FI Fighter
≡ Menu

Dividend Growth Trading

Print Friendly, PDF & Email
Stock_Exchange - 1

There are many ways to make money investing. When it comes to investing in the stock market, one of the most popular and attractive strategies to utilize is the Buy and Hold approach. For those on the journey to early financial independence, passive income is the name of the game and we all aim to achieve the following:

Passive income > monthly living expenses

By meeting the above criteria, by definition we are financially free!

Dividend Growth Investing

In an attempt to earn passive income, many freedom fighters turn to Dividend Growth Investing (DGI). In a nutshell, DGI approach relies on the following principles:

  • Primary focus of investor is on growing a passive income stream.
  • Purchase large cap blue chip companies with strong economic moats to better insure safety and stability (especially during economic downturns).
  • Typically aim for a starting dividend yield of > 2.0% for non-growth stories (e.g. JNJ, CVX, PG, KO, etc.) and > 1.0% for growth stories (V, SBUX, AAPL, etc.).
  • Tune out the noise and employ the aforementioned Buy and Hold approach. Make regular investments and ignore market price fluctuations. Buy more shares on market dips.
  • Emphasize growth as it pertains to dividend growth (NOT capital gains). Dividend Aristocrats (Champions), Contenders, Challengers, etc. are favored because these companies have shown a commitment to growing and increasing the dividend every year.

By following this approach to wealth building, dividend growth investors typically stay fully vested in the stock market at all times. Frequent trading is not encouraged because selling off positions is akin to cutting branches off of your dividend fruit tree. Again, the emphasis is on growing the passive income stream, not readily consuming the fruits of your labor before they are fully ripe (ripe in the context of passive income > monthly expenses; in other words, full financial independence status). Further, the DGI methodology is predicated on an investor building a passive income stream gradually over time; this is NOT a shortcut way to help you become an instant millionaire.

If we were to use a tortoise and the hare analogy, most certainly, DGI makes use of the tortoise approach.

Situations Change

When I first started investing in 2012, I was purely a DGI. At that time, this style of investing made the most sense to me as I was a young investor just starting out and I had very limited capital to work with. The barrier to entry with DGI is also extremely low (you don’t need hundreds of thousands of dollars to get started) which makes it most appealing.

The DGI method is absolutely a great one, and I won’t try to deny that for a second. But I will add this point — Every investor’s situation is unique. Ultimately, we have to pick and choose the approaches that are most appropriate and best suited for our own needs.

Now that I am on the cusp of becoming a net worth millionaire, hold over $1MM in debt, and feel like the stock market is overstretched at this point in time, I have to be very careful with how I choose to invest my capital, moving forward.

As I’ve mentioned before in the past, I am exiting out of the Rapid Asset Accumulation Phase, and entering into the Wealth Preservation Phase now. Market gyrations (and crashes) will have a profound impact on my overall portfolio, and because I am encumbered with so much debt, I must take great strides in treading carefully. After all, investing is never without risk.

Although I greatly appreciate the merits of DGI, I will have to take an altered approach at this time…

Stay Adaptable

I’ve always believed that the best investors are the ones who remain the most adaptable. It’s wonderful to learn what we can from experts who have “been there and done that” but in the end, no one else is walking in our shoes and investing for our own needs; we must take on that responsibility ourselves.

It’s very dangerous to assume that just because another investor has had a ton of success investing a certain way in the past that our future results will be exact mirror images.

In the DGI community, there are many brilliant, sharp minds out there, but many newbies just starting out are almost dangerously following the consensus opinions of others, blindly.

They say to never fall in love with an investment, but one doesn’t have to venture very far on community threads like Seeking Alpha to find commonly spewed rhetoric such as the following:

GILD (Gilead Sciences) is a misunderstood company. Let me try to describe it. It’s a bleeding edge, earth shaking, game-changing, miracle, extremely profitable, market leading, world dominating, and much more awesomeness to come kind of a company.

GILD is a stock that is doing very well at the moment. I owned 100 shares myself. But from an outsider looking in, you can easily see how destructive this type of mentality can be for an investor to have! Surprisingly (or not), many stocks out there have developed a cult-like following; there are investors who will walk the ends of the earth in support of their favorite companies, investing every step of the way. It’s as though these companies can do no wrong… Seriously, not every company out there is a “wonderful business”, as is often touted by overzealous followers.

