Investors Need To PAAY Attention To This Information

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Includes: AAPL, AFL, AMGN, AMP, APD, ARLP, AVA, BA, BBL, BHP, BIP, BPL, CBRL, CINF, CMI, COP, CSX, CVX, D, DE, DLR, DRI, DX, EMR, FCPT, FLIC, GD, GE, HAS, HRS, IBM, ITW, JNJ, KMI, LMT, MCD, MSFT, NHI, NLY, NUS, NVS, O, OHI, OKE, PAA, PEP, PTY, QCOM, SKT, SOUHY, TGT, TROW, TUP, UGI, VSM, WBA, WFC, WMT, WPZ
by: The Part-time Investor
Summary

A stock's present yield as compared to its average yield can identify buying opportunities.

I have been using my PAAY system for over 5 years for reinvesting my dividends.

In this article, I present the results of how these re-investments have performed.

Over the past 5+ years, I have been posting my KISS portfolio on Seeking Alpha. During that time, I have used my PAAY system to reinvest my dividends. PAAY stands for Percentage Above Average Yield. My theory behind the system is that when a dividend growth stock is trading at a price which gives it a yield significantly higher than usual it might be a good time to buy. With this thought in mind over the lifetime of my portfolio I have been reinvesting my collected dividends in to the stocks I already own which have the highest PAAY. But although I was confident in the concept and rational for the PAAY system, I really didn’t know if it actually works. Now I believe there has been enough time for me to evaluate the system to see how effective it really is.

First let me describe how I use the system. For every stock I have in my portfolio, I keep a spreadsheet with the weekly closing price, the most recent dividend payment, and yield going back to the year 2000, and I keep a running 52-week average yield. I update the price for each stock at the end of the week, and the spreadsheet calculates the present yield and calculates the PAAY compared to the average 52-week yield. Depending on how much money I have to re-invest each quarter from accumulated dividends and from pension contributions, I will buy as many as the 10 stocks with the highest PAAY but sometimes less than 10 if I don’t have much to invest.

So here is the entire list of each and every stock I bought through the years using PAAY. I list the number of shares bought, the price paid, and the total cost. I also show the present price for each stock (or the price at which the stock was sold if the stock cut its dividend), the value of the shares bought, the dividends I’ve received per share, and the total amount of dividends collected from that reinvestment.

Date

Stock

Shares Bought

Price Paid

Total Cost

Present Price (Or Price Sold)

Present Value

Dividends Paid (per share)

Dividends Collected

4/1/2013

Air Products and Chemicals (APD)

7

86.73

$607.11

89.09

$623.63

19.7

$137.90

4/1/2013

BHP Billiton (BBL)

11

58.1

$639.10

19.68

$216.52

3.6

$39.60

4/1/2013

Darden Restaurants (DRI)

13

51.62

$671.06

112.89

$1,467.57

11.81

$153.53

4/1/2013

The First of Long Island Corp. (FLIC)

33

20.1804

$665.95

22.55

$744.15

4.17

$137.61

4/1/2013

Harris Corp. (HRS)

14

46.25

$647.50

164.28

$2,299.92

11.015

$154.21

4/1/2013

Lockheed Martin (LMT)

7

96.41

$674.87

337.66

$2,363.62

35.5

$248.50

4/1/2013

Microsoft (MSFT)

23

28.62

$658.26

114.26

$2,627.98

7.5

$172.50

4/1/2013

PIMCO Corporate & Income Opportunity Fund (PTY)

30

21.7

$651.00

17.77

$533.10

9.1

$273.00

4/1/2013

Realty Income Corp. (O)

14

45.19

$632.66

56.99

$797.86

10.841

$151.77

4/1/2013

Walmart (WMT)

9

75.16

$676.44

95.90

$863.10

11.41

$102.69

5/6/2013

Air Products and Chemicals (APD)

5

89.74

$448.70

89.09

$445.45

19.7

$98.50

5/6/2013

BHP Billiton (BBL)

7

58.33

$408.31

19.68

$137.79

3.6

$25.20

5/6/2013

Deere (DE)

4

91.43

$365.72

152.81

$611.24

13.02

$52.08

5/6/2013

The First of Long Island Corp. (FLIC)

19.403

20

$388.06

22.55

$437.54

16.68

$323.64

5/6/2013

General Electric (GE)

