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Staggering Your Global Dividend Investing: Dividend Laddering on the Calendar

By Edited Jun 15, 2015 5 5

Income Investing

If you invest in companies around the globe, either international corporations, or in U.S. companies that operate globally -- it’s often wise to choose dividend stocks that pay on a staggered or laddered basis. Companies that regularly pay a portion of their profits back to shareholders in the form of quarterly dividends are a solid way to approach long-term investing, but if you plan the payment schedule as you invest, it can be as powerful as laddering bonds with different expirations, and coupon payments throughout the calendar year.

Since many of you have a long-term retirement account at work (401K, 403b, Roth, or other IRA), you likely already have portfolio diversification that comes from holding a number of mutual funds. This diversification protection is what makes many retail investors then feel comfortable with holding individual stocks. The concept here is the income potential that comes from both the growth of these holdings and the shared dividends is a stable way to build up a long-term portfolio.

Dividend Staggering (Ladder) Example

Caterpillar_income_investing_global_dividends
Here is a dividend portfolio consisting of three large cap companies.  Caterpillar is a company in the construction and agricultural machinery industry, and in some sense a conglomerate of a mining, finance, agri-business, and industrial corporation. Johnson & Johnson is a biotechnology/drugs company in the healthcare sector known for a number of products in its consumer, pharmaceuticals, and medical devices and diagnostics segments. Kraft Foods is a major diversified food industry company in the consumer goods sector. These businesses feature such items as Caterpillar tractors and engines, household items like Tylenol and Listerine, and iconic food products like Oreos, and Kraft Macaroni and Cheese.

Dividend Payments Throughout the Year

Caterpillar (NYSE ticker symbol: CAT) pays a quarterly dividend in January, April, July, and October. Currently at 0.46 USD per share, This gives us an annual yield of 2.04% with $1.84 per year. You calculate the Dividend yield by dividing the annual per share dividend by the per share stock price. In this case, Caterpillar pays $1.84 per year in dividends, divided by today’s closing stock price of $90.18 (May 30, 2012) equals .0204 or 2.4% yield.

Johnson & Johnson (NYSE ticker symbol: JNJ) pays a quarterly dividend in February, May, August, and November of 0.61 USD per share, or $2.44 per year. With today’s closing price of $62.21, JNJ pays a 3.92% yield.

Kraft Foods Inc (NYSE ticker symbol: KFT) pays a quarterly dividend in March, June, September, and December of 0.29 USD per share, or $1.16 per year. With today’s closing price of $38.41, KFT pays a 3.02% yield.

Let's Look At an Example of How This Works:

Using some tools online (like Hugh Chou’s great DRIP calculator), if you buy $100 per month in each stock above (Caterpillar, Johnson & Johnson, and Kraft Foods), and reinvest dividends for 25 years, you would build up quite an income generation tool.

FOR EXAMPLE: With Caterpillar stock in a DRIP account with $100 monthly contributions for 25 years, assuming a $90.18 stock price, a 2.4% dividend yield, and a very conservative 5% annual increase of the stock, we see some solid numbers. Assuming that all dividends are reinvested for the entire 25 years, and US. taxes of 15% are paid on that income, the account will be valued at about $76,883 in year 25. The dividends in that year would amount to about $1696.95, or about $424 quarterly.

With Johnson & Johnson stock also in a DRIP account with $100 monthly contributions for 25 years, assuming a $62.21 stock price, a 3.92% dividend yield, and a very conservative 5% annual increase of the stock, we now have some diversification. Assuming that all dividends are reinvested for the entire 25 years, and US. taxes of 15% are paid on that income, the account will be valued at about $92,838 in year 25. The dividends in that year would amount to about $3315.91, or about $829 quarterly.

With Kraft Foods stock in a DRIP account with $100 monthly contributions for 25 years, assuming a $38.41 stock price, a 3.02% dividend yield, and a very conservative 5% annual increase of the stock, we have the final piece of our ‘calendar’ income. Assuming that all dividends are reinvested for the entire 25 years, and US. taxes of 15% are paid on that income, the account will be valued at about $82,989 in year 25. The dividends in that year would amount to about $2296.26, or $574 quarterly.

