How to Ladder Dividends

I spent a while the other day looking up payout dates for my top holdings. It occurred to me that most of the stocks I own payout in the same month, which is fine, but wouldn’t it be nice if they were more staggered so every month I had something to look forward to?

A recent Forbes article tackled just that – the idea of using laddered dividends to create a steady monthly retirement income. What a great idea! I’ve read about this concept with other types of investments, such as laddering CDs, but had not really considered it with dividend stocks.

The Forbes article uses the following example:

  • Kimberly Clark (KMB) – Quarterly dividend payable in Jan., Apr., July, Oct.
  • Proctor & Gamble (PG) – Quarterly dividend payable in Feb., May, Aug., Nov.
  • Johnson & Johnson (JNJ) – Quarterly dividend payable in Mar., June, Sept., Dec
Jan Feb March April May June July Aug Sept October Nov Dec

As Forbes also points out, as long as the dividend holds up you will see income every single month. If a company cancels its dividend unexpectedly (like BP in the wake of the Gulf oil spill), one could switch out to another dividend aristocrat with similar payout scheduled.

There is also the promise of capital appreciation, as is in the case in many dividend growth stocks. Your original investment used to spin off these dividends could grow significantly over time.

Now, I’m not going to buy a stock just to plug a hole in the dividend ladder, but if I am interested in one or more this may become a deciding factor. This would be particularly true if I were laddering dividends for income.

I personally think sector diversification and dividend soundness are far more important than the dividend payout calendar.

Dividend Payout Dates for JNJ, AFL, INTC, CVX, MSFT, LOW

Johnson & Johnson (JNJ) 
March 15
June 14
September 14
December 10

Intel (INTC) 
March 1
June 1
September 1
December 1

March 1
June 1
September 1
December 1

Chevron (CVX)
March 10
June 10
September 10
December 10

Microsoft (MSFT)
March 10
June 9
September 8
December 8

Lowes (LOW)
February 2
May 4
August 3
November 2

As you can see, there are a few missing rungs in my own dividend ladder. As it stands, Lowes is the only position with a payout schedule other than March, June, September, and December. But that’s acceptable for now, since I am reinvesting dividends and growing the portfolio

When I initiate new positions down the road I hope to fill in some of the gaps.

Disclosure: Long AFL, JNJ, CVX, LOW, MSFT, INTC

This post appeared in the Carnival of Personal Finance #333 at Sustainable Personal Finance

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