36

22.42

$807.12

18.11

$651.96

4.06

$146.16

5/6/2013

Harris Corp. (HRS)

8

46.91

$375.28

164.28

$1,314.24

11.015

$88.12

5/6/2013

Kinder Morgan (KMI)

5

86.85

$434.25

16.27

$81.35

4.44

$22.20

5/6/2013

PIMCO Corporate & Income Opportunity Fund (PTY)

18

22.1

$397.80

17.77

$319.86

8.97

$161.46

5/6/2013

Walmart (WMT)

5

78.89

$394.45

95.90

$479.50

11.41

$57.05

5/6/2013

Wells Fargo (WFC)

21

37.85

$794.85

54.99

$1,154.79

7.69

$161.49

7/1/2013

BHP Billiton (BBL)

6

52.32

$313.92

19.68

$118.10

3.6

$21.60

7/1/2013

CSX Corp. (CSX)

14

23.21

$324.94

73.99

$1,035.86

3.18

$44.52

7/1/2013

Deere (DE)

4

81.51

$326.04

152.81

$611.24

12.51

$50.04

7/1/2013

ONEOK (OKE)

30

50.44

$1,513.20

69.11

$2,073.30

12.865

$385.95

7/1/2013

PIMCO Corporate & Income Opportunity Fund (PTY)

16

19.19

$307.04

17.77

$284.32

8.71

$139.36

7/1/2013

Plains All American (PAA)

6

56.25

$337.50

21.56

$129.36

10.792

$64.75

7/1/2013

Qualcomm (QCOM)

5

61.38

$306.90

73.70

$368.50

9.05

$45.25

7/1/2013

Realty Income Corp. (O)

7

41.479

$290.35

56.99

$398.93

10.477

$73.34

7/1/2013

Walmart (WMT)

4

74.76

$299.04

95.90

$383.60

10.94

$43.76

7/1/2013

Wells Fargo (WFC)

35

41.8

$1,463.00

54.99

$1,924.65

7.69

$269.15

1/2/2014

Deere (DE)

11

91.02

$1,001.22

152.81

$1,680.91

11.49

$126.39

1/2/2014

Digital Realty Trust (DLR)

32

49.96

$1,598.72

120.92

$3,869.44

16.99

$543.68

1/2/2014

Dynex (DX)

75

7.99

$599.25

8.98

$673.50

1

$75.00

1/2/2014

McDonald's (MCD)

30

96.7

$2,901.00

165.30

$4,959.00

17.19

$515.70

1/2/2014

PIMCO Corporate & Income Opportunity Fund (PTY)

34

17.6

$598.40

17.77

$604.18

7.93

$269.62

1/2/2014

Realty Income Corp. (O)

15

37.61

$564.15

56.99

$854.85

9.385

$140.78

4/1/2014

Brookfield Infrastructure Partners (BIP)

50

39.58

$1,979.00

44.26

$2,213.00

2.81999

$141.00

4/1/2014

Chevron Corp. (CVX)

42

118.94

$4,995.48

121.13

$5,087.46

19.46

$817.32

4/1/2014

Cincinnati Financial Corp. (CINF)

31

48.1

$1,491.10

79.03

$2,449.93

9.63

$298.53

4/1/2014

Digital Realty Trust (DLR)

17

52.51

$892.67

120.92

$2,055.64

17.01

$289.17

4/1/2014

General Electric (GE)

231

25.94

$5,992.14

18.11

$4,183.41

3.48

$803.88

4/1/2014

Target (TGT)

54

60.61

$3,272.94

87.31

$4,714.74

10.27

$554.58

10/3/2014

PIMCO Corporate & Income Opportunity Fund (PTY)

52

17.1

$889.20

17.77

$924.04

6.76

$351.52

12/31/2014

Aflac (AFL)

56

29.705

$1,663.48

48.04

$2,690.24

3.27

$183.12

12/31/2014

BHP Billiton (BBL)

36

47.12

$1,696.32

19.68

$708.62

2.42

$87.12

12/31/2014

Boeing (BA)

13

130.74

$1,699.62

372.23

$4,838.99

18.81

$244.53

12/31/2014

Chevron Corp. (CVX)

16

108.94

$1,743.04

121.13

$1,938.08

16.25

$260.00

12/31/2014

ConocoPhillips (COP)

26

65.88

$1,712.88

38.37

$997.62

2.94

$76.44

12/31/2014

Deere (DE)

