What I do is come to a decision about a stock. I then "target" a price and implicitly a current yield. Example: I want to buy some KMB at a price below 60, so my current yield will be greater than 4%. What usually happens is that I wait and, due to naturally occurring fluctuations in the stock price, I will get it around 58 or so.
If it doesn't look like it will come down below 60, I will likely "give in" and buy it in the low 60s. If it is "too high," then I will pass.
This has worked for me far more often then not. A couple dollars on a stock usually amount to a year's dividend--sometimes more. An added benefit for me is that this process allows me to practice patience in my stock decisions, which I believe to always be a good thing.
I'm sure others have different approaches. Note that this is sort of similar to writing cash-covered puts (with a strike price below the market price) discussed awhile back. My approach gives you more flexibility. For example, if you wrote a put with a 55 strike in this example and the stock fell to 57 and you wanted to buy it there, you would have to buy your put, perhaps at a loss. On the other hand, with the put you get the premium. In any event, I prefer doing it without the put.
Edit: Geez, no Replies when I started typing and now three! I have to politely differ with dabum's statement that entry price does not matter. If I can purchase the stock I want at 5% below current market price, I buy 5% more shares and get 5% more income--forever. To me, entry price most emphatically does matter, regardless of whether one is investing for dividends or capital gains. YMMV |
