Follow the dividend investment decisions of a person who has no background in financial investment and wishes to take control of their financial future.

Expect More From Thor - 20 Apr 2018 12:45

Tags: tho thor

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Thor is down 37% from its high of $161/share and many investors have been disappointed over the last 6 months on two issues. The first and most recent issue was over a declining backlog of towable orders in their most recent quarterly report that has sent their share price tumbling to $102/share in the last couple of months.

The second disappointment was back in October when THO announced a dividend increase of 12% which at the time brought the dividend yield up to a paltry 1%. Shareholders were growing frustrated as revenue and earnings which have been surging the last couple years has not resulted in more sharing of the wealth and expected a much larger increase. Historically THO has paid a dividend yield in the range of 2 to 2.5% so their frustrations were not without merit.

But before throwing in the towel it is important to understand what this board is doing with their increased cash flow if not sharing with investors. One balance sheet item that THO despises is long term debt. Up until recently their long term debt obligations was always maintained at a value $0 (nada, zip, nothing). They would always fund new investments with cash and grow the business. But, then Jayco came along, it was an opportunity the THO couldn’t pass up to grow business. The problem was Jayco was valued at more than the cash they had on hand so they acquired long term debt ($360M) to fund the acquisition. Jayco instantly added to the top and bottom line numbers and combined with a hot market created a massive increase in free cash flow. THO, who despises debt, has spent the last 2 ½ years using a large portion of this cash flow to aggressively pay down debt. In their latest quarterly filing, long term debt was reduced to $80M and is being projected to be paid off by the end of 2018.

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This was not the only area free cash flow was redirected. THO’s timing of the Jayco acquisition was near perfect. The RV market was on fire and the biggest driver was millennials buying the more affordable towable units. Backlog skyrocketed and which resulted in a capacity issue. In 2017 the company tripled their capital expenditure investments to expand capacity of manufacturing the towables and plan to invest an additional $110M in 2018. In my opinion it is too early to determine if the recent reduction in backlog is due to slowing demand or improved capacity. This will be easier to determine when the next quarterly report comes out and we can re-calculate inventory turn rates (the rate of how many times a year that a company can sell and replace their inventory). If the rate is higher than last year then capacity is the reason for a declining backlog.

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2017 2016 2015
Inventory Turn Rate 13.47 9.54 14.01

What does this mean dividend investors? This October when they traditionally announce a dividend increase there will be a large availability in forward free cash flow! I expect some will be retained for future acquisitions and a large portion will be returned to shareholders in a minimum dividend increase of 50% to bring its dividend yield back to historic levels. At the current price of $102/share that would bump the yield to 2.12%. If THO fails to deliver an increase of this size or greater it may be time to dump the shares and move on. - Comments: 0

New Buy LXP - 14 Apr 2018 13:21

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It has been a few months but I finally built up enough cash in my Roth to make a purchase and grabbed 126 shares of Lexington Realty Trust (LXP) with a dividend yield of 9%. I only buy REITs in my Roth IRA due to the tax advantages and hopefully the strategy pays off 10 years from now when I retire.

LXP’s high yield was hard to pass up and its stock price has been depressed for some time due to a combination of a fear of rising interest rates and slowing of property portfolio growth. The latter portfolio growth concern translates into a very boring but predictable REIT that increases its dividend payout on average 2% a year. There are not too many investments that offer a 9% yield plus 2% growth and a dividend that is well funded as they currently have an AFFO payout ratio of 72.4%.

LXP is a diversified REIT in the office and industrial sectors and have been slowly migrating to single tenet net leases that offer predictable income and long lease contracts. They have 174 properties in 37 states with 48.6 million square feet with 98.9% of that currently leased.

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From an income perspective they are well diversified with the highest tenet representing only 4.2% of rent income.

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The largest concern from a diversification perspective is in its geography where 16% of their portfolio is concentrated in Texas. If the Texan economy becomes negative in the future it could be an issue. - Comments: 0

Cutting Another Expense - 13 Apr 2018 22:29

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Investing and creating a passive income is not the only path I am using to become financial independent. Another tool I use which I believe is just as effective as generating income is cutting living expenses through lifestyle changes.

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Today marks the first day I no longer have cable television. Yes I have joined the cord cutting community but I haven’t gone completely cold turkey. I am far from a minimalist, not anything wrong being a minimalist but that is a lifestyle I just cannot swing and I still enjoy watching television. So I replaced cable with a live streaming service and so far so good. This cuts my annual expenses by 1%.

