For those who don’t know, Loyal3 is a newer brokerage service offering investors the chance to purchase stocks commission free with as little as $10 per share, using cash, linked checking/savings accounts, or credit cards. For savvy investors, this has presented an opportunity to juice returns by +1% or more as they arbitrage the stocks for those rewards. As an equity investor, being able to minimize trading costs is imperative, so back in January I started an account with Loyal3 and began my own no-cost dividend growth portfolio. Not only does Loyal3 eliminate commissions, they provide the ability to selectively reinvest dividends, a tremendous benefit not found in too many brokerages.
Receiving Dividends In Your Loyal3 account
As I addressed in my inaugural post about Loyal3 earlier this year, there are quite a few well know dividend growth stocks with years of consecutive dividend increases. Below you will find a copy of the chart included in that post, showing how many recognizable names are available which are a part of the Champions, Contenders, and Challengers (CCC) list put together by David Fish.
In addition the chart above, there are several other stocks that are close to joining the CCC list and are available on Loyal3. Those stocks are in the chart below:
Since we invest in dividend growth stocks for the express purpose of building a growing stream of passive income, being able to convert those earnings into new positions is what accelerates the growth we desire. Much like any brokerage, Loyal3 pays out dividends for each position held on the ex-dividend date (dividends actually paid on the payment date, not the ex-dividend date, which is the date of record in which all shareholders become eligible to receive the next dividend payment). With the ability to invest in fractional shares due to batch trading, dividends are paid in a prorated manner rounded to the nearest penny, reflecting the actual payout of your whole shares and fractional holdings.
For example, through the first three months of the year I was able to accumulate a portfolio of four positions (KO, MCD, TGT, and UL). Of those four positions, three of them were acquired prior to the ex-dividend date for first quarter dividend payments. Below is a snapshot of those dividends hitting my account in late March and early April.
Looking at each dividend, you can see how each amount was calculated and paid:
- KO: $0.305 per share x 2.1277 shares = $0.6489485 rounded up to $0.65
- MCD: $0.81 per share x 2.6120 shares = $2.11572 rounded up to $2.12
- TGT: $0.43 per share x 2.6353 shares = $1.133179 rounded down to $1.13
As you can see, both KO and MCD were rounded up to the nearest penny and TGT was rounded down. Ultimately, between these three payments, I ended up with a total of $3.90 of cash in my Loyal3 account ready to be reinvested into my portfolio.
Loyal3 Dividend Reinvestment – How It Works
Since Loyal3 does not allow investors to DRIP their dividends, investors have two options when it comes to the reinvestment of their dividends. Which option an investor takes ultimately comes down to timing and the amount of dividends received. Option one is the select reinvestment of available cash in your account generated by dividends. Option two combines your available cash with a purchase from a linked account, be it a credit card, debit card, or cash withdrawal.
So which option to take? When you first start out and haven’t built up an account large enough to generate $10 of dividends in a reasonably short time, you will likely take option two because Loyal3 forces any and all available cash to be utilized prior to funding from an outside source. In order for option one to make sense, your Loyal3 account must be in a position where your holdings generate $10 or more dollars of dividends in a short period of time. While my portfolio page isn’t current (yet) as I catch up on posts, my current holdings will generate approximately $25 of dividends within a four-week period. Depending on when I initiate my monthly investments, I will alternate between option one and two.
Option two feels a bit unusual at first, given that Loyal3 forces you to use your available cash as you make an investment. If you are funding your purchases through a credit card, debit card, or cash withdrawals from a linked checking account, the dividends available in your account will be combined with your next purchase, reducing the amount pulled from the external funding source. This was the scenario when I made the first of my purchase transactions in April as highlighted below.
As you can see, my credit card was charged $96.10, with the balance of the $100 purchase coming from the $3.90 in dividends I earned previously. (Note: This was back before Loyal3 limited credit card transactions to $10, $25, or $50) At the end of the day, it is pretty simple to reinvest your dividends, regardless of which path you choose. Time to let those dividends get right back out there and start snowballing!
I am hoping to receive around $80 of dividends in my Loyal3 account during 2014. If those dividends are reinvested at a 3.00% yield, they will generate an additional $2.40 of dividends next year, and will continue to compound each quarter as they get reinvested. While this doesn’t seem like much, with my added capital and continued reinvestment, my Loyal3 portfolio will start rolling downhill on its own in short fashion.
Enjoying dividends in your Loyal3 account? How have you been reinvesting your dividends, and what success have you had in building a snowball making machine in a no-cost environment?
If you’d like to check out my current Loyal3 holdings, take a look on my Dividend Growth Portfolio page.