One of the common challenges dividend growth investors face is the ability to purchase positions in cost-effective batches. Of course, your cost per transaction will vary based on which brokerage you use to invest through. For me, my two accounts with which I invest in my dividend growth portfolio are both with TradeKing. TradeKing charges me $4.95 per trade, whether buying or selling. From what I’ve seen around the dividend growth community, most investors try to keep transaction costs at 0.50% or less per trade. In my case, this means no less than roughly $1,000 per purchase. But better than 0.50% per trade is zero, zilch, nada. Loyal3, a relatively new trading platform offers this and more.
Loyal3 – A (somewhat but not entirely limited) No-Cost Alternative
I first learned about Loyal3 last fall because of their ability for individuals to invest in IPOs with a minimum of $250 (more on this later). In exploring Loyal3’s offerings, I noticed that in addition to offering IPO services, they provide a no-cost means of investing in 55 different equities at this time. There are some pretty well-known and heavy hitters offered through Loyal3, such as Berkshire Hathaway (BRK.B), Google (GOOG), Apple (AAPL), Amazon (AMZN), and Coca-Cola (KO).
While the first four of those are not considered dividend growth stocks (only one, AAPL, pays a dividend) there are quite a few dividend paying stocks offered through Loyal3. And some of these dividend paying stocks are just any dividend payers, they include quite a few on the Champions, Contenders, and Challengers (CCC) list provided by David Fish. In order to be eligible to be on David’s list, a company must have increased the dividends paid in a calendar year for greater than 25, 10, and 5 years, respectively. Below is a list of the 16 companies offered on Loyal3 that meet the criteria to be on the David Fish’s CCC list.
In addition to the 16 companies above, there are nine companies on that are within 12-months of reaching the five-year mark and making an appearance as Challengers on the CCC list. Those nine companies can be seen below.
Any investor can open an account and purchase one of the 55 available equities for no-cost with as little as $10. Additionally, there are ZERO account transfer fees should you decide to move your Loyal3 holdings to a different brokerage account. Currently, there are two funding options to make your purchases, either with a credit card or with a checking account. Once you set up your account it takes a couple of days to for the funds, from either funding method, to hit your Loyal3 account and process your desired transaction. It is important to note that you are not trading in real-time, these are batch transactions. The same goes for when you sell any of your positions. My experience has been that the trades go through around 1:00 pm ET.
Additionally, all investors are limited to investing up to $2,500 per equity per month. This limitation is clearly in place to exclude institutional or large individual investors and make this a retail only operation (a probably selling point to the companies involved). This setup encourages individual investors to employ a dollar cost averaging method into the individual stocks of their choosing. As of now, it is my understanding that any and all dividends received in the account will be reinvested if allowed by the underlying company. If they are unable to reinvest the dividends, Loyal3 will deposit the cash into your account within three days of the payable date.
So how is Loyal3 no-cost? Loyal3 currently has various affiliated relationships with some of the companies available for investment and for companies it works with on their IPOs. In the last couple of months, Loyal3 helped AMC Theatres and Santander Consumer USA with their IPOs. One cool facet to Loyal3 is the ability for individual investors to invest in IPOs. Unlike the available equities for sale, investors can invest up to $10,000 per IPO with a minimum of $250. Pretty sweet to be able to possibly get in on the ground floor as a stock goes public. Personally, I am hoping Lending Club utilizes Loyal3 when it has its IPO later this year as it might allow me to sneak a few bucks into their stock.
Building My Own No-Cost Loyal3 Portfolio
Given the wide range of acceptable options for the dividend growth investor with Loyal3, I’ve decided to create a smaller portfolio with regular monthly contributions to the account focusing on the 25 available options that fit my dividend growth criteria. The rules for my investment are simple. Every month, at any point during the month, I will be investing $300 into any number of equities that I deem to be the best value at the time. This is fairly similar to entering positions with a traditional brokerage, just with a slightly smaller basket of options and a lack of real-time trading.
As an added kicker to my plan, I will be funding each purchase with my personal credit card. Hello small-time credit card rewards arbitrage!! Having already made a couple of purchases, I can verify that there were no fees charged to my credit card in excess of the actual transaction amounts. So what does this do? Depending on your credit card rewards program, you can actually be getting an additional discount on your equity purchases. It goes without saying, please be responsible when utilizing revolving credit in this manner. I pay off my balance each and every month in full and will not incur any interest charges as a result.
The Start Of My Loyal3 Dividend Growth Portfolio
During the month of January, I made my first two purchases. As most dividend growth investors know, the end of January was a tough time for both Target (TGT) and McDonald’s (MCD) with both dipping near or at 52-week lows. Given what I saw were good values at the time, I split my $300 investment in half and purchased $150 of each. My purchase results are below:
- MCD: Purchased 1.5974 shares at $93.90, producing $5.18 in forward 12-month dividends
- TGT: Purchased 2.6353 shares at $56.92, producing $4.53 in forward 12-month dividends
My total purchases provided an additional $9.71 of forward dividends to my portfolio with an average yield of 3.24%. I have added a separate table on my Dividend Growth page to track my Loyal3 portfolio. I will be including any dividends earned as part of my 2014 Goals.
Have you ever considered using Loyal3? What concerns might you have for a portfolio based with Loyal3?