So the other day I posted an article about having patience with your investing, in it I mentioned some math on how I minimize the commission fees. Now, this math, though not incorrect was incomplete. It did not take into account sales commissions, which can be much higher than purchase commissions, as well as it did not actually detail out the math used. So I decided to expand on this math a bit.
For this math I’ve added in variables for sales commissions, as well as a variable to allow you to define exactly how many months to profit is acceptable for you.
Now, in this instance it might be a bit confusing. Let’s start by defining the variables:
Not that hard to understand the rest now. If you’ve never seen them before the signs can be confusing, but they just mean round the result up to the nearest integer (I.E. if you get 22.22 round to 23) and use the result for the rest of the formula. The result of this formula is the amount of money that you need to invest into that particular trade to get your specific Months-To-Profit from the dividends. In this instance, DPS is normalized to Monthly, so if your particular stock pays out $0.04 per quarter, you’d take that and divide it by 3, the number of months in a quarter, resulting in $0.013.
You’ve also seen me lauding the benefits of compound dividends in the past, but this calculation doesn’t look at that at all. Now, obviously, you’ll see some of this if you get a true monthly dividend payer, in a 3 month time span, and see a larger profit, but that’s not what this is about. It’s simply a way to recover the commission fees before you sell. This way, you know if you’re actually going to profit.
Have a better method, or formula? Post it in the comments and let us know! This site is all about spreading the knowledge, and I don’t presume to be the all-knowing on these subjects. This is simply what I’m currently doing, so if you have improvements, or any information that can enhance the discussion, post it so we can all enjoy it!