Another rigid approach towards “knowledge sharing” that is frequently performed on these threads is for a seasoned investor to try and “impart wisdom” to the new-age crowd by continuing to tout the greatness of a previously successful investment:

An investor who purchased 100 shares of JNJ in January of 1984 would now own 2453 shares, today. A $4000 investment would be worth $253k today. The divided received would be $6868 dollars, this year.

Well, here’s a couple that invested in Apple (AAPL) stock back in 1998 and has made close to $1MM

You’ll always be able to cherry pick some data to help support your thesis… I’ve made over 200% in leveraged returns on each Bay Area rental property I bought over these past 3 years… but just because that strategy worked back then, it does NOT imply that it will work again moving forward!

We must stay adaptable and progress with the times. I’m not saying JNJ isn’t a high-quality investment (even today), but past performance doesn’t guarantee future results…

So, filter accordingly and never become that blind sheep. 😉

My Conundrum

With that said, I’ve tried to take what I can from DGI as I work towards building a more suitable investment strategy for my own current needs. As I’ve alluded to in previous posts, my preference these days is to hold a lot of cash.

Recently, I’ve been making efforts to liquidate a huge portion of my dividend growth portfolio. Prior to the firesale, I had over $100,000 invested in my taxable account, and it most recently looked like this:

Screen Shot 2015-05-12 at 8.12.54 AM

So, in one sense, I wanted to earn passive income through the form of collecting dividends, but I also didn’t want to stay invested in the stock market for long durations of any given time, since I didn’t want to risk my underlying principal.

At the same token, I also realized that stuffing $200,000 (funds from my 2 cash out refis) into the bank would earn me next to $0 in interest…

As usual (like most things in life), I found the best compromise somewhere right smack in the middle…

Dividend Growth Trading

Enter Dividend Growth Trading (DGT).

We take the best elements of DGI and we fine-tune it to fit our own specific needs. What are my own specific needs?

  • Hold cash most of the time.
  • Earn some interest on principal.
  • Safe and secure investments (as much as possible, which is why we are sticking to dividend growth stocks).

As you can see from my criteria above, there is no mention of long-term capital gains. That’s because I’m relying on my rental properties for that, so for once, long-term appreciation really is “icing on the cake”. Actually, scratch that. Just hold the icing entirely… I’m going to forego it with this new investing approach. There will be no speculation on any long-term appreciation plays; we will try and realize short term profits immediately!

What we are doing now is instead of investing in the stock market at all times, we are simply going to buy dividend growth stocks on the dips that occur along the way. Since the market is highly volatile and fluctuates wildly from trading session to trading session, that will help us achieve our objective quite naturally. When the stocks inevitably pop back up, we will take our profits and liquidate our positions.

That’s right… We will buy stocks and later sell them for a profit; “Buy low and sell high”. The profits will add up and constitute our active income.

Since Dividend Growth Trading involves trading stocks, it’s not passive income! Also, DGT is a little bit more cutthroat; we are in the interest of making a quick buck, not forming an attachment or affinity with any single investment.

But that might be a good thing… This allows an investor to focus on the main objective of making money as opposed to falling in love with a stock (which as mentioned above can be a very dangerous thing).

Prior to taking on the DGT approach, I was planning on earning the following dividends in 2015 for the previously mentioned $100,000 stock portfolio:


As you can see, based on my dividend holdings, I was anticipating earning $1,897.92/year, or $158.16/month in passive income for 2015.

To achieve these results, I would have had to do nothing more than wait patiently for a year and stay fully vested in the markets.

But because I desired to exit out of the markets, I’ve been slowly selling out of positions. Granted, I can’t time the market, but I tried to sell at reasonable prices (more than what I paid for).

Here are the results thus far:


I still hold positions in AT&T (T), Starbucks (SBUX), Toronto-Dominion Bank (TD), Coca-Cola (KO), and Alibaba (BABA). The sales of Emerson Electric (EMR) and American Express (AXP) were also not intended for profit-taking, as I made these sell calls at the time to swap the proceeds into other stocks (CELG and O). Hence, the realized gains and returns are especially low with these moves… Also, CELG is highlighted in yellow because it’s purely a growth stock that does not pay a dividend at this time (my original intention). CELG would not be the most suitable stock for trading, moving forward with the DGT approach…

Nevertheless, in a span of ~5 month (assuming a start date of January when shares were first purchased), I’ve already been able to realize $2,542.24 in short-term capital gains. Yes, I will have to pay some hefty taxes on the profits, but regardless, I’ve already been able to surpass my dividend target of $1,897.92.

