Building a No-Cost Dividend Growth Portfolio with Loyal3

No-Cost Portfolio with Loyal3 - Loyal3 Homepage

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.

No-Cost Portfolio with Loyal3 - 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.

No-Cost Portfolio with Loyal3 - Near CCC List

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.

Invest as Little as $10.  Pay No Fees.

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?

Update: Loyal3 has now stopped accepting credit cards as a funding method for purchases. Never fear, this won’t be stopping me as I continue to build a dividend generating machine with Loyal3.

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  1. W2R,
    Loyal3 is compelling. I especially like the credit card option. I haven’t joined yet because I am trying not to open any more accounts (trying to consolidate). But I could see myself getting involved with this service in the future. I like how you compared the list to the champions. Very helpful.

    • The credit card option is tremendously appealing as you can really leverage your rewards as a means of further discounting your purchases.

      Thanks for stopping by RBD!

    • I really like Loyal3, since it lets me dollar cost average in some of the best dividend paying companies in the world like Coca-Coal, PepsiCo etc. I also like earning credit card rewards points, and not paying any commissions.

      I would really like it if they had more companies to offer however. But with Loyal3, anyone that can put at least $10 can start their dividend investing journey!

      Have a nice weekend!

      Dividend Growth Investor

      • Good to see I’m not the only one who likes the potential Loyal3 offers with the combination of credit card rewards and commission free trading.

        I agree, their offerings are a bit limited, but I think over time (should they survive) they will add additional companies to the mix.

        Enjoy the rest of your weekend and thanks for stopping by DGI!

  2. When I first found out about Loyal3 I was excited and surprised to see some of the companies that were available. I’m hoping to get my own account late this year to DCA with Loyal3. The credit card reward are just bonus.

  3. Dude, if Loyal3 helps Lending Club, you need to let people know. This would be so much fun.

  4. I was not previously familiar with this service but this is absolutely fantastic! I wouldn’t mind getting a 1% discount on all purchases that I make with my rewards cc. It would be interesting to know if there are any cards out there that could be used to get a return of over 1%. Thank you so much for the article and bringing this to my attention.

    • There are a few rewards cards that can net you greater than 1%, but your mileage my vary depending on what you cards you can qualify for or have.

      Glad to have brought it to your attention, and thanks for stopping by Div-asaur!

      • This is great, thanks for writing about loyal3. Just opened up an account and made small purchases of tgt, mcd and appl. Looking forward to adding more soon.

        As for the cc rewards, my capital one card gives 1.25 percent back in cash rewards on all purchases. Makes buying these companies’ stocks all the more attractive.

  5. This is a well written article. I also have a Loyal3 account and have been buying stocks with my credit card. It is awesome to get one percent back on money that is being invested. I have invested in Mcd,Ul,Tgt, and KO. Do you also write for Seeking alpha?

    • I’m glad Loyal3 has been successful for you! There are definitely some great options available to investors and the possibility for credit card rewards arbitrage makes it even more attractive. To answer you last question, no, I do not write for Seeking Alpha at this time.

      Thanks for stopping by Fozzy.

  6. I’ve never heard of Loyal3 before but this certainly sounds like a decent option for dividend growth investors. I use Scottrade and try to keep my investments to at least $1,000 giving me a 0.7% trading cost (7$ commissions).
    Does Loyal3 only allow you to purchase those particular stocks on the list or can you purchase any stock but have to pay a commision for ones not on the list? I’d still like the ability to purchase companies that might not be on their list.
    Either way, sounds like a good way to build a low (or zero) cost dividend growth portfolio. Thanks for highlighting them!

    • Definitely a solid option, however you can only invest in companies offered through their platform. Certainly a downside, but with 25 CCC or near CCC companies offered, there is enough options to maintain a portfolio.

      I appreciate you stopping by Dan!

  7. Have you noticed if your CC is treating the transaction as a money transfer (ie. charging you interest immediately)? That’d be my only concern with that, otherwise, it sounds pretty awesome.

