Recently I received an email from a reader named Joe who said he’s looking to build a dividend paying stock portfolio. He went on to say that he liked the passive income idea, and getting dividend checks in the mail. But he was trying to figure out how to get started.

Which led him to ask this great question. And that was, “could he just copy the dividend stock investments that other people have made?” For example, could he just buy the same stocks I own, or someone else owns, or even Warren Buffett owns.

Now, on the surface, that doesn’t sound like such a bad idea. I mean, after all, we’re taught to emulate success. And if you’re just starting out, why not start off with the stocks that are working for someone else?

But as rational as this sounds, there’s a possible problem and limitation with this approach. And that is that just because Warren Buffett owns a stock doesn’t mean it’s a good stock for someone else to buy right now. And similarly, just because I own a stock doesn’t mean it’s a good stock for Joe to buy right now either.

Here’s why.

When you buy a stock, it’s best to buy it at the right time and right price. So, what does all that mean exactly? Well, let’s look at a couple of stocks I currently own as examples. And we’ll see if these two stocks would be good for you or Joe to buy today, just because I own them.

SO HOW WOULD YOU DO BUYING MICROSOFT (MSFT)?
The first stock we’ll look at is Microsoft (MSFT) – a U.S. software company. I’ve owned Microsoft for many years and the stock has done very well for me. My average cost per share is $42.82 and over the years my shares have gone up to $286.97 a share. So I’ve made a great 570% gain.

And better yet, based on my share cost of $42.82, and the current dividend of $2.24 per share, I’m getting a 5.2% dividend yield (2.24 / 42.82 = 0.0523). That’s a very good dividend yield, especially since this is a tech stock.

But if you or Joe were to buy Microsoft today, at the current price of $286.97 a share, your dividend yield would be much lower at just .78% (2.24 / 286.97 = 0.0078). That’s not even 1%, and it’s because your cost per share is so much higher ($286.97 vs $42.82) for that $2.24 dividend. And in fact, at $286.97 a share, Microsoft is looking a bit overpriced right now.

So we’re talking the same stock here, but from two different perspectives.

For me, the stock is a great investment and it pays a very good dividend yield on cost. I bought it years ago at a good price, and I should hang on to it. But for you or Joe, that very same stock, right now, pays a paltry .78% dividend. And it’s so overpriced it probably shouldn’t be bought.

So see how price and timing make a big difference?

SO HOW WOULD YOU DO BUYING ALTRIA (MO)?
Okay, so let’s look at another stock I own. And this stock is Altria (MO) – a U.S. tobacco company. Now for me, it’s also a good stock (although some investors may not want to invest in it because of their products). But I’ve owned Altria off and on for years because of their great, consistent dividend.

Now, Altria is pretty much the opposite of the high tech, low dividend Microsoft business. It’s more of the old “widows and orphans” category of stocks. These were stocks that brokers bought with less fear of losing money or cutting their dividend.

So they were good for “widows and orphans” to generate income to put bread on the table in good times and bad. And as a side note, until recently, AT&T was another of these widow and orphan type stocks. I owned it also until recently.

THAT’S MORE THAN A WHOPPING 7% DIVIDEND
But anyhow, with that background in mind, I bought Altria in May of this year at $48.45 a share. And it’s generating a whopping dividend yield of 7.21%. In fact, I’ve already received my first dividend check.

So I like Altria. It seems to be a good stock for me. But how would you or Joe do if you bought this stock, right now, just because I own it?

Well, in fact, you’d probably do rather well. Actually, you’d do better than me because, at writing, you could get it for a lower price of $47.29 a share. And with a $3.44 per share dividend, that’s a higher 7.31% yield for you, compared to my 7.21%.

So unlike Microsoft, which seems overpriced, the price of Altria seems reasonable (actually cheaper than what I paid for it). And again, unlike Microsoft, which had a tiny .78% dividend, Altria pays a whopping 7.31% dividend yield – right now!

So what do you think about Altria? Would you or Joe do good buying it? Well, everyone’s situation is different, so you’ll have to decide if it works for you. But unless you have some reservations about their products, Altria seems like a fairly good investment at this point in time.

Now, back to our larger point, and Joe’s great email question of, “can he just copy the dividend stock investments that other people have made?” Well, the answer seems mixed.

THE KEY IS HAVING UP TO DATE ANALYSIS / RECOMENDATIONS
In the case of Altria, the situation and price remain about the same since I recently bought it. So probably yes, Joe could copy that one.

But in the case of Microsoft, probably no. That’s because I bought it many years ago. So the timing is off. And the situation and price have changed significantly since then.

So it’s clear you can’t always copy “specific stocks” for success. But there are many stock related techniques and practices you can copy for success. Like how to get up to date analysis and stock recommendations before you buy.

We explore a number of these recommendation sources in my book Stock Investing For Beginners (Chapter 4, page 29, How To Find Good Stocks To Buy). If that interests you, here’s a link to preview the book for free.

To your health and prosperity – John