In this hypothetical example, at year 25 the investor would turn off dividend reinvestment and start to receive the dividends as income ($7309/annually):

January (CAT): $424 

February (JNJ): $829

March (KFT): $574

April (CAT): $424

May (JNJ): $829

June (KFT): $574

July (CAT): $424

August (JNJ): $829 

September (KFT): $574

October (CAT): $424

 November (JNJ): $829

December (KFT): $574

With other income sources these three accounts would give you a few solid diversified income streams. Assuming higher returns, increased contributions, longer time horizons, or additional accounts, these numbers could be scaled higher to meet your long-term needs. (The risks are dividends being cut, company bankruptcy, etc.)

OTHER HOLDINGS

As you can see, these three holdings (CAT, JNJ, and KFT) would provide investors with monthly dividend income all through the year. But this same model can be created by any number of holdings, so you would be free to choose any diversification model that interests you. For example a healthcare stock like Abbott Labs (ticker symbol: ABT), a technology stock like Hewlett-Packard Company (ticker symbol: HPQ), and an energy play like Chevron Corporation (ticker symbol; CVX) would work as well. These three companies also provide the same monthly dividend payouts with Abbott in January (and Apr, Jul, Oct), HP in February (and May, Aug, Nov), and Chevron in March, June, September, and December. If you chose to hold all six of these holdings, you would receive two dividend payments monthly throughout the year, and become even more diversified against downturns in the market, the industry, the sector and against the inherent individual company risk.

Your Long Term Dividend Investing Plan

Until you need the income from these stocks, investors should just reinvest the quarterly dividends to accumulate shares faster through compounding -- especially with the power of increasing dividends. Once it’s time to take income from these holdings, a DRIP plan (dividend reinvestment plans) will allow you to choose a percentage of the cash to accept directly while reinvesting the rest. Global dividend stocks could be just what your portfolio needs, and perhaps these and other companies could be a solid place to begin your investment research. If you need other ideas, consider utility companies like Con Ed (ticker symbol: ED) and American Electric Power (ticker: AEP), telecom giants Verizon (ticker symbol: VZ) or AT&T (ticker symbol: T), food companies like Pepsi (ticker symbol: PEP) and McDonald’s (ticker symbol: MCD), retail chain stores like Wal-Mart (ticker symbol: WMT), and Target (ticker symbol: TGT), and technology stocks like Intel (INTC), Microsoft (MSFT), Qualcomm (QCOM), International Business Machines (ticker symbol: IBM), and others. Remember to always consult your own advisors (tax, legal, and financial) before committing any risk capital to an investment.

(Disclosure: author owns Caterpillar, IBM, and Kraft Foods at the time of this writing.)

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Comments

Jun 26, 2012 4:22am
egdcltd
I don't know how it is in the US, but with UK stocks I've often found dividends to "cluster" with the majority falling into a few months in two parts of the year. Which does tend to make staggering your income difficult.
Jun 26, 2012 5:27pm
bankscottage
Great article and suggestions. As I get closer to retirement I am learning how to establish dividend streams such as with dividends. One confounding factor is that not every issue pays out quarterly, some pay monthly, some pay annually. MLPs, in my mind, have a role in this strategy.
Came across an interesting concept with regard to dividends. Often we look at the dividend compared to the current cost of a share (yield). Rather, we should care what the yield is on our cost. If the dividend is $2/year for a stock $100/share, the yield is 2%. But, if you bought your shares awhile ago, you may have paid $50/share for the same $2 for a yield of 4%.
Jun 30, 2012 2:07pm
Joel
This is a great article that does a great job of breaking down the numbers. It's pretty rare to see such an honest look at stock growth and dividend yield that includes tax considerations. Thanks for the info!
Oct 28, 2012 12:59am
david021
nice clear visual of what you'll be hypothetically making per month. nice system! safe and constant dividends
Dec 20, 2012 8:42pm
southerngirl09
Staggering dividends is a great idea! Very interesting article, thanks for sharing. Thumbs Up!
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