The best part? Just like I wanted, I got to pull out a bulk of my principal back out of the stock market, and convert it back to cash.

So, the argument that “cash earns no interest” can be remedied if we elect to partake in DGT, and only “play in the game” for certain durations, or small intervals at at time.

At this point, really, I could stop trading for the remainder of the year… I’ve already exceeded my passive income target through actively employing DGT.

More Income?

But let’s suppose that we wanted to keep trading to earn some more active income.

For a hypothetical $50,000 portfolio, here’s what an investor’s objective might look like:

Principal $50,000
Size of Each Position: $5,000
Number of Positions: 10

Monthly Income Objective: $1,500
Monthly Return on Investment: 3.0%
Annual Return on Investment: 36%

In the interest of safety and diversification, we will divide up the $50,000 position in 10 blocks of $5,000. This will allow us the capability to purchase and hold up to 10 stock positions at any given time. The objective with this active investing approach is to achieve a monthly return of 3%. In other words, I want to earn $1,500/month in “interest” payments.

Over a full year, this computes out to a 36% return, or $18,000 of capital gains on the underlying principal of $50,000.

Are these goals aiming too high and altogether unrealistic?

Probably… But I guess there’s really only one way to find out…

When to Sell?

When is it time to bid fare thee well to a stock? There’s no magic formula, but my own preferences are illustrated below.

How do I determine at what price to sell?

Well, for a goal of $1,500/month in active income, this works out to require 6 total sell transactions each month (out of 10 maximum held positions at any given time), or a profit of $250/sell.

Leaving some buffer for fees and commissions, I settled on a target of 5.5556% return on each sale, or profits of $277.78 (for $5,000 investment).

Here’s a table that I put together, showing various sell prices needed to capture targeted gains:


When purchasing stocks around the $90 range, I will need sell for about $95, for a net profit (delta) of $5.0/share. Doing so will net me ~$277.78 before fees and commissions. This is ~5.5% return on the $5,000 investment.


When purchasing stocks around the $27 range, I will need sell for about $28.50, for a net profit (delta) of $1.50/share. Doing so will net me ~$277.78 before fees and commissions. This is ~5.5% return on the $5,000 investment.


Guys, I’m just joking about the 36% annual returns (sniffing anything close to 10% over a full year would well exceed my expectations)… But the 5.5% sell “guideline” is reasonable and one that I am following.

Present Day

I don’t currently have $50,000 of capital invested into my DGT portfolio, but perhaps I will get there over time (someday). Right now, I only have 3 active positions that I am working on trading.

My current rotation of stocks:


The following stocks I hold are: Union Pacific (UNP), Norfolk Southern (NSC), and Walmart (WMT). As a part of the strategy, I tried to buy on the dips, spurred by negative news, or missed earnings reports. For DGT to work, you must indeed “buy low and sell high (or at least higher)”. Highlighted in green are my desired exit prices (they vary slightly since the allotments are not perfectly even at $5,000).

Risk Management

DGT is no more risky than DGI. In many respects, it’s like trading options and selling covered calls or cash secured puts on an underlying holding of interest. In the end, you are only initiating transactions on stocks that you wouldn’t mind holding for a long period of time.

I won’t say NEVER because I believe rules were made to be broken, but I nevertheless try to follow and adopt some basic guidelines. When it comes to DGT, my emphasis is to trade dividend growth stocks that I would have no problem holding for 10, 20, 30+ years. But I may make an exception every now and then to trade some hyper-growth stories on significant dips (just being honest)… Though of course I would never recommend this strategy (or DGT, for that matter) to anyone else!

What’s the worst-case scenario for a dividend growth trader? The stock keeps plummeting in price and you aren’t able to exit at a favorable price. While you wait for the tide to turn, you simply default back into Dividend Growth Investing (a hat I’m more than familiar with wearing) and basically just collect dividends like clockwork again… Which is the plan all along for a typical dividend growth investor!

