Put Cash in Your Pocket with this Market-Beating Dividend Fund (2024)

Put Cash in Your Pocket with this Market-Beating Dividend Fund (1)

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It’s a little under four months since I created four investing funds on Motif so I thought I would provide an update on how each are doing. We talked last week about how the American Future Fund of stocks within energy, agriculture and healthcare had doubled the stock market’s return over the period. I’m updating on the dividend fund this week and while it hasn’t done quite as well, I’m still happy with the return and the outlook to meet my investing goals.

If you’ve been reading the blog long enough, you know I love dividends. The quarterly cash payout from dividend stocks is one of the only certainties in the stock market and have accounted for about 40% of the long-term return on stocks.

Not only do they provide a strong return but dividend stocks help to reduce inflation risk and provide stability during a stock market crash. Need more convincing? Check out these four reasons to invest in dividend stocks.

Before we review the return on the dividend fund, note I’m not suggesting you invest in the fund. I like to share how I am investing and my process for picking stocks on the idea that maybe it will help you make some of your own decisions. The investing funds I created on Motif are built around my own goals and tolerance for risk and may not be appropriate for your needs. To get started on your own investing strategy, take a look at how to create a personal investing plan around your needs.

Beating the Stock Market and Putting Cash in Your Pocket: A Dividend Fund that Rocks

The dividend fund, actually called Dividends for Growth and Cash Flow on the Motif Investing platform, is composed of three exchange traded funds (ETFs) that make up 50% of holdings and 12 individual stocks across six sectors. Motif classifies stocks a little odd sometimes in its tables so the railroads and diversified machinery segments in the table below are actually part of the industrials sector.

The three ETFs give me exposure to hundreds of individual stocks in typically high dividend themes. While dividends in the energy sector might not be as high as those in a few others, I added it because of the outlook for strong growth and cash return as the sector gets back to normal after two years of falling prices.

The dividend fund is built on the core-satellite investing strategy, one of the best ways to invest and really the secret to stress-free investing. I talked about the core-satellite strategy in a recent Facebook Live video along with how to beat the stock market game (join us live every week on Facebook @3pm eastern). The basic idea is just to put half or more of your investment in broad funds that cover the market or your investing theme. This lowers your risk around any individual company and helps you earn the market return. The rest of your portfolio is spread out across individual stocks to help get a little extra return.

It’s only been a few months since I created the dividend fund but the return of 17.2% has beaten the S&P 500 by more than 3% and that’s not including the 1.35% return on dividends collected so far. Note that’s not an annualized return but the actual return on the fund to date, which is pretty darn good. Dividend yields on the fund range from 2.2% up to 6.4% with a 3.2% average weighted yield.

Put Cash in Your Pocket with this Market-Beating Dividend Fund (2)

Winners and Losers in the Dividend Fund

Shares of energy companies have done very well since February on the rebound in the price of oil. The Vanguard Energy ETF (VDE) is up over 24% and shares of Devon Energy Corporation (DVN) have jumped 61% over the period. I don’t expect much more from energy over the rest of the year but still love the theme as a long-term investing theme. The world is only going to need more oil & gas and prices are still well below what they were a few years ago. It may take a while for oil to reach $100 a barrel again but I’ll benefit from growing dividends and stock values until it does.

Put Cash in Your Pocket with this Market-Beating Dividend Fund (3)Stocks of utilities companies, including the Vanguard fund and FirstEnergy Corporation (FE) in the dividend fund, have really been the laggards in the stock market. This is because investors are worried about rising interest rates, something that makes investment in utilities less attractive compared to bonds and other high yield stocks. I’m not worried though because they are some of the safest stock investments you can make and will provide great long-term cash flow and a stable return.

The investment in CF Industries (CF), an agricultural chemicals company, has also under-performed the dividend fund and the rest of the market. I see this as an opportunity and will be buying more shares over the next month. Companies in the agriculture industry have been hit hard over the last few years on record-breaking harvests that sent crop prices plummeting. It’s a very cyclical industry though and all it takes is for a year or two of bad weather to send crop prices back up and see these stocks jump. The National Weather Service puts odds at 75% that we get a La Nina weather phenomenon this year, the same weather pattern that typically dries out the Northern Hemisphere and led to record grain prices in 2012.

Against the average investor return of just 2.6% annually over the ten years through 2013, I would be happy with the dividend fund if it just made the same return as the general stock market. The fact that it has beaten the market is just an added bonus to the consistent cash flow it provides.

While I don’t recommend you invest directly in the dividend fund above, instead creating your own fund around your investing goals, I do think Motif Investing is a great choice for everyone. It would have cost 15-times as much to buy the stocks in the fund on another platform. With Motif, you create a fund and then pay just one $10 commission to buy all the stocks within it. Each time you go to invest more money in the fund, it’s just one commission.

Open an Account on Motif and Get up to $150 Cash Back

There are so many reasons to invest in dividend stocks but the best one is just for general stock market diversification. Dividend stocks are generally more mature companies and will help to smooth out your investing returns when combined with growth stocks and other investing themes. Set up your own dividend fund on Motif or just invest in a few dividend ETFs for long-term appreciation and cash in your pocket.