I ended up choosing DIRECTV Now as my streaming service. It wasn’t the lowest cost solution but for my area I thought video quality and local channel availability were slightly better than Sling TV but the service does buffer on occasion. Buffering is something I can live with but time will tell if the rest of my family can deal with.

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As far as an aerial antenna I also have one to supplement the service. However, my home sits in a valley and access to TV signals is limited. For those not familiar with HD broadcasts, the signal from TV stations travels in a very tight path and is easily blocked by hills mountains or major structures. Before jumping into an antenna solution I recommend starting with a cheap HD antenna first to see what channels are available before buying an expensive antenna. If you live on top of a hill I would definitely recommend giving it a shot. For myself I ended up receiving 12 channels in high quality and 4 of the channels I watch regularly. When you combine the 4 channels with the DirectTV Now solution I have access to the same shows as before at ½ the cost. The best part is that there is no contract so if something better comes along I can switch on a dime.

Until my kid start to leave the house I think this will be my last lifestyle change to cut costs. Once the kids are gone my next change will be selling the house and moving to a smaller place. - Comments: 0

Good Intentions But... - 07 Apr 2018 12:52

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My daughter is finishing up her junior year of college and has landed a summer internship at a local bio-pharmaceutical company for $20/hour. Being a year away from graduation and starting a career she took advantage of a guest speaker appearing at her college to discuss financial planning for college students starting a career.

She thought the timing was good and the speaker started with a scenario of starting salary of $60K/year. She thought this was perfect as she expects a starting salary anywhere from $55K to $65K a year. But this is where the excitement ends. After talking about the burden of student loan debt (not a bad topic to discuss with college students) the speaker moved on to setting goals for emergency savings and retirement. This is when the wheels started to fall off.

The speaker gave the normal diatribe of 6 to 12 months of salary saved for emergencies. Unfortunately he is telling a bunch of kids who do not have two nickels to rub together that they need to have $30K to $60K in cash just sitting there doing nothing except waiting for an emergency. If that huge amount wasn’t enough to send them into shock he then jumped into retirement stating at 67 years old they would need, get ready for this, $6.8 million! At this point my daughter said many of the students in the lecture stopped listening and broke out their smart phones to do something else other than listen to him. If I was 21 and heard these astronomical numbers there is no way I could wrap my head around it. This advice must have blown their minds into shutdown or even denial. Who can blame them?

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It is not that the lecturer was wrong in his numbers but just the way he delivered the message. Needless to say my daughter was depressed and in her words "felt like she was already financially failing before even starting a career" so she asked me for advice.

This was the opportunity I have been waiting years for. I do not like to give my children unsolicited advice because it comes off as parent lecturing and the advice usually gets ignored but when they ask of their own volition I know they are ready.

I used cash flow as the basis of our discussion because it is simpler to understand, the numbers are smaller, and the needs are more current (not 45 years into the future). I explained how throughout one’s life the one risk you are always trying to mitigate is the reduction or loss of income with retirement being the ultimate 100% loss. I also told her loss of income is nothing too be ashamed of. Most people will suffer from a loss of income at some point in their lives through job loss, lower pay, or rising expenses beyond your control. One of the elements to reduce this risk is through passive income.

The other piece of advice I gave was not to be afraid of investing as everyone makes mistakes investing and that they key to overcoming those mistakes was consistent savings year in year out. I cannot count how many of my past bad investing decisions have easily been covered up in thanks to constantly saving.

After all of the talk we moved on to the important part of what she really wanted out of me, help setting up savings goals that ended up like this:

  • At Age 25 – equivalent of one month rent in emergency cash ($900), have passive income that equals 1.5% of expenses with 50% being generated in a retirement account and 50% generated in a taxable account.
  • At Age 32 – equivalent of one month of expenses in emergency cash, have passive income that equals 3% of expenses with the same 50/50 mix.
  • At age 39+ - have passive income as a % of expenses that doubles every 7 years with the same 50/50 mix, so at 39 its 6%, at 46 its 12% and so on until she hits 100% at age 67.

These numbers were so much lower and easier for my daughter to grasp. The one thing she liked about it was that it still left room for her to save for whatever else she wanted in life. I didn’t put the idea of early retirement into her head because she is too young and it’s a goal she needs to figure out. But, I did give her a few books on dividend growth & passive income investing to help her along and offered up helping with investing decisions when she is ready.