Dividend Growth Trading is a naturally defensive form of trading. But if a stock like Chevron (CVX) wants to swing violently, up and down a trading range of $99 to $110 (in the short-term), who am I to try and fight it? As a trader, that works out great for me and I’ll just keep buying in at $99 and selling at $110 (ideally). Over and over again…

Actually, as a stock trader, I will have to operate under a slightly different lens — For instance, I would prefer to trade slightly more volatile stocks (like CVX as opposed to low beta ones like GIS) as the fluctuations leave more room to buy low and sell high).

In any case, as it pertains to principal preservation, I believe that DGT is actually safer than DGI. With DGT, I am rotating in and out of stocks and never need to stay in the market at all times. If stocks keep on rising and I don’t see any favorable positions to buy into, I can simply wait and hang out on the sidelines. Previously, I would have needed to stay fully vested in all my stock positions to pick up $1,897.92/year in dividend income. With DGT, I only need to trade for however long it takes me to exceed that target. Since I’ve already surpassed my income target for 2015, moving forward, I can be much more selective with how much principal I tie up in the market…

But if I wanted to earn more income and take on more risks, I could elect to keep playing this game and invest, say $50,000, like the hypothetical portfolio outlined above. In any case, that’s still only $50,000 of capital at risk, as opposed to much more before…

Capital Gains

Although DGT may help you squeeze out returns and earn some extra income (without being fully vested in the markets), it is not without its own set of limitations. As usual, there are no free lunches, and one very real consequence of DGT is this: missing out on growth stories and capital gains.

In general, if you elect to trade dividend growth stalwarts (PG, JNJ, KO, PEP, O, etc.) you most likely won’t miss out on any massive capital gains because the growth days for those companies are just about over. In other words, you should be able to trade in and out of these positions rather regularly before witnessing any drastic price appreciation from the market. However, if you are investing into prospective future Dividend Aristocrats (SBUX, V, GILD, etc.), chances are reasonable that you could sell out prematurely and miss the boat on rapid future gains… In regards to future capital gains, DGI has DGT beat, no doubt.

Most recently, I liquidated my position and sold off 100 shares of GILD to capture some short-term profits. By doing so, if the stock continues accelerating upwards and never decides to descend back down again (below my sell price), I will have missed out on a golden opportunity.

But you win some and you lose some. Missing out on some future growth stories is a possible reality that I’ve accepted as a consequence of utilizing the DGT approach. Your own situation may be entirely different, but in my own case, I’m primarily interested in locking in short-term profits as opposed to holding on for future share price appreciation, or dividend growth potential.


There are many ways to invest and we must do what is best for our own unique situation. As investors, it is extremely important to stay adaptable as markets will always fluctuate; what used to work before won’t necessarily work again in the future. Further, it’s necessary to take what other people are doing and saying with a grain of salt because what works for them won’t always work for you.

When I started investing in 2012, Dividend Growth Investing was the best strategy for me at the time. Over the years, I’ve worked hard and built up a portfolio of rental properties. Unfortunately, with those investments came with it a very large debt burden. As such, I’ve had to figure out a way to navigate through those circumstances…

Because the markets are as HOT as ever before, I’ve been reluctant to dive headfirst back into dividend growth investing with my newly freed up capital. Once I built back up an individual stock portfolio in excess of $100,000, I realized that my true preference was to protect the underlying principal, as opposed to staying aggressive and trying to eke out some more returns. As such, I was completely OK with sacrificing capital gains in the process.

So, I adapted. I took what I liked from DGI and modified it to fit my own needs. These days, I’m making use of Dividend Growth Trading to earn active income on my otherwise idle cash. By doing so, in a span of 5 months (without even being fully conscious of this strategy), I’ve been able to trade enough dividend stocks to earn $2,542.24 in short-term capital gains, which is in excess of the $1,897.92 I would have expected to earn as a fully invested DGI. Further, because I am only holding a few select positions at any given time, I have found a way to limit the amount of principal that I have in the market.

There’s no right or wrong way to invest. Do what works for you. For myself, I’ve settled in on DGT, and so far, so good…


Happy Trading! 