20

88.29

$1,765.80

152.81

$3,056.20

9.18

$183.60

12/31/2014

Emerson Electric (EMR)

27

63.11

$1,703.97

78.01

$2,106.27

7.17

$193.59

12/31/2014

ONEOK (OKE)

55

53.32

$2,932.60

69.11

$3,801.05

10

$550.00

12/31/2014

Plains All American (PAA)

33

50.72

$1,673.76

21.56

$711.48

7.055

$232.82

12/31/2014

Qualcomm (QCOM)

23

72.69

$1,671.87

73.70

$1,695.10

7.98

$183.54

12/31/2014

Tupperware (TUP)

25

67.13

$1,678.25

34.55

$863.75

10.2

$255.00

12/31/2014

Williams Partners (WPZ)

37

46.14

$1,707.18

39.51

$1,461.87

7.65

$283.05

5/11/2015

PIMCO Corporate & Income Opportunity Fund (PTY)

64

15.9195

$1,018.85

17.77

$1,137.28

5.07

$324.48

5/11/2015

Qualcomm (QCOM)

50

68.26

$3,413.00

73.70

$3,685.00

7.08

$354.00

7/10/2015

Chevron Corp. (CVX)

22

94.62

$2,081.64

121.13

$2,664.86

14.11

$310.42

7/10/2015

ConocoPhillips (COP)

35

58.93

$2,062.55

38.37

$1,342.95

1.48

$51.80

7/10/2015

Emerson Electric (EMR)

37

54.32

$2,009.84

78.01

$2,886.37

6.23

$230.51

7/10/2015

IBM Corp. (IBM)

12

169.57

$2,034.84

151.35

$1,816.20

18.64

$223.68

7/10/2015

Nu Skin Enterprises (NUS)

42

42.71

$1,793.82

84.41

$3,545.22

4.655

$195.51

7/10/2015

ONEOK (OKE)

51

41.17

$2,099.67

69.11

$3,524.61

8.79

$448.29

7/10/2015

Qualcomm (QCOM)

31

63.62

$1,972.22

73.70

$2,284.70

6.6

$204.60

10/5/2015

Alliance Resource Partners (ARLP)

181

22.33

$4,041.73

19.70

$3,565.70

6.0875

$1,101.84

10/5/2015

ConocoPhillips (COP)

38

52.18

$1,982.84

38.37

$1,458.06

0.74

$28.12

10/5/2015

Deere (DE)

53

74.74

$3,961.22

152.81

$8,098.93

7.38

$391.14

10/5/2015

Emerson Electric (EMR)

112

44.66

$5,001.92

78.01

$8,737.12

5.76

$645.12

10/5/2015

ONEOK (OKE)

56

35.58

$1,992.48

69.11

$3,870.16

8.185

$458.36

10/5/2015

Plains All American (PAA)

87

34.38

$2,991.06

21.56

$1,875.72

5

$435.00

12/31/2015

Alliance Resource Partners (ARLP)

280

13.697

$3,835.16

19.70

$5,516.00

5.4125

$1,515.50

12/31/2015

Apple (AAPL)

10

102.62

$1,026.20

217.66

$2,176.60

8.81

$88.10

12/31/2015

CSX Corp. (CSX)

38

25.14

$955.32

73.99

$2,811.62

2.16

$82.08

12/31/2015

Qualcomm (QCOM)

20

49.07

$981.40

73.70

$1,474.00

6.12

$122.40

4/4/2016

Alliance Resource Partners (ARLP)

240

11.35

$2,724.00

19.70

$4,728.00

4.7375

$1,137.00

4/4/2016

Ameriprise Financial (AMP)

30

93.86

$2,815.80

149.99

$4,499.70

13.12

$393.60

4/4/2016

Boeing (BA)

22

127.81

$2,811.82

372.23

$8,189.06

12.66

$278.52

4/4/2016

CSX Corp. (CSX)

111

25.56

$2,837.16

73.99

$8,212.89

1.98

$219.78

4/4/2016

Cummins Inc. (CMI)

26

110.14

$2,863.64

151.02

$3,926.52

10.535

$273.91

4/4/2016

General Dynamics (GD)

19

132.85

$2,524.15

204.66

$3,888.54

9.19

$174.61

4/4/2016

Novartis (NVS)

40

72.75

$2,910.00

85.46

$3,418.40

4.212

$168.48

4/4/2016

Plains All American (PAA)

138

20.82

$2,873.16

21.56

$2,975.28

3.6

$496.80

4/4/2016

Qualcomm (QCOM)

56

51.06

$2,859.36

73.70

$4,127.20

5.64

$315.84

4/4/2016

Williams Partners (WPZ)

143

19.86

$2,839.98

39.51

$5,649.93

3.4

$486.20

7/1/2016

Ameriprise Financial (AMP)

26

86.59

$2,251.34

149.99

$3,899.74

12.54

$326.04

7/1/2016

Apple (AAPL)

25

91.93

$2,298.25

217.66

$5,441.50

5.69

$142.25

7/1/2016

Boeing (BA)

18

123

$2,214.00

372.23

$6,700.14

11.57

$208.26

7/1/2016

Cummins Inc. (CMI)

21

106.35

$2,233.35

151.02

$3,171.42

9.56

$200.76

7/1/2016

General Dynamics (GD)

17

133.42

$2,268.14

204.66

$3,479.22

7.67

$130.39

7/1/2016

Omega Healthcare Investors (OHI)

70

32.36

$2,265.20

32.77

$2,293.90

5.73

$401.10

7/1/2016

Qualcomm (QCOM)

45

51.09

$2,299.05

73.70

$3,316.50

5.11

$229.95

7/1/2016

T. Rowe Price (TROW)

34

67.73

$2,302.82

111.77

$3,800.18

5.46

$185.64

7/1/2016

Target (TGT)

34

68.14

$2,316.76

87.31

$2,968.54

5.52

$187.68

7/1/2016

Wells Fargo (WFC)

51

44.71

$2,280.21

54.99

$2,804.49

3.51

$179.01

10/7/2016

Ameriprise Financial (AMP)

37

102.87

$3,806.19

149.99

$5,549.63

11.96

$442.52

10/7/2016

Boeing (BA)

29

134.22

$3,892.38

372.23

$10,794.67

10.48

$303.92

10/7/2016

Cracker Barrel (CBRL)

29

132.13

$3,831.77

146.45

$4,247.05

16.75

$485.75

10/7/2016

Darden Restaurants (DRI)

62

61.92

$3,839.04

112.89

$6,999.18

4.2

$260.40

10/7/2016

General Electric (GE)

129

29.585

$3,816.47

18.11

$2,336.19

0.96

$123.84

10/7/2016

Hasbro (HAS)

48

80.62

$3,869.76

107.46

$5,158.08

5.82

$279.36

10/7/2016

McDonald's (MCD)

33

114.07

$3,764.31

165.30

$5,454.90

7.8

$257.40

10/7/2016

T. Rowe Price (TROW)

57

67.36

$3,839.52

111.77

$6,370.89

4.92

$280.44

10/7/2016

Target (TGT)

56

68.42

$3,831.52

87.31

$4,889.36

4.92

$275.52

10/7/2016

Wells Fargo (WFC)

87

44.84

$3,901.08

54.99

$4,784.13

3.13

$272.31

3/31/2017

Air Products and Chemicals (APD)

8

$136.37

$1,090.96

89.09

$712.72

6

$48.00

3/31/2017

Amgen (AMGN)

6

$163.48

$980.88

205.10

$1,230.60

7.41

$44.46

3/31/2017

Avista Corp. (AVA)

26

$38.71

$1,006.46

50.46

$1,311.96

2.19

$56.94

3/31/2017

Cincinnati Financial Corp. (CINF)

14

$71.62

$1,002.68

79.03

$1,106.42

3.59

$50.26

3/31/2017

General Electric (GE)

34

$30.33

$1,031.22

18.11

$615.74

0.48

$16.32

3/31/2017

National Health Investors (NHI)

14

$72.96

$1,021.44

75.46

$1,056.44

5.85

$81.90

3/31/2017

Qualcomm (QCOM)

18

$57.00

$1,026.00

73.70

$1,326.60

3.52

$63.36

3/31/2017

Realty Income Corp. (O)

17

$59.53

$1,012.01

56.99

$968.83

4.088

$69.50

3/31/2017

T. Rowe Price (TROW)

18

$69.18

$1,245.24

111.77

$2,011.86

3.81

$68.58

3/31/2017

Target (TGT)

15

$53.50

$802.50

87.31

$1,309.65

3.72

$55.80

10/5/2017

Buckeye Partners (BPL)

