Recent Buy: CMP - Sell: KO - And an explanation

Alright, I know what you are thinking... this guy isn't a dividend investor!  He's a day trader!

Ok, I guess I owe at least one of you an explanation (you know who you are).

When I first started out, I had listened to Richard Stooker's book Stock Market Investing for Beginners  on Audible.  I have Audible because of my total one hour commute - and from time to time I like to listen to some non-fiction.  Not often, mind you, but I was recently turned off by the second chapter of Ready Player One and returned it to see if I could learn more about the market.

His book is a great primer for explaining most basics of the market, but the narrator was pretty bad - I think he was a voice synth program reading the book - but I digress.  It prompted me to research and Young Dividend and Stooker were my early influences for my original $20k purchases.

I then was researching what I knew about dividend stocks, which was about half of what I should, while learning as I went.  Last month, I bought Get Rich with Dividends: A Proven System for Earning Double Digit Returns.  The title originally turned me off - it sounded like some title for a pyramid scheme.  However, the reviews were glowing, and since I can return books I don't like, I dove in.

It was easily the best book for filling in the spaces I needed.  In addition, it was written 2 years ago, so many references were relevant.  I had to smile and laugh when many of my stocks were mentioned as examples, and even the company I work for was mentioned.  The man has a sense of humor as well, which helps with some of the dry areas (like Puts and Holds - a chapter I didn't think was useful).  However, he covers everything from REITS (like my O), MLPS, Foreign Stocks, and he even takes a stab at taxes, all while reminding the reader he is NOT a tax expert.

I knew about the Aristocrats, but I was unaware of David Fish's list of Dividend Champions, Contenders, and Challengers.  Utilizing this list, I had seen that Unilever (UN) had fallen off the list due to a cut in dividends.  Thus I sold it - if I didn't earn enough to cover my fees, I would have hung onto it - I'm not into the business of losing money.

Today I finished the book, but last night on the drive home I learned about Payout Ratio.  It is what percent a company gives of its earnings to pay for dividends.  I checked all my stocks last night - all were fine (30-75% mark) except for O and KO (Income Realty Corp & Coke).  O was ok though, because it is a REIT and that is how they work.  But Coke... uh oh!  Here is a good list of the levels:  http://www.dividend.com/dividend-education/what-is-an-ideal-payout-ratio/ and Coke was at 148%!  Now, this may be all fine and good for Young Dividend, as he started a while ago and is more invested, but as a person starting out with just my picks for future investment, it was a warning sign.  Coke is definitely in a position to cut dividends.  After all, they were at 99% a few quarters ago, so the cost is creeping up.  People are drinking less soda, and there's fewer markets available to capitalize on in a short time, so maybe not a good idea for someone like me just starting out.  Now I'm sure Coke will figure something out, but in case they don't and cut dividends like Unilever, I figure I should take my money elsewhere.  I was $25 up so my trading costs were covered.  I checked the list of Contenders, and decided on a salt mining company, Compass Mining (CMP).  All their technicals were good - and I need another Basic Materials sector stock.  The only negative is that it is cyclical (salt for winter), but a pretty dependable cycle.

In the end, I am making more dividends ($650-660 annually) with better stocks.

And here I am today.  I am looking forward to two weeks from now, when I will be adding about $3k to my portfolio.  I hope to obtain about $1k worth of some more expensive stocks, or some combination to continue and diversify my portfolio to 30 stocks.  I have decided to add another page with links to Fish's list, and other items I will use on a typical stock decision day.