{ 20 comments… add one }
  • No Nonsense LandlordNo Gravatar May 22, 2015, 1:40 pm

    You are better off with a strategy of buying an index, a Boglehead or Buffet approach. 95% of money managers cannot beat the market 5+ years in a row. You will likely not either. You will also sleep better at night knowing you are going to match the market. Low fees too.

    I buy ~$10K a month, a combination of IVV and DVY. Both ETFs. No commissions, no tax as long as I do not sell. I can sell just a small amount if I have to.

    Good luck trying to create a style that works for you.

    • FI FighterNo Gravatar May 22, 2015, 1:59 pm


      This strategy is NOT about beating the market. LOL, I’m guessing you didn’t read much of the article and jumped straight to the index fund conclusion 😉

      For the most part, I’m trying to stay out of the market, and am only investing a portion of capital at a time to earn extra income. In the event that I can’t sell, I’ll simply hold and collect the dividends… but that’s the backup plan. Some risk for some reward…

      But the primary objective is principal preservation, which index funds may or may not give me.

      I realize that you are a strong advocate of index funds, and I am a fan of them as well, just not at this particular moment in time.

      Right, do what works best for you. If I was in your shoes and had $200,000/year in passive income coming in every year (with zero debt and no mortgages), then yeah, I would probably invest a huge chunk of that back into index funds as well… We are not all in that wonderful situation, unfortunately…

      Take care!

      • No Nonsense LandlordNo Gravatar May 22, 2015, 4:14 pm

        I read the article. You are in investing $50K and assuming you get a 3% per month. My guess is that these stocks are highly correlated to the S&P.

        If the S&P will probably not fly as high up, or down as any one of these stocks. When you get in, and out, you have to beat taxes and commissions to equal the S&P. And have to spend a lot more time watching them.

        You are better off buying the S&P, and selling covered calls out of the money to capture a 10% yield. A 36% yield is unrealistic. Even a professional trader would salivate for that return.

        A great example of selling too soon is Ronald Wayne, who sold his 10% stake in AAPL for $800.

        • FI FighterNo Gravatar May 22, 2015, 5:32 pm

          $50k was a hypothetical situation, I don’t actually have that much invested at this time…

          Earning 3% each month or 36% over a year (consistently) would be a stretch, no doubt… Is it possible from time-to-time, or on occasion? Maybe, if you get lucky…

          Aiming high and falling short? I’ve done that plenty of times before so no worries there. From my rental property background, you’re doing amazing if you’re getting anywhere above 10% returns each year… I only expected 3% or so from my dividend stocks, so anything above that is gravy. I really wasn’t trying to be “realistic” with that target. Just like when I read about folks saying they want to earn $100,000/month in passive income in a short period of time, I know it’s far removed from actual reality… But dreaming massive is a start, anyway.

          Yes, the S&P is more diversified and won’t fly as high up or down… As a trader, I don’t want an aggregate but prefer the individual volatility each company experiences. If the S&P is down 1% for the day, an individual stock might selloff and be down 8%… I’ll buy that 8% dip assuming the company is solid and stable.

          Can you trade an index? Probably. I won’t rule it out… I just know that I’ve found a method that works for me and one that has already helped me achieve my yearly income target through stocks.

          As mentioned above, I’m ok with selling too soon. These moves are made with the intention of realizing short-term profits. If I wanted to hold something long-term, I would do so in a long-term hold portfolio. It’s not out of the question that I plow the proceeds/active income back into long-term holds.

          I probably will do so, in fact, and buy back my shares of GILD in my long-term portfolio if they drop well below my sell price in the future. Using proceeds to buy index funds is likely as well.

      • No Nonsense LandlordNo Gravatar May 22, 2015, 4:49 pm

        If you focus on only one or two stocks, and chart moving averages looking for buy at the touch of the 10-day (or 5 or 2…) average and an automated sell at a 2x the average daily range (ADR) above your buy, it may be better strategy. There is less to watch, but you have to watch it closer.

        I know a lot of traders that are able to buy a 5,000 share position, hold it for 2-3 minutes, and sell for a $200+ gain (maybe 04 to .10). Then do it again 4-5 times a day. I did that for a while too, but it is hard to be consistent.

        It is always a lot easier to get out with a gain, than to get in on a dip. Often the dips are longer winded than you want.