At the end of the day this conversation is the same that her guest lecture just delivered ($6.8M) but in a different way and in smaller amounts. Hopefully she takes the advice and with me leading by example she starts life off on the right foot but time will tell. As a parent I cannot help wanting to protect & help her but if I help too much she will not learn. I definitely underestimated what it would feel like being a parent to an adult child. Though I am proud she made a decision to seek advice so early on in her life and that she respected me enough to ask. - Comments: 0

Update to My Watch List - 30 Mar 2018 14:03

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March was a volatile month for the market and as a dividend growth investor something I have been waiting quite some time for as volatility creates opportunities to buy stocks on sale! With a combination of recent price drops and dividend increases 3 new stocks have made it onto my radar; Hasbro (HAS), Havertys (HVT), and Prudential Financial (PRU).

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HAS Recent Dividend Yield: 2.99%
Most Recent Dividend Increase: 10.52% announced February 2018

Hasbro is one of the top toy manufacturers in the U.S. and has enjoyed 15 years of dividend growth. Hasbro currently has some stormy clouds overhead in the form of a Toys R Us bankruptcy and a miss on Star Wars Last Jedi toy sales. These risks have created a price pullback and potential to pickup a dividend grower on sale.

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HVT Recent Dividend Yield: 3.57%
Most Recent Dividend Increase: 20% announced February 2018

Havertys is a specialty retailer of residential furniture and accessories in the United States. The company offers furniture merchandise under the Havertys brand name. It also provides custom upholstery products, as well as mattress product lines under the Sealy, Tempur-Pedic, Serta, Stearns & Foster, and Beautyrest Black names. It operates showrooms in 16 states in the Southern and Midwestern regions.

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PRU Recent Dividend Yield: 3.48%
Most Recent Dividend Increase: 20% announced February 2018

Prudential Financial provides life insurance, annuity products, investment management, and other financial products and services in the United States and internationally. Affectionately referred to as “The Rock” has been in business since 1875 and has been increasing dividends for 9 straight years. An aspect I like about Prudential is they stay in the life insurance sector and are not engaged in riskier insurance programs like home, auto or health.

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- Comments: 0

AMNF Increases Quarterly Dividend - 24 Mar 2018 22:34

Tags: amnf

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Frozen Italian food maker Armanino Foods of Distinction (AMNF) is a micro-stock with a market cap of under $100M. Being such a small company major news announcements tend to go unnoticed by major finance websites even when it is good news.

On March 8 AMNF announced a 12.5% increase in its quarterly dividend from $0.02 to $0.0225. With Its Friday 3/23 close of $2.67/share that places the annual yield at 3.37%. It is not surprising AMNF had such a large increase, they have been reporting record revenue and earnings for the last three quarters. - Comments: 0

New Buy IBM - 22 Mar 2018 21:36

Tags: ibm

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Today’s 724 point drop in the DOW (-2.52%) triggered a limit order for International Business Machines (IBM) and represents my very first investment in Big Blue. IBM was tempting from a yield perspective in the past but held off from buying due to declining revenue. But with their latest quarterly results I see IBM starting to turn the corner with prospects of growing once again and thought it was time to finally pull the trigger and buy some shares.

IBM has been growing dividends for 22 years and at my recent buy price yields 3.9%. IBM last announced a 7.14% dividend increase in April 2017 and with April right around the corner I should get another bounce if IBM continues their annual April time frame for announcing an annual increase.

IBM is no longer a massive tech growth company but it has decent cash flow from a strong market presence and has a plan to remain relevant.

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Update to my Watch List

In other news, AbbVie Inc. (ABBV) had a significant setback with their trial of lung cancer drug Rova-T. ABBV has been struggling to find a future drug to replace the massive income being generated from their hit drug Humira. While this is not the end of the world it does add some risk.

I significantly cut my buy price down to $103/share as I see risk in maintaining their current dividend growth at a double digit percentage increases over a long period of time. As such I would prefer a higher yield to offset the risk.

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- Comments: 2

Updated Watch List - 18 Mar 2018 22:44

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I have a significant position in Dr. Pepper Snapple (DPS) which is being bought out by Keurig will lead to a nice payday but will leave a hole in my portfolio. To maintