Use this simple process to find stocks for dividend investing and save money on Motif Investing
Sean posted an excellent article on the importance of dividend investing and how to build a portfolio of dividend growth stocks earlier this year. He pointed out that the uncertainty around future Social Security payments could leave retirees holding the bag for their own expenses.
In fact, even if Social Security continues to pay out promised benefits, it only amounts to about $16,000 a year to live on so you better start planning now unless you want to live on the bare minimum in retirement.
Investing in stocks that pay a consistent or rising dividend is a great solution, not only for living expenses in retirement but to grow your nest egg in the meantime.
I’ve combined the idea of dividend investing and other metrics from Sean’s post with one of my favorite investing tools to save money investing and find the best dividend stocks available.
What is Motif Investing?
To understand how you can save money dividend investing you first need to understand how a new online investing platform works to help you find new investing ideas.
Motif Investing is like other investing sites in that you can buy stocks and exchange traded funds. What sets Motif apart is that the site allows you to group up to 30 investments into a customizable fund and then buy them all for just one trade.
Instead of paying up to $300 or more to buy the stocks individually, you pay just $10 each time you want to invest in the group.
Saving money is the obvious advantage using Motif but I’ve found it’s also a great tool for finding stocks to invest in and building a portfolio. Each of the 12,000+ funds created by other investors is available as a resource to see what other investors are buying across more than 10 categories.
Using Motif Investing to Find the Best Dividend Stocks
Using Motif to find dividend stocks starts with a few of the nearly 1,500 funds created by investors with the sole purpose of dividend investing. You can sort these by dividend yield, one-year return or search for words within the titles.
Just as in Sean’s dividend growth portfolio, I look first for companies that have been able to increase their dividend consistently. There are three dividend investing funds that target the Dividend Aristocrats specifically.
After finding a few strong dividend-payers, I like to look to some of the funds in other categories to add diversification from other sectors and investing themes.
Narrowing Down You Dividend Portfolio
With a handful of potential stocks for my dividend portfolio, I look to a few more metrics to narrow the field down to between 20 and 27 stocks.
- A price-earnings ratio at least 10% below the average for its sector. This helps to find value stocks in different sectors rather than just those sectors that tend to be cheaper than the broader market.
- Consistent growth in cash flow from operations (CFO). Rather than looking at earnings growth, which can be manipulated by management, CFO is a truer measure of the company’s ability to generate cash to pay dividends.
- Debt-to-Equity lower than peers in the sector. Again, it’s important to compare debt levels within a sector or industry. Consumer staple companies will generally have much higher debt ratios because they have more stable cash flows and can handle the payments compared to those in the tech space.
Why narrow the list down to 27 stocks and not the full 30 stocks you can fit in a Motif fund? I like to include at least three ETFs in each of my Motif funds to add extra diversification to the group.
You can invest in stocks, bond funds, REITs and MLPs on Motif Investing. Really the only investment you won’t find on Motif is p2p investing, which I do through Lending Club. Like dividend investing, peer-to-peer loans can provide a source of cash flow but there are risks involved unlike those you’ll find in stocks.
Motif Investing isn’t just a tool for saving money on trading fees but can also help you find ideas for dividend investing or in any investing theme. Use an easy process like the one above to explore investments made by other investors and then to customize your own fund with stocks that meet your needs.