    • LeighNo Gravatar May 22, 2015, 5:52 pm

      I’m with Eric here. If you’re a true buy and hold investor, you would be buying the index and not trying to time the market. You say cash is king, but all I hear you saying is that you’re smarter than the market and can time it successfully. The problem with market timing is when do you get back in? You don’t know without a crystal ball. The likelihood of picking a stock that does well is so much higher in a bear market like we’ve seen the last several years.

      They say that women are better investors because they don’t feel the need to show off their financial prowess like men do, so they don’t get caught up with the hot stock of the day and just invest regularly in their index funds. One of my exes really strongly believed that he could beat the stock market with picking stocks he heard of in the Motley Fool newsletter and that maxing out his 401(k) and locking up that money until he was 60 was a terrible idea. My current boyfriend was already maxing out his 401(k) and investing in index funds when we met and not cocky about his financial prowess – much more attractive.

      For my retirement, I don’t care about income. I care about the withdrawal rate. I’m totally fine with spending principal. I haven’t yet decided on my ideal withdrawal rate, but I’m guessing it’ll be somewhere around 3-4%. I don’t like dividends because they force me to declare income before I need the money. I wish my index funds didn’t need to declare dividends at all.

      • FI FighterNo Gravatar May 22, 2015, 6:09 pm


        I never said that I was smarter than the market… why assume that? All I said was that I didn’t want to be fully invested in the stock market at all times right now but wanted to earn some side income…

        Trading stocks is no different than me taking on a part-time job to add supplemental income.

        Buy and Hold is great… when did I knock it, or index funds? I invest in index funds as well! I have Buy and Hold rental properties…

        I’m adapting to my own needs… If this type of strategy doesn’t apply to you or anyone else, that’s perfectly fine. Further, I don’t believe in binaries… A person trading stocks isn’t a true buy and hold investor?

        Why not do both? Folks flip properties for income, in addition to buying and holding properties all day long…

        As mentioned in the “Capital Gains” section, I’m OK with not getting back in. I’m utilizing trading to take short-term profits, not trying to find the next AAPL stock… If the stock runs away after I sell, so be it…

        If I wasn’t utilizing this cash to trade with, it would otherwise just be sitting in the bank collecting 0% interest… This cash/trading account is NOT my Buy and Hold account. But I have one of those as well. As I commented to Eric, I might very well use any proceeds to buy index funds in a Buy and Hold account. So, I’m not forsaking that at all… Maybe that’s what it sounded like?

        I think you are reading far too much into this… This has nothing to do with financial prowess and being cocky… When did I imply this was the BEST and ONLY way to invest? I wrote a whole section about being adaptable and investing for your own situation and needs! Maybe you would be more scared of the market if you also had $1MM in debt to deal with. 😉

        Perhaps this style is just too far removed from what you’re doing or would like to do, which is fine… It’s drawing a lot of negative ire so that’s too bad because again it wasn’t my message to promote a “superior form of investing”… I’m not that delusional…

        Do what works best for you! 🙂

  • Income SurferNo Gravatar May 22, 2015, 2:31 pm

    There’s another way you could explain this concept. It sounds to me like you’re trying to minimize your stock exposure while also harvesting gains. I would say you’re trading in securities that you wouldn’t mind holding…..provided the trade goes against you and you decide not to sell. Capital is still at risk, but perhaps less…..or at least for a shorter duration.

    A portion of my portfolio is similar in that trade around a core position. Given the low volatility lately, I’ve been making VERY few trades.

    • FI FighterNo Gravatar May 22, 2015, 2:37 pm


      Yup, those are the reasons why I’m trading, and the crux of the argument. Since I’m almost exclusively trading around large cap, stable dividend growth stocks, it’s a strategy that just rides on top of dividend growth investing.

      Just replace investing with trading.

      You could say this method is a more patient form of trading. Less volatility (these aren’t hyper-growth stories like SHAK), so you get less reward but a lot less risk too.

      It’s working for me right now, so I’m going to stick with it. Just keep buying the dips, staying conservative, and earning some side income.

      All the best!

  • Dividend HustlerNo Gravatar May 22, 2015, 9:14 pm

    Thanks for sharing the article FIF. I think it’s a great strategy. Keep it up as I know you have put a lot of thought and planning for this strategy. I Like it. It’s working and you’re trading around solid blue chip stocks so no harm. Simple. I like Simple.
    Have a nice and safe weekend my friend and always a pleasure reading your articles. Cheers bud.