  8. I’d like to know how you did the $150 purchase on your CC. When I signed up, if I tried to buy more than $50, It would ask me to link a checking account instead of using the CC. So I have been making $50 purchases every few days for over a month! :/

    I found out via chat with their customer service only Frontier Communications (FTR) has a DRIP with Loyal3. So every other stock dividend will get paid out in cash. A good way for me try the non auto reinvestment of dividends and with no fees it is even better! I have also just reached my first dividend payout. It was with SBUX on 2/21/14. Customer service said it should hit my account that same day but your article states within 3 days. Since I haven’t seen it yet, as if today. I’ll give it till Wednesday.

    So far so good. We’ll see how long this party lasts :)

    • Magic? I’m not sure. I’ve had no issues with processing greater than $50 transactions. I’ve made a total of five transactions at this point all greater than $50 per transaction and all with a credit card.

      Personally, I’m not worried about the reinvestment as well, since it will allow me to be selective with my reinvestment as well. The no-cost feature of this makes it very attractive. As with most accounts, dividends normally “clear” the day after they are paid, even with traditional brokerages. So a dividend paid on Friday will be reflected on the following Monday.

      I’m enjoying the ride as well! Thanks for stopping by Ed!

      • Just a follow up: I ended up receiving my dividend from SBUX on Tuesday, it took a couple of days after the Friday payout. I was kinda getting nervous. Now I’ll have to see how the other companies pay out. Supposedly it is to hit the account the same day as the payout.

        I did try to buy more than the $50 in stock and it let me! I wonder if it was because the account was new or maybe they had a limit of $50 in November/December?

        • In reality, it was only one extra day. Since the pay date was Friday, it would show up and “clear” in a normal account on the following Monday. Because it showed up Tuesday, we can conclude it take one extra day. Thanks for the follow up on that, absolutely appreciated!

          That is quite peculiar on the possible change in credit card policy. I’m glad you are able to use it with higher amounts now, since that is where the true credit card arbitrage comes into play.

          Again, thanks for stopping by with the update! Much appreciated!

        • Jamie V says:

          I thought I’d add my experience: I’m in the process of signing up right now and because I didn’t choose to do a $10, $25, or $50 preset amount, I am not allowed to use my credit card either. I wonder if it is for new accounts? I saw this and remembered this comment thread, so..maybe it’s new accounts are restricted the first time or two?

          • Interesting… I have experienced the new limits of $10, $25, and $50, but have not had any issue still running through purchases. I hope this turns around for you!

  9. Thanks for the heads up. I’m going to do a DCA using some of my monthly allowance to spread some money ($10-$20) over 14 stocks. I figure this is way better than leaving it in a monthly savings account where I’m not getting too much. Yup I know it’s not worth too much now but by buying stocks every month, the shares will accumulate. My order goes through Monday. Thanks again for the heads up on Loyal3.

    • Glad I could show you another way to invest in smaller batches! I’m glad you are able to spread the money and DCA into a bunch of different holdings. Those monthly contributions will surely add up and snowball into some bigger dollars as compounding takes place.

      I appreciate you stopping by Richie! Good luck on your goal to retire before 58! (As a note, change the settings on your site to allow for people to comment with a name/url)!

  10. Good stuff regarding Loyal3. I think their model is pretty much business to business – that is they get paid by companies whose stock they sell – so its more like a DRIP program than a commission based model.

    We did a write up on loyal3 a while back – if you want to check it out feel free.

    • I agree with you on the B2B model, and in response to your senior VP hires (on your post), I think those folks are primarily for connections in an effort to expand their offerings. Either way, as long as they provide a solid set of dividend growth offerings, I’m happy to oblige them with some business. The credit card rewards are really the icing on the cake.

      Thanks for stopping by James.

  11. Thanks for posting this review! I just learned about Loyal3 myself and was checking them out. I’m also just looking for ways to reduce my investing costs (currently pay $7 a trade at Vanguard). I would be interested in the CC rewards and am more interested if I really can transfer to my brokerage account cost free. One thing that concerns me is the stability of the company itself. I feel secure with Vanguard, but what if something happened and Loyal3 went under or something? What would happen to those shares?

