Motif Investing and Dividend Stocks: Questions and Answers + $150 Bonus

In my initial review of new brokerage firm Motif Investing, I wanted to use this new brokerage structure to create cheap, custom ETFs – specifically, baskets of dividend-oriented stocks that for example match the S&P Dividend Aristocrat or Dividend Achiever companies that have raised dividends for 10-25 consecutive years or more. Motif asked if I had any specific questions, I sent some over, and here are the answers as provided by Tariq Hilaly, Motif Investing’s Co-Founder & Chief Investment Officer:

MMB: I’m specifically interested in dividend-oriented strategies. Do you offer any motifs that offer high dividend yields?
A: We sure do. As you know, a motif is a portfolio of up to 30 stocks reflecting a specific idea or theme. For starters, we have the Energetic MLPs motif, which is made up of master limited partnership stocks that have a current composite dividend yield of 7.20%. This motif comprises more stable MLPs because those with the highest debt-to-equity ratios were screened out. Motif members can find each company’s dividend yield by logging in to view the motif’s Overview page, clicking on the Detail Table, then clicking “Add Columns” and checking the dividend yield box. Like all motifs, this motif can be customized in order to meet the needs of the investor’s particular investment strategy.

Another motif, Office Space is made up of commercial real estate investment trusts (REITs) that have a current composite yield of 3.88%. This motif avoids REITs with more than 30% of their debt maturing in the next three years to control for refinancing risk.

Our Recession Resistant motif screens for companies with a low debt-to-equity ratio, high dividend-coverage ratios, and positive dividend growth, then ranks them by dividend yield – those stocks have a current composite dividend yield of 3.21%. These companies are known to carry the potential to survive even a deep recession without having to cut their dividends as quickly as many companies had to do during the recession of ‘08-‘09 (dividend cuts can often result in stocks taking a big hit). Note: The dividend yields provided above are as of August 29, 2012.

MMB: Are there plans in the future for me to be able to “share” a custom motif with others? Or at least name them and save them locally in my own account?
A: Yes, we plan to launch a feature later this year that will let our members share a motif they’ve customized by adding or deleting stocks– or change a motif’s weightings. In the future, they’ll also be able to name the custom motifs any way they want.

MMB: I figured a reason why Motif doesn’t really venture into this is that you can’t mention specific indexes without paying royalties, is that partially correct?
A: Yes, you’re correct. For us to replicate or mention an established index we have to license it. So at this point, we don’t mention specific indexes.

MMB: Does the motif ever “rebalance” in the future back to the original weightings to prevent drift?
A: Yes, we rebalance most motifs on a quarterly basis. On rare occasions, with longer-term investing strategies that take longer to play out, we rebalance once a year.
Since the motifs are designed to represent an idea, we update them according to the rebalancing schedule as the idea evolves, so that they continue to best represent the idea. For example, companies may enter or exit a market – this was the case in tablets, where Amazon entered and Research In Motion and Hewlett-Packard left. So in our Tablet Takeover motif, Amazon was added, and RIMM and HP were removed at the last rebalance. Another example is our Onward Online Ads motif — both Facebook and Yelp were added after their IPOs. That’s how we work to prevent idea drift in our base motifs.

Follow-up

I’m still not interested in any of their current motifs, but I am glad they are open to sharing custom motifs as that can encourage the making some good ones. I looked into the S&P 500 Dividend Aristocrats, but there are 51 of them. With a limit of 30 stocks, I’d have to do some additional screening (or make two baskets, but that would be double the commissions). I just think something could be done here to take advantage of the ability to trade 30 stocks at a time for only $9.95, with no ongoing ETF expense ratios eating into returns. Perhaps someone else can come up with a better idea.

Current Sign-up Bonus

Right now, Motif Investing is offering a $150 cash bonus when you open a new brokerage account with $2,000+ and make 5 trades. If you make 1 trade, you’ll get $50. 3 trades will get $75. Limit one account bonus per household.