    • FI FighterNo Gravatar May 22, 2015, 9:52 pm


      Thanks for the support! I’m glad the dividend growth trading strategy makes sense to a dividend growth investor, as I thought it would resonate well with that audience the most since it’s merely an extension of it.

      Exactly — The plan is to trade around a stable core of large cap blue chips. If I enter into a situation where I can’t sell out, no harm indeed. For the most current round, I bought into: UNP, NSC, WMT.

      I think many dividend growth investors would agree that these stocks are all trading at fair value right now and would make great long-term holds; these companies aren’t going away anytime soon.

      As such, I’m comfortable trading them. Yup, I’m trying to earn some side income, but also want to keep the plan simple and straightforward.

      Have a great weekend!

  • dan23No Gravatar May 23, 2015, 5:26 pm

    I suggest instead a fixed percentage of stock market index funds and treasuries (or even CDs or cash) that meets your risk profile (standard deviations, max draw downs, etc,). The only thing regular DGI has going for it over straight up indexing is psychological (feeling like you are earning income). Here you don’t even really have that.

    You make it sound like this provides you greater liquidity + similar or greater profits to remaining fully invested. Given how easy it is to sell a stock (and your acceptance of the tax consequences in your strategy above), you do not have any additional liquidity, just greater churn with greater time spent in cash (with negative tax consequences to boot).

    I would caution you that whatever you are projecting, you are not properly accounting for the entire picture of the tradeoffs you may be making. Among other things with your particular strategy, you are capping the upside. You can’t participate in the great ups (irrational ups you might say but that doesn’t matter), but can participate in the terrible downs. As Leigh mentioned above, you ARE engaging in market timing, even if you think otherwise.

    You also ARE implying you think you are smarter than the market by not just keeping a certain percentage total market and a certain percentage treasuries/cash/CDs. You are suggesting you can identify when particular stocks are undervalued/overvalued and the extra you earn from that will outearn the opportunity cost of remaining in cash when you can’t find anything you view as undervalued (that you will do better on a risk adjusted basis than fixed percentage stock market index and cash/treasuries/CDs).

    While it might be possible to succeed at market timing in a systematic way (alpha architect has a number of posts on this, here is one I remember that in part covers this, and they backtested a ton of market timing strategies:, very few people do, and I doubt you stumbled upon a good method. It is really hard to beat the market on a risk adjusted basis or even to beat the risk/reward ratio of any given combination of market and treasuries. To the extent it is possible, it generally just turns out to be factor exposure (value, momentum…) which can and has been indexed.

    What I believe you are/may be looking for is lower max drawdowns or something of that nature which, as I mentioned above a combination of index funds and treasuries or even CDs could provide.

    Have you at least backtested your strategy? As I believe you program, I seriously suggest you backtest your strategy (and read up on survivorship bias and other ways to screw up a backtest first, especially if you use a free data sources). Comparing your backtest to treasury + total stock market index funds with the same standard deviation might be useful. While a successful backtest does not mean you have found anything, a poor one means what you believe you have found did not exist historically

    If you want to deviate to have a hope for a better risk/reward than normal index funds, get a value weighted, fundamental weighted or equal weighted index that is cheap, instead of a cap weighted index. Cap weighted indexes have historically underperformed all of these, though there is some debate as to why (taking extra risk vs something real).

    • FI FighterNo Gravatar May 23, 2015, 9:45 pm


      Thanks for the suggestions. I think it’s quite clear from the comments that what I’m trying to do is not resonating with most people.

      Perhaps this strategy only makes sense to me and I’ve done a poor job of explaining my reasons… I’ll try to be more succinct, hopefully that helps, but if not then well, I tried… maybe it is a losing strategy, but so far it’s done exactly what I wanted to accomplish.

      In a nutshell:

      -I prefer to hold cash right now as opposed to investing in the market with ONLY my $200k cash out refi. (I am STILL invested in the market through index funds in my retirement accounts).

      -I need $200k cash buffer/safety net because I am encumbered with $1MM+ in real estate debt. I am most sensitive to any market crashes because that could put my entire portfolio at risk. This is because of the heavy leverage burden.

