlson, editor for DRIP Investor. How are you doing, Chuck?
Chuck Carlson: I’m fine, thank you.
Steven Halpern: Well, today we’re going to talk about one of the most popular topics we ever cover here, which is generating monthly income, and you’re the expert in that, so I look forward to this.
Now companies typically pay dividends quarterly, but you note it’s relatively easy to develop a portfolio that can pay dividends monthly and, in fact, you highlight a portfolio of just three blue chip stocks that could provide monthly dividends when bought together. Could you walk our listeners through that concept?
Chuck Carlson: Sure. As you mentioned, Steve, companies in the US typically pay dividends quarterly or once every three months; however, the month in which they pay their dividends can differ from company to company.
For example, there are some companies that pay a dividend every January, April, July, and October, there are other companies that pay their dividends in the months of February, May, August, and November, and then finally those that pay their dividends in the months of March, June, September, and December.
As you can see, by structuring a portfolio based on the dividend payment dates, investors can get a dividend check basically every month of the year.
And you mentioned, a simple three stock portfolio that we highlight in our newsletter, those three stocks are Chubb (CB), the insurance company, Procter & Gamble (PG), the consumer products giant, and ExxonMobil (XOM), the big energy company.
Chubb pays it dividends every January, April, July, and October, and Procter & Gamble pay their dividends every February, May, August, and November, and Exxon pays theirs every March, June, September, and December, so an investor who owns just those three stocks would receive a dividend check from one of the three companies every month of the year.
Steven Halpern: Now you point out there are some important benefits for investors who create a portfolio of monthly dividends. Could you expand on that?
Chuck Carlson: Sure, and again, right up front, I’m not necessarily suggesting that you should buy a stock because it necessarily fits into a February monthly payment period; however, there are a lot of good companies that do pay dividends in different months, and there is benefits to that.
One of them is that if you know you have a certain amount of cash flow coming in on a monthly basis from your dividends, it allows you to line up that cash flow with those monthly expenses, such as utility bills, credit card bills, mortgage, rent, etc., so it’s a nice way to, in effect, budget or plan for expenses knowing that you have some funds that are going to be available on a monthly basis to pay those.
|pagebreak|Secondly, one of the biggest benefits of dividend reinvestment plans, or DRIPs as people know them, is that you are buying stock with reinvested dividends, which, in effect, means you are dollar cost averaging. That’s one of those underrated things with dividend reinvestment plans.
But the fact is, if you are not taking the dividend check, and you don’t need the dividend check, but you would rather reinvest it back into the stocks, having multiple periods of that reinvestment gives you a better opportunity to take advantage of price dips.
So, if you are reinvesting dividends every month, it’s better than if you were only reinvesting dividends maybe two or three times a year, because it gives you the opportunity to put money back into the market, not just if the market is high but especially when the market is low.
Steven Halpern: Now this might seem like a basic question, but how do you know when a company pays its dividends?
Chuck Carlson: Typically, companies will announce when they’re going to pay their dividend, and there’s a couple of easy ways, but probably the easiest way is to go to the company’s Web site and click on in the shareholders services or investor area, to find their dividend payments.
Most companies will have a listing of, typically, when they have paid their dividends, and then you can get some idea of which month they typically pay dividends.
Another easy way is just do a Google search and put in a particular company, and just put in XYZ company quarterly dividend payment, and then you can see exactly when the company typically does pay their dividends.
Steven Halpern: Now, in your recent issue, you’ve made it particularly easy for Blue Chip investors by listing the different dividend payment periods for a variety of blue chip stocks that are also included on Standard & Poor’s list of Dividend Aristocrats. Could you explain what the Aristocrats are?
Chuck Carlson: Sure. Dividend Aristocrats, as highlighted by Standard & Poor’s, are those companies that have increased their dividend payouts annually for at least 20 consecutive years, so these are companies that have boosted their dividends annually for at least the last two decades, and many of the companies have boosted their dividends on an annual basis much longer than that.
I mentioned Procter & Gamble. I believe Procter & Gamble has increased its dividends every year for the last 50 plus years, so the Dividend Aristocrats are those that have shown a continuity of not just paying a dividend but increasing that dividend on an annual basis.
Steven Halpern: Perhaps you could be kind enough to walk us through these three dividend payment periods then, and highlight some of the Dividend Aristocrats within each category that you believe investors should consider. Let’s begin with those January cycle.
Chuck Carlson: Sure. In the January cycle, there are a number of attractive companies and then, as you kind of alluded into in our newsletter, we mentioned 15 to 20 companies in each of these categories.
|pagebreak|But some highlights of those companies that pay their dividends every January, April, July, and October are Chubb, which I mentioned before, Coca-Cola (KO), Franklin Resources (BEN), the mutual fund firm, Kimberly Clark (KMB), Medtronic (MDT), National Fuel Gas (NFG), which is a quality natural gas utility, UGI (UGI), which is another utility, and then finally Wal-Mart Stores (WMT).
In addition to paying dividends every January, April, July, and October, another common thread of the companies that I’ll be mentioning is they allow any investor to make even their initial purchase of stock directly from the company through the company’s direct purchase dividend reinvestment plan.
So, all of the companies that I just mentioned, and those that I will mention here, allow anyone who is reading this or listening to my voice to be able to buy stock directly from the company the first share and every share.
Steven Halpern: Let’s turn to the second cycle, which would be February, May, August, and November. Are there a few standout ideas in that pay period?
Chuck Carlson: There are. I mentioned Procter & Gamble. They offer a payment during those months. Some other stocks that people are certainly familiar with and are quality companies would include Lowes (LOW), the home building retail store, Caterpillar (CAT), Colgate Palmolive (CL), AT&T (T), Air Products (APD), and Abbvie (ABBV), the spin-off from Abbott Laboratories of a few years ago, and CR Bard (CRB), which is another solid company.
Steven Halpern: Okay, so finally, let’s look at the third dividend payment periods, which includes March, June, September, and December dividend payments.
Chuck Carlson: Right, and this is typically the most common period that companies pay their dividends. The least common is the February, May, August, and November period.
But in the March, June, September, and December period, investors have a lot of stocks from which they choose, names such as Exxon Mobil, McDonald’s (MCD), Pepsico (PEP), United Technologies (UTX), Walgreen (WAG), Aflac (AFL), Becton Dickinson (BDX), Aqua America (WTR), which is a water utility, Energen (EGN), McGraw-Hill Financial (MHFI), PPG Industries (PPG), Target (TGT), and VF Corp. (VFC).
So, there are a lot of different types of companies that offer their dividends in the months of March, June, September, and December.
Steven Halpern: Again, all the companies that you’ve mentioned are Dividend Aristocrats, so these are high quality conservative positions.
Chuck Carlson: High quality, conservative, and again, all of the ones I just mentioned, now, any investor can buy directly through the company’s direct purchase dividend reinvestment plan.
Steven Halpern: Well, I really appreciate you taking the time today. This was a fascinating conversation. Thanks for joining us.
Chuck Carlson: Thank you, Steve.
