In my Dividend Growth Portfolio (DGP), I reinvest dividends once per month.

I don’t drip my dividends. Instead, I let them accumulate in cash, then in the middle of each month, I pick out a nice addition for my portfolio.

Since my last reinvestment in April, incoming dividends accumulated to $623. So on Tuesday, May 18, I went shopping.

Here’s how I decide what to buy: I hold a monthly derby among a few viable candidates. The starting field includes stocks I already own that I want to own more of, as well as stocks I don’t own that I would like to own.

I consider quality, yields, growth rates, valuations, and the overall “fit” into my portfolio.

This month, I put 8-9 stocks and one ETF through the paces. For the first time in the 13-year history of this portfolio, I decided to split my purchase money. I decided to buy two stocks. One is a stock I already own, and the second is a new one.

Purchase #1: Lockheed Martin (LMT)

I already own Lockheed Martin, having first bought it last November (twice) and again in January.

I wrote about LMT last month (HERE) as my High Quality Dividend Growth Stock of the Month. Here is a summary of the company.

The following price graph comes from FASTGraphs. I placed green dots on the price line to show my earlier purchases, and a purple dot at the end to show today’s purchase.

LMT’s recent rising price has narrowed its discount to about 9%. That is still good enough for me to continue building my position in this high-quality company. Its 2.7% yield just exceeds my cut-off for new purchases.

I placed the order shortly after the market opened on Tuesday, May 18. This summarizes the purchase.

I had enough money to buy just one share, given LMT’s high price per share. (I don’t buy fractional shares.)

The total amount spent was $393. That left $230 cash still available, which led to the next purchase, which I made about a half-hour later.

Purchase #2: Merck (MRK)

Merck is my High Quality Dividend Growth Stock for May (see it HERE). This is Merck in a nutshell. Note the “perfect” quality score and steep price discount.

Merck is a new position, becoming the 29th stock in the DGP. The green dot on the following graph marks the purchase.

Here’s the summary of the purchase.

Impact on My Portfolio

Here is how the Lockheed Martin and the new Merck positions will appear in my portfolio table when I update it at the end of the month. New information is highlighted in yellow.

Merck is obviously a small starter position for a moment. That’s fine – everything in investing is scalable, and I will be looking for opportunities to build the position up.

In that regard, as an accumulator of shares, I will not be rooting for the price to go up. Isn’t that weird? But as Warren Buffet has said:

The logic is simple: If you are going to be a net buyer of stocks in the future, … you are hurt when stocks rise. You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance.

Long-term, I want Merck’s price to rise along with its earnings. Short-term, I’d be happy to see it remain “dead money” for a while longer.

Focusing on the portfolio’s income, here’s the combined impact of the two additions:

The additional shares of Lockheed Martin and Merck will add $16 to the portfolio’s annual dividend flow, or about 0.3%.

Don’t laugh. I know that $16 sounds small, but here’s the deal: If I make 12 reinvestments per year, and they each add about that much to the DGP’s income, that amounts to more than a 3% increase in income without doing a thing other than reinvesting the dividends.

That is compounding in action.

And also remember this: The increase in income from reinvesting dividends is on top of the increases the companies themselves make.

Lockheed Martin has not declared its increase for 2021. That will come with the December payment. Merck already increased its dividend for 2021, by 6.6% in January. Overall, 18 companies in the portfolio have already increased their dividends for 2021.

Closing Thoughts

These purchases are examples of opportunistically investing in excellent companies at attractive prices when you have the money to invest. As the entire market is widely considered overvalued, it’s great to find two high-quality companies, that fit my investing goals, available for fair prices or even on sale.

That’s generally how I invest. I keep surveying the landscape for companies that fit my needs and are well-valued, and I grab them when I have dividends to reinvest. I don’t care what order I buy stocks in. Over time, “chasing” quality and value wherever you find it results in a diversified portfolio.

Lockheed Martin’s price may be catching up to its fair value, so I may pause or stop my adding more shares. Merck is so far undervalued that I hope to be able to continue building the position this year at good prices.

After the purchases, I have $72 in cash remaining in the kitty. That rolls over to June and will contribute to next month’s reinvestment.

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— Dave Van Knapp

Source: DividendsAndIncome.com

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