The cash bonus offer applies to new, approved Motif Investing brokerage accounts opened after 9/1/12 and funded with at least $2,000. The new funds must be posted to the account within 10 calendar days of account opening, and must remain in the account for 45 calendar days. The total bonus will be based on motif trades made within 45 calendar days of funding, as follows: 1 motif trade will receive $50; 3 motif trades will receive $75; 5 motif trades will receive $150. A motif trade is defined as a completed purchase or sale of a motif for $9.95 commission. Individual stock trades will not be considered as part of this offer. The cash bonus will be credited to the account within 30 calendar days after the end of the 45-calendar-day period.

Comments

  1. Nice follow-up!

    I would sign up for the bonus, but unfortunately I probably wouldn’t have five trades to make, so it wouldn’t be worth it to me.

    Thanks for the offer!

  2. Very interesting site. The signup offer really peaked my interest, but then I realized with $50 in fees for those 5 trades (and then another $50 to get out down the road) you are only looking at a $50 bonus on a $2k investment. I think they could make that a little more attractive. Still considering it though.

  3. Chris, I think the bonus is attractive to use their site. Its a 7.5% bonus. However, its not really designed for a dump and run, they are giving you the bonus to use the site, not to make extra money off of them.

  4. You should have asked about any plans to support automatic dividend reinvestment in the future. One could build a custom motif of dividend stocks—but it doesn’t help much if you have to pay a full $9.95 commission to reinvest those dividends each time they are paid out.

    I really like what Motif is trying to do, but the lack of dividend reinvestment is a major blocker that keeps me from placing any money with them.

  5. @Dan, yeah I don’t mind them wanting to keep me as a customer. And I’m not a fan of dump and run strategies (though, if its easy to do I understand). I just look at $9.95 fees as being high and requiring 5 trades makes me immediately spend $50 of my “bonus” just to become a customer and get the bonus. To appeal more to me, they could make the trade requirement (at least 1 trade), or waive fees for first 30 days with some stipulation about how long I have to hold money in my account before getting the bonus. To me, it is only a 2.5% bonus as I am paying them $100 of that.

  6. interesting campaign to get more sign ups. Compared to other accounts who only require $500 to open and $6 trading fees…if the “$150″ bonus is worth it to you then do it but we all know it’s just a ploy for higher conversions.

  7. Chris, the effective bonus is $100, not $50. They require 5 trades, not 10. You can buy into same motif 4 times and then sell it off in one transaction. I may be wrong though, but this is how I understand terms of the offer.

  8. @Vlad great point! If I join, I will probably buy the same motif with 5 trades and hold it for a while, leaving me with just 1 thing to sell. Thanks for the idea!

  9. Any word on if the Energetic MLPs Motif issues a K-1 like a regular MLP or are taxes paid at the motif level?

  10. I’m still waiting on their $50 bonus for depositing $1000+ from back in July. It was supposed to be credited after 50 days which passed more than a week ago for me.

  11. @Chris – You can sell all your holdings with just one trade, as Vlad points out. But yes, this bonus is structured to encourage you to at least try out their system.

    @Charlie – Dividend reinvestment is a nice feature to have, although I personally don’t like tracking all those tiny tax lots. I believe they use Apex Clearing for their backend (Zecco, TradeKing, Optionshouse), and I know that TK offers DRIP, so it should be possible. Perhaps you should send them a note?

    @MuchMoore – I’m pretty sure it’s the same as you holding all the MLPs in any other brokerage company like TD Ameritrade.

    @Tony – I opened my account around August 28th, I’ll keep updated on my bonus activity as well. Might be worth an online e-mail or something.

  12. > Dividend reinvestment is a nice feature to have, although I personally don’t like tracking all those tiny tax lots.

    Maybe I’m just being spoiled by Schwab—but I thought there was legislation that requires brokers to track cost basis info for all equities bought since January 1, 2011 and report it to investors and the IRS. Dealing with small tax lots isn’t so bad if someone has already written it all down in a spreadsheet for you.