Put Cash in Your Pocket with this Market-Beating Dividend Fund (2024)

FAQs

What does it mean to beat the market? ›

The phrase "beating the market" is a reference to an investor or corporation seeing better results than an industry standard. With an investment portfolio, a market participant may have managed a return over a specific period of time, such as a year, that surpasses the returns of a market benchmark such as the S&P 500.

Is it better to reinvest dividends or cash? ›

It May Take Longer To Achieve Long-Term Financial Goals: Dividend reinvestment leads to compounded growth. This makes it easier (and faster) to achieve your long-term financial goals versus keeping cash in a savings account.

How to make $1,000 a month through dividend investing? ›

To have a perfect portfolio to generate $1000/month in dividends, one should have at least 30 stocks in at least 10 different sectors. No stock should not be more than 3.33% of your portfolio. If each stock generates around $400 in dividend income per year, 30 of each will generate $12,000 a year or $1000/month.

Should you try to beat the market? ›

Maximizing returns is not as important, especially not if it means taking risks that could cause clients to withdraw their money from the funds. If they try to beat the market by taking risks, the chances are high that they will end up drastically underperforming the market for some quarterly or annual periods.

What is the best way to beat the market? ›

The four simple rules to beating the market
  1. Get your financial house in order. You should only be investing when a few very important boxes can be checked off: ...
  2. Don't "be" the market. There are huge benefits to diversification. ...
  3. Don't pay high fees. The fees you pay for your investments seem so tiny. ...
  4. Invest for the long run.

How many funds beat the market? ›

Although it is very difficult, the market can be beaten. Every year, some managers boast better numbers than the market indices. A small fraction even manages to do so over a longer period. Over the horizon of the last 20 years, less than 10% of U.S. actively managed funds have beaten the market.

What is the downside to reinvesting dividends? ›

Dividend reinvestment has some drawbacks. One downside is that investors have no control over the price at which they buy shares. If the stock gains significant value, they'd still buy shares at what could be a high price.

How do I avoid paying taxes on reinvested dividends? ›

Reinvested dividends may be treated in different ways, however. Qualified dividends get taxed as capital gains, while non-qualified dividends get taxed as ordinary income. You can avoid paying taxes on reinvested dividends in the year you earn them by holding dividend stocks in a tax-deferred retirement plan.

Why do companies pay dividends instead of reinvesting? ›

Arguments for Dividends

Proponents of dividends point out that a high dividend payout is important for investors because dividends provide certainty about the company's financial well-being. Typically, companies that have consistently paid dividends are some of the most stable companies over the past several decades.

How much money do I need to generate $2000 a month? ›

Earning $2,000 in monthly passive income sounds unbelievable but is achievable through dividend investing. However, the investment amount required to produce the desired income is considerable. To make $2,000 in dividend income, the investment amount and rate of return must be $400,000 and 6%, respectively.

How much money do I need to invest to make $4000 a month? ›

Making $4,000 a month based on your investments alone is not a small feat. For example, if you have an investment or combination of investments with a 9.5% yield, you would have to invest $500,000 or more potentially. This is a high amount, but could almost guarantee you a $4,000 monthly dividend income.

How much do I need to invest to make $300 a month in dividends? ›

However, this isn't always the case. If you're looking to generate $300 in super safe monthly dividend income (note the emphasis on "monthly" income), simply invest $43,000, split equally, into the following two ultra-high-yield stocks, which sport an average yield of 8.39%!

How often do traders beat the market? ›

The average individual investor underperforms a market index by 1.5% per year. Active traders underperform by 6.5% annually. Day traders with strong past performance go on to earn strong returns in the future. Though only about 1% of all day traders are able to predictably profit net of fees.

Who has consistently beat the market? ›

Warren Buffett

Those who invested $10,000 in Berkshire Hathaway in 1965 are above the $60.2 million mark today. 1314 Buffett's investing style of discipline, patience, and value has consistently outperformed the market for decades.

Do most financial advisors beat the market? ›

Today most advisors build portfolios of funds rather than stocks, and more often than not their focus is on holistic financial planning. Those advisors that build stock portfolios will likely require hundreds of thousands of dollars if not millions to build one, and it won't necessarily beat the market.

Who has beaten the market consistently? ›

Warren Buffett

Those who invested $10,000 in Berkshire Hathaway in 1965 are above the $60.2 million mark today. 1314 Buffett's investing style of discipline, patience, and value has consistently outperformed the market for decades.

What is the theory that you can't beat the market? ›

Market efficiency theory states that if markets function efficiently then it will be difficult or impossible for an investor to outperform the market. Price efficiency is the belief that asset prices reflect the possession of all available information by all market participants.

Do day traders beat the market? ›

You may have heard stories of people becoming successful day traders after minimal effort, and although that looks incredibly enticing, the reality is that most day traders end up losing money over the long run. Studies show that over 97% of day traders end up losing money in the long run…

Do hedge funds actually beat the market? ›

Summary. Hedge funds performed well in 2022 against a backdrop of volatile and declining equity markets. In December, the PivotalPath Hedge Fund Composite Index rose 0.4% versus the S&P 500's decline of 5.6%. For the year, the PivotalPath Hedge Fund Composite Index lost 0.8% compared to the S&P 500 which fell 18.1%.

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