Monday, June 6, 2016

How To Dollar Cost Average Into Dividend Stocks While Paying No Commission

I suppose that I could very well be considered the ultimate cheapskate. When I invest, I usually spend hours searching for the most cost effective way to do it. I hate paying fees and commissions to buy stock or ETFs. A number of brokerages offer commission free ETFs, but I have always found a certain interest in owning shares in individual companies. Here is what I have found and the strategy that I employ.

Where to buy

I was a little bit surprised in this day and age of lower cost investing to not find many options for buying individual stocks commission free. Admittedly, I did not research certain options extensively because they were not that appealing to me. For example, I know that stock can be purchased through some companies investor relations pages on their corporate website. That often involved adding my bank account to all of the different companies investor pages that I would like to purchase as well as certain minimum investments. Another option was Robinhood. This is basically an app based investment platform that runs on iOS and Android devices. At the time of this writing, they do not have an option to invest through a web site and so I chose to not invest with them at this time. So who did I choose to invest with?


There are some key features of Loyal3 that really appeal to me as an investor. Like all things in life, there are also some things that are not optimal with Loyal3 as well.
  • Pros: No commission trades. Fractional shares. Invest as little as $10.
  • Cons: Limited stock selection. Batch trading (no control over execution price, no limit orders). No dividend reinvestment (curiously except for Frontier NASDAQ: FTR). No account options such as IRAs, just a standard taxable investing account.
Because of my aforementioned propensity towards being cheap, I designed an investment strategy around Loyal3's strengths and weaknesses. I should also mention at this point that this investment is strictly for my own pleasure. I am not banking on this account for my retirement.

The Strategy

The strengths of Loyal3 play well with the concept of dollar cost averaging. That is the premise that if I continuously buy a stock over time, when I buy low, those shares will be worth even more when the stock price goes higher. If we believe that over time, the prices of stocks do tend to rise, then the strategy should work. I use dollar cost averaging to the extreme by only buying ten dollars worth of stock at a time. The goal is to overcome the lack of control that I have over the execution price of the trade. In order to overcome the limited stock selection and some of the inherent risk in dollar cost averaging individual stocks, I have a simple criteria for stock selection that I follow. I invest in every stock available on Loyal3 that pays at least a 1% annual dividend. This selects 41 individual stocks for my Loyal3 portfolio. In essence, I have created my own mini ETF or mutual fund where I pay no commissions and dollar cost average into each of my holdings. My stock selection process is passive in that I don't exclude any company based on my own biases, for or against. So long as they meet the criteria, they are in.

The 1% List

This is the list of 41 dividend paying stocks that I currently invest in at Loyal3 and their annual dividend at the time of this article.
  1. 21st Century Fox: NASDAQ: FOX 1.00%
  2. AMC Theaters: NYSE: AMC 2.76%
  3. Abercrombie & Fitch: NYSE: ANF 4.10%
  4. American Eagle Outfitters: NYSE: AEO 3.15%
  5. American Express: NYSE: AXP 1.75%
  6. Anheuser-Busch InBev: NYSE: BUD 3.13%
  7. Apple: NASDAQ: AAPL 2.33%
  8. Best Buy: NYSE: BBY 3.45%
  9. Coca-Cola: NYSE: KO 3.13%
  10. Disney: NYSE: DIS 1.44%
  11. Dr Pepper Snapple: NYSE: DPS 2.30%
  12. Dunkin Brands: NASDAQ: DNKN 2.74%
  13. Frontier Communications: NASDAQ: 8.14%
  14. Gap: NYSE: GPS 5.02%
  15. Hasbro: NASDAQ: HAS 2.35%
  16. The Hershey Company: NYSE: HSY 2.51%
  17. Intel: NASDAQ: INTC 3.27%
  18. Kellogg's: NYSE: K 2.68%
  19. Kohl's: NYSE: 5.53%
  20. Kraft Heinz: NASDAQ: KHC 2.74%
  21. L Brands: NYSE: LB 3.51%
  22. Macy's Inc: NYSE: M 4.36%
  23. Mattel: NASDAQ: MAT 4.80%
  24. McDonald's: NYSE: MCD 2.92%
  25. Microsoft: NASDAQ: MSFT 2.72%
  26. Mondelez International: NASDAQ: MDLZ 1.52%
  27. Nike: NYSE: NKE 1.17%
  28. Nokia: NYSE: NOK 5.25%
  29. Pepsico: NYSE: PEP 2.96%
  30. Ralph Lauren: NYSE: RL 2.10%
  31. Restaurant Brands International: NYSE: QSR 1.44%
  32. Store Capital: NYSE: STOR 4.19%
  33. Starbucks: NASDAQ: SBUX 1.46%
  34. Target: NYSE: TGT 3.27%
  35. Time Warner: NYSE: TWX 2.11%
  36. Unilever: NYSE: UL 2.98%
  37. VF Corp: NYSE: VFC 2.38%
  38. Viacom: NASDAQ: VIAB 3.55%
  39. Wal-Mart: NYSE: WMT 2.84%
  40. World Wrestling Entertainment: NYSE: WWE 2.70%
  41. YUM!: NYSE: YUM 2.23%

This strategy does present some fairly significant risk. For example, the portfolio skews heaving toward only a few sectors. Consumer discretionary is definitely overweight here. Another potential risk is whether brick and mortar retails can evolve their business model in order to better compete with the online juggernaut Amazon (AMZN). Also, can traditional television adapt in an environment where Netflix (NFLX) seems to be gaining market share as more and more people "cut the cord".


There are many opportunities for do-it-yourself investors at Loyal3. I chose to go with a dividend portfolio but one could just as easily create a growth portfolio. Perhaps the appeal of a growth portfolio might be all the more enticing given the high share price of many growth stocks like Alphabet (GOOGL) and Amazon . The ability to buy fractional shares at ten dollar increments might just be an interesting proposition. After all, where else can an investor dollar cost average within a single share of stock? In addition, my personal choice to make my portfolio passive in a manner of speaking may ultimately lead to lower returns. However, there have been a few surprise performers in this portfolio that I would have missed out on had I cherry picked the stocks using other metrics. I do feel that overall, it is very hard to "beat the market". It is my hope that broadly investing in dividend paying stocks over time using dollar cost averaging will eventually pay off.

One last thing, I hope that this article does not come across as an advertisement for Loyal3. I am strictly a user of their service and while I do enjoy employing my strategy through their brokerage service, I am also quick to recognize the limitations of the platform. What I hope came across instead is my passion for investing and my willingness to think outside the box to overcome investing hurdles. Happy investing!

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