    • Minimizing investment costs are key no matter what type of investment we’re talking about. Yes, in fact you can transfer purchases to your brokerage for free (according to their site). I have not attempted to make a transfer, so I can’t verify this specifically.

      In the case of any brokerage bankruptcy, the SPIC insurance that Loyal3 is covered by would assign a trustee, transfer accounts to different brokerages, and cover up to $500,000 per account should there be any missing assets. So in your case or mine, we would most likely see our shares transferred to a different brokerage. In my opinion, this is a relatively small risk considering the nature of SPIC insurance and the fact we are purchasing shares of publicly traded companies themselves, not a managed fund (like the Madoff situation).

      Hope that helps and thanks for stopping by GMS!

  12. One thing that everyone should be aware of is when you transfer your holding (s) to another brokerage, Loyal3 will close your account and you will not be able to open another account.

    I called and asked them this as I was thinking about building up my BRK.B position and moving it to my Vanguard brokerage account.

    Their service is great!

    • I was not aware that they would bar you from opening another account with them. That seems a bit overly restrictive, and certainly not information that is readily visible on their site. Thanks for sharing that with me.

      Otherwise, I would agree with you, I’ve had nothing but a positive experience with them thus far. Thanks for stopping by Ray!

    • I have to admit, while their customer service was friendly, I did get different answers when I asked them simple questions. I like the service because with the no fees as soon as I have $10 in dividends I purchase more (partial) shares. If I was paying any commission, I would be saving up till the fee was 0.1% or less.

      • Interesting that you had trouble nailing down consistent answers to your questions Ed. As for the ability to reinvest dividends with no expense, it is a huge perk. Selective reinvestment at no-cost and purchasing fractional shares is about the best combination out there right now.

  13. I’ve been investing with Loyal3 since the beginning and had some pretty good results. I just wrote an article about how I racked up 100,000 miles and $200 with Loyal3.

    • Certainly a good way to get some rewards and cash back while making some investments. However, I’m not a fan of the downside of not being in a position to sell quickly if you are looking for a quick arbitrage situation such as the one you were utilizing. Best of luck continuing your strategy.

  14. You should check out Robinhood

    • I have checked out Robinhood, but I’m not interested in pursuing things any further with them until they develop a web interface since I don’t own any iOS devices. Outside of that, I do have some concerns for their long-term sustainability. They plan on generating revenue from high-frequency trading (essentially skimming of the top of their own investors) and margin interest. Doesn’t seem to something that will have long-term lasting power.

      Thanks for the suggestion and for stopping by Exsanguinator.


  1. […] Building a No-Cost Dividend Growth Portfolio with Loyal3 I’ve noticed a lot of chatter recently regarding Loyal3 – a brokerage that offers a limited number of stocks that you can buy commission-free. That means $0 to buy. I haven’t personally signed up for an account, so I can’t honestly review or recommend the company, but W2R has and did. My concerns mostly lie in the fact that this business model (no-cost trading) has been tried before, and it typically doesn’t last long. Maybe Loyal3 will be different. However, I always subscribe to the notion that there is no free lunch in life. Perhaps that’s just my conservative side. The nice thing is that Loyal3 currently offers no-cost options for transferring your shares to another account, so if they decide to start charging trading fees you could move on out if necessary. […]

  2. […] *I’ve recently created an account with Loyal3. I should be able to transfer the stocks I purchase into my brokerage account and I am going to give that a try. If this works, it will be a much more cost effective way for me to build my stock portfolio. For a nice overview of Loyal3, see Write Your Own Reality’s post on it here. […]

  3. […] Building a No-Cost Dividend Growth Portfolio with Loyal3. Write Your Own Reality provides an in-depth review of Loyal3, a new online brokerage firm that […]

  4. […] I’m not going to write a review about Loyal3. Check out posts by Dividend Growth Investor and WriteYourOwnReality for more […]

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