      -I am not smarter than the market (but I will take what it gives me from time to time).

      -My previous objective was to earn $1897 in passive income over the course of 1 full year but that would have required me to stay invested in the market for an entire year. By trading, I’ve earned $2542.

      -I’ve met my income target for the entire year. I’m pulling out most of the refi funds out of the market. I am still currently trading 3 positions, but that ONLY ties up $15,000. By trading, I am only risking $15,000 as opposed to $100,000+.

      -It’s not about beating the market, outsmarting the market, or anything more complicated than that. It’s not even a long-term strategy. It’s only for NOW.

      -If the markets keep soaring, I win by doing nothing (I’ve got lots of skin in the game already! That’s why I couldn’t care less about capping upside with the trading). If the markets crash, I might lose everything. I am trying to protect my downside right now because the markets are at an all-time high.

      -In the future, I will invest like normal again…

      If I had simply told everyone, hey, I’m going to hold an emergency fund of $200k and do NOTHING more, I’m pretty certain that message would resonate more clearly with everyone and no one would take any offense or issue with it.

      But because I’m trying to “outsmart” the market by earning some active income, all of a sudden it becomes this mess of a complication… when it shouldn’t be.

      I don’t want to invest in the markets right now. But I wanted to earn some interest on my cash. 1 year of dividends projected to $1897. By trading, I already cleared that and collected $2542.

      I earned my interest. I exited out of most of my stock positions. I’m holding mostly cash now. Just what I wanted.

      That’s it.

  • joeNo Gravatar May 24, 2015, 8:14 am

    wow.. definitely a mix here of comments of those who have smart advice comments (Eric & Leigh) and others who think they can outsmart / out trade the markets even with the handicap of taxes transaction costs. Good luck vs the endowments and hedge funds.. bet they don’t trade these securities in milliseconds with their super computers. Yep – good strategy (sarcasm).

    • FI FighterNo Gravatar May 24, 2015, 8:23 am


      Thanks for the sarcasm. I don’t know how many times I’m going to have to say it, but here it is again — I’m not trying to outsmart the markets…

      Markets go up and down all the time. Stocks are volatile. That’s reality. I’ll buy some quality dividend stocks on the dips (funny, that’s a VERY COMMON strategy so many dividend growth investors use everyday… I wonder if they get the same flak for it?)

      If Mr. Market wants to give me an opportunity to sell some shares for a profit, I’ll sell and take some gains off the table. Which I have done and shown above.

      I’m after active income. If I can’t get it b/c Mr. Market is beating me 999/1000, then I’ll suck it up and hold my dividend stocks and collect the 2-5-% yields… Hey look, I’m still earning some income!

      Not sure why this strategy is rubbing so many people the wrong way…. Perhaps because “trading” has a stigma attached to it and “Buy and Hold” is the only acceptable strategy these days suitable for everyone!

  • TTNo Gravatar May 26, 2015, 1:13 pm

    Can you explain to me why you have holdings in BABA,CELG,AMGN,GILD,TD? I am a dividend growth investor and I won’t touch most of those companies. I also have the same philosophy as you do with you RE holdings.

    Also, requiring ones email here is a bit odd… Is it public?

    • FI FighterNo Gravatar May 26, 2015, 5:51 pm


      BABA is a play on growth. AMGN, GILD, and CELG were plays on biotech and AMGN and GILD pay dividends, so they were “future dividend growth stocks”.

      TD pays a dividend and has for awhile now; it’s a common holding for dividend investors.

      At this time, I have liquidated most of my stock positions… So, I no longer hold many of those stocks.

      No, e-mail is not public, but required by Wordpress.


      • TTNo Gravatar May 27, 2015, 6:18 am

        I’m sure you did well with the biotechs recently but to me those stocks are better for trading than long term buy and holds. As a rule I avoid tech (in which I include your biotech companies) due to the competitiveness of the field and financial stocks such as TD because of the risk of manipulation. I am also not a fan of retailers. I am a big fan of investing in liquor/alcohol stocks in lieu of biotech if I want nice growth and dividends.

        You may want to look at this list of companies which I agree with for long term dividend holdings. I am not affiliated with this gentleman I just like his writing.

Leave a Comment