  13. First, many thanks to MMB for letting us know about Motif; this is where I came to know about it and signed up.

    Second, what I am planning to do is to go after the motifs that have low valuation, low volatility and low popularity (contrarian investment in this toppy market). I found quite a few motifs that belong in that category.

    Third, not that I am preaching righteousness, I am not comfortable just to get into Motif Investing for the $150 bonus — it seems to me that this is clearly a novel way of investing. I will stay with them as long as the motifs are appealing and their customer service is good.

  14. Folks, all this sign up pennies are nice but the real issue is tax reporting, which they completely have been silent about. Within a week, I built two custom motifs, one for divs and one for euro net of banks, and made a few trades. So here’s what I get: about 30 entry/exit points per trade. This isrediculous. Do you have the time and resource to track the fractions? Remember – you are not steeling the chunks you bought. You are selling $$$ in a motif. So…I am still puzzled after I made a few trades: how will I report those 3.23 of VVV bought on one day and 3.19 sold on another day. I now want to see the tax forms. No human will be able to track the fractionals. I think they are totally blind to the most important aspect. For now, I stopped trading and will wait for the end of the year statements, as they totally say nothing specific – the whole reporting is outsourced. If they want to be in business in a year,they need to realize the weak link in the chain. Soon!

  15. @Andrey – I agree, the tax lots can be a pain if you buy and sell a lot. Personally I’d just be a buyer of dividend stocks and not sell and collect dividends. Nothing worse that having an old-fashioned DRIP plan.

    I had a similar issue with lots of fractional share lots with Betterment but it actually turned out fine because I could import all the transactions into TurboTax online and I was done. The question is, will Motif import into TurboTax?

  16. Right, TurboTax would help out, but it is still a not what it should be.
    And btw, no TurboTax support for now. I also was not planning to day-trade there, but I think the appeal of buy in in $250-1K chunks once a week is much higher than moving 10K+ in one shot even with this level of diversion. And if you do that, the number of entry points will just be huge to track…

    Anyways, a great idea that’s just a bit uncooked at this point, IMO.

  17. Just making one trade is an okay deal as well.

    A $50 bonus (taking out $10x 2 trade commissions) leaves you with a bonus of $30.

    A $150 bonus (taking out $10x 10 trade commissions) leaves you with a bonus of $50.

    An extra $20 is probably not worth the hassle of 8 extra trades unless you want a lot of different motifs.

  18. @Maury – If you’re going to sell everything, that just takes 1 trade. So you could make 4 buying trades, and 1 selling trades = 5 trades.

  19. I believe many folks here are missing the big picture by focusing on the “sign up bonus” and trying to figure out ways to qualify for getting that insignificant amount. If you truly understand the principles of long term investing and compound interest, then you are not easily distracted or swayed by such trivial things. Especially when you project your calculations 10 or more years down the road with large investments.

    The true beauty of Motif Investing is that you don’t necessarily have to buy one of the featured motifs. I’m not sure everyone is aware, but you can create your very own motif by modifying one of the existing ones. You can add and remove stocks or ETFs to create any mix you want, and buy the whole set for only $9.95. Now, you tell me where else can you buy 30 equity trades for that kind of money?
    Any future contributions you make to your customized motif cost the same ridiculously low commission. Once you buy a motif, whether it is one of the existing ones or your custom one, you can, if you want, trade single equities within that motif for only $4.95. I don’t think I will be doing much of that, but it is nice having that cheap alternative.

    I just got off the phone with one of their sales reps, and he tells me they have tons of new features coming down the pipe early next year, including the ability to create and name your custom motifs from scratch, without having to start from an existing one.

    Very cool stuff indeed.

  20. By the way, I only plan on trading Roth accounts through Motif for now. I’m not sure how the tax management will be with fractional shares in a taxable brokerage account. I need to call them back and ask about that. Maybe there is no reason tho worry if all the transactions are properly recorded when they send the 1099. I’d probably stay away from mlps in a taxable account, unless the tax code gets simplified.

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