27

$59.05

$1,594.35

36.02

$972.54

5.052

$136.40

10/5/2017

General Electric (GE)

65

$24.41

$1,586.65

18.11

$1,177.15

0

$0.00

10/5/2017

IBM Corp. (IBM)

11

$147.02

$1,617.22

151.35

$1,664.85

6.14

$67.54

10/5/2017

Illinois Tool Works (ITW)

11

$151.16

$1,662.76

148.44

$1,632.84

3.34

$36.74

10/5/2017

Omega Healthcare Investors (OHI)

50

$31.54

$1,577.00

32.77

$1,638.50

2.63

$131.50

10/5/2017

Pepsi (PEP)

15

$110.52

$1,657.80

114.91

$1,723.65

3.465

$51.98

10/5/2017

Plains All American (PAA)

75

$21.23

$1,592.25

21.56

$1,617.00

0

$0.00

10/5/2017

Qualcomm (QCOM)

30

$52.06

$1,561.80

73.70

$2,211.00

2.38

$71.40

10/5/2017

Target (TGT)

27

$58.60

$1,582.20

87.31

$2,357.37

2.5

$67.50

10/5/2017

Walgreens Boots Alliance (WBA)

21

$76.81

$1,613.01

73.00

$1,533.00

1.64

$34.44

12/29/2017

Buckeye Partners (BPL)

200

$49.60

$9,920.00

36.02

$7,204.00

3.7875

$757.50

12/29/2017

Four Corner Properties Trust (FCPT)

610

$26.18

$15,969.80

25.69

$15,670.90

0.55

$335.50

12/29/2017

Omega Healthcare Investors (OHI)

282

$28.37

$8,000.34

32.77

$9,241.14

1.98

$558.36

12/29/2017

Tanger Factory Outlet Centers (SKT)

333

$22.47

$7,482.51

23.07

$7,682.31

1.0425

$347.15

1/2/2018

Amgen (AMGN)

13

179.03

$2,327.39

205.10

$2,666.30

3.96

$51.48

1/2/2018

Dominion Resources (D)

31

77.75

$2,410.25

70.85

$2,196.35

2.505

$77.66

1/2/2018

Hasbro (HAS)

26

92.02

$2,392.52

107.46

$2,793.96

2.46

$63.96

1/2/2018

ONEOK (OKE)

43

56.47

$2,428.21

69.11

$2,971.73

2.39

$102.77

1/2/2018

UGI Corp. (UGI)

50

47.528

$2,376.40

54.43

$2,721.50

0.77

$38.50

1/2/2018

Walgreens Boots Alliance (WBA)

33

73.18

$2,414.94

73.00

$2,409.00

1.24

$40.92

4/6/2018

Alliance Resource Partners (ARLP)

58

17.15

$994.70

19.70

$1,142.60

1.035

$60.03

4/6/2018

Annaly Capital Management (NLY)

96

10.34

$992.64

10.29

$987.84

0.6

$57.60

4/6/2018

Buckeye Partners (BPL)

26

37.29

$969.54

36.02

$936.52

2.526

$65.68

4/6/2018

Digital Realty Trust (DLR)

10

102.48

$1,024.80

120.92

$1,209.20

2.02

$20.20

4/6/2018

Dominion Resources (D)

15

67.23

$1,008.45

70.85

$1,062.75

2.835

$42.53

4/6/2018

Hasbro (HAS)

12

83.75

$1,005.00

107.46

$1,289.52

1.89

$22.68

4/6/2018

National Health Investors (NHI)

15

66.51

$997.65

75.46

$1,131.90

2

$30.00

4/6/2018

Pepsi (PEP)

9

107.78

$970.02

114.91

$1,034.19

1.855

$16.70

4/6/2018

Tanger Factory Outlet Centers (SKT)

44

22.43

$986.92

23.07

$1,015.08

0.7

$30.80

4/6/2018

Walgreens Boots Alliance (WBA)

16

62.6

$1,001.60

73.00

$1,168.00

0.84

$13.44

7/12/2018

Buckeye Partners (BPL)

138

35.08

$4,841.04

36.02

$4,970.76

1.263

$174.29

7/12/2018

Cincinnati Financial Corp. (CINF)

72

66.67

$4,800.24

79.03

$5,690.16

0.53

$38.16

7/12/2018

Dominion Resources (D)

70

67.87

$4,750.90

70.85

$4,959.50

0.835

$58.45

7/12/2018

The First of Long Island Corp. (FLIC)

193

24.95

$4,815.35

22.55

$4,352.15

0.15

$28.95

7/12/2018

Johnson & Johnson (JNJ)

39

120.9

$4,715.10

142.88

$5,572.32

0.9

$35.10

7/12/2018

Walgreens Boots Alliance (WBA)

80

60.878

$4,870.24

73.00

$5,840.00

0.44

$35.20

The following stocks had spin-offs which are still owned in my portfolio:

Four Corner Properties Trust (FCPT) was spun off from Darden Restaurants (DRI).

Four Corner Properties Trust

4.33333

25.88

$112.15

2.74

$11.87

The following stocks had spin-offs which were later sold:

BHP Billiton (BBL) was spun off from South32 (OTCPK:SOUHY).

Air Products and Chemicals was spun off from Versum Materials (VSM).

South32

60

6.29

$377.40

0

$0.00

Versum Materials

6

30.49

$182.94

0

$0.00

For the above spin-offs, the present value of the owned shares, the money collected when (if) sold, and any dividends collected while owned have been included in the returns.

The following stocks from the above list were later sold due to a dividend cut, and the money collected from the sale is shown in the full spreadsheet above. These amounts were included in the total returns.

BHP Billiton

sold 4/4/16

Brookfield Infrastructure Partners

sold 5/11/15

ConocoPhillips

sold 4/4/16

Dynex

sold 4/1/14

General Electric

sold 12/29/17

Kinder Morgan

sold 12/31/15

Plains All American

sold 12/29/17

Williams Partners

sold 6/30/2017

The following stocks had stock splits after I bought them. The number for the shares bought and the dividends collected have been appropriately adjusted in the spreadsheet above:

Aflac

split 2/1

The First of Long Island Corp.

split 3/2

These reinvestments were made on a quarterly basis, although in some quarters, only new stocks were bought and no reinvestments were made into stocks I already owned. The actual total amount reinvested in any particular quarter is shown in the following table:

4/1/2013

$6,523.95

5/6/2013

$4,814.54

7/1/2013

$5,481.93

1/2/2014

$7,262.74

4/1/2014

$18,623.33

10/3/2014

$889.20

12/31/2014

$21,648.77

5/11/2015

$4,431.85

7/10/2015

$14,054.58

10/5/2015

$19,971.25

12/31/2015

$6,798.08

4/4/2016

$28,059.07

7/1/2016

$22,729.12

10/7/2016

$38,392.04

3/31/2017

$10,219.39

10/5/2017

$16,045.04

12/29/2017

$41,372.65

1/2/2018

$14,349.71

4/6/2018

$9,951.32

7/12/2018

$28,792.87

In order to decide whether or not my reinvestments have done well and if PAAY is an effective method, I must have something to compare my results to. I always use the SPDR S&P 500 Trust ETF (SPY) as my benchmark. Therefore, I did a backtest to determine what my returns would have been had I reinvested my money into SPY rather than the PAAY stocks I actually used. I ran a backtest in which I invested the same amounts above, on the dates listed, into SPY at the closing price for that day. I then calculated what the value of those shares of SPY would be today, including dividends collected, to compare to my PAAY stock reinvestments. Here are the prices for SPY and the number of shares that would have been bought.

Date

Total Reinvested

Price

Shares Bought

Total Shares owned

4/1/2013

$6,523.95

$156.05

41

41

5/6/2013

$4,814.54

$161.78

30

71

7/1/2013

$5,481.93

$161.36

33

104

1/2/2014

$7,262.74

$182.92

40

144

4/1/2014

$18,623.33

$188.25

98

242

10/3/2014

$889.20

$196.52

5

247

12/31/2014

$21,648.77

$205.54

104

351

5/11/2015

$4,431.85

$210.61

22

373

7/10/2015

$14,054.58

$207.48

66

439

10/5/2015

$19,971.25

$198.47

102

541

12/31/2015

$6,798.08

$203.87

32

573

4/4/2016

$28,059.07

$206.25

137

710

7/1/2016

$22,729.12

$209.92

107

817

10/7/2016

$38,392.04

$215.04

179

996

3/31/2017

$10,219.39

$235.74

42

1038

10/5/2017

$16,045.04

$254.66

64

1102

12/29/2017

$41,372.65

$266.86

154

1256

1/2/2018

$14,349.71

$268.77

54

1310

4/6/2018

$9,951.32

$259.72

37

1347

7/12/2018

$28,792.87

$279.37

104

1451

Results

The total amount which I have reinvested using PAAY during the time my portfolio has been active is $320,411.43. The present value of the shares bought with this money, including shares which were sold due to dividend cuts, spin-offs that were sold, and spin-offs that I still own is $417,955.61 (using closing prices on 9/22/18).

The same amount of money, invested in SPY on the same exact days, would have bought a total of 1445 shares and would have a present-day value of $423,750.04. But this doesn’t take into account the dividends collected from these stocks.

The shares of SPY bought over the years would have produced $14,616.53 in dividends. But the PAAY stocks in my portfolio produced $32,101.22 in dividends. This brings the total return for the PAAY stocks to $450,056.83 and the return for SPY to $438,366.57.

Using the XIRR function in Excel, this gives an annual rate of return for the PAAY stocks of 15.47% and a rate of return for the SPY benchmark of 14.27%.

Discussion

There are two reasons for a stock to have a high PAAY. Either the stock price has fallen with no change in the dividend, or the dividend has increased without a similar increase in the stock price. In either case, this could be a good buying opportunity. In case of an increase in the declared dividend, over time, as long as the company’s prospects are unchanged, you can expect that the stock price will rise to keep up with the increase in dividend. Therefore, buying while the price is still comparatively low, as highlighted by the high PAAY, could produce good capital gains, while at the same time producing increased dividend returns.

In cases where the price drops with no change in dividend, again, with no change in the company’s prospects, the price should rebound back up to where it was. Sometimes the drop in price is because the company is having some trouble and there is fear of a dividend cut. But most of the time, the cut never happens. And once the fear of the dividend cut fades, the stock price recovers. Other times the drop in price has to do with market factors and has nothing at all to do with the individual stock. In these cases, PAAY is a great way to identify good stocks that can be bought at a great price. Once the market factors which caused the prices to drop go away, the price will recover and you will have bought the stock at a good price.

However, I believe that in order for these to be true buying opportunities, the stock in question must be a dividend growth stock. It must be a stock that raises its dividend every year, year after year. In order to be confident in the buying opportunity, you must be able to depend on the company’s commitment to its dividend to know that the dividend growth will continue. Without a commitment to the dividend, it’s more likely that there will be a dividend cut.

Having said that, in order to use PAAY for reinvesting, you can’t be afraid of a dividend cut. Yes, it could happen. But it’s unlikely. Over the history of my portfolio, as shown in the stocks listed above, 56 different stocks have been purchased using PAAY. Eight of them have actually cut their dividend. That is 14%. That actually seems like a pretty high number to me, and it shows that there is some risk with this method. But in the end, the extra dividends you collect and the capitals gain you achieve more than make up for the few stocks that get sold at a loss due to the dividend cut. The key, once again, is that these must be dividend growth stocks. As long as the dividend growth continues, the stock price should recover. And buying at a low price allows you to both buy more shares and therefore collect more dividends and enjoy the capital gains when the price recovers. If the company is not committed to increasing its dividend, you can’t make purchases based on the dividend yield. It’s not worth the risk.

A quick note - I use the 1-year average yield, rather than a longer-term average, because I'm looking to take advantage of short-term price fluctuations. A stock that falls on bad news, fear of a dividend cut, or a cause related to market forces will often recover pretty quickly when the bad news or fear fades away - often within 6 months to a year. So, it's these short-term moves that I'm looking to take advantage of even as I'm looking to hold on to these stocks for many decades.

In conclusion, I believe these results demonstrate that PAAY can be an effective method for reinvesting accumulated dividends. It’s a simple and straightforward method based on a very commonsense idea. If the stock price is down while the dividend continues to increase, or if the dividend has risen but the stock price hasn’t gone up yet, it’s probably a good buying opportunity in both cases. My results for the last 5 years show that so far for my portfolio, this has been true.

Thank you for reading my article. I welcome your comments and criticisms.

Disclosure: I am/we are long MSFT, BA, LMT, MCD, AAPL, WMT, WBA, QCOM, HAS, HRS, EMR, ITW, O, PTY, ARLP, NLY, AMGN, AMP, APD, BDX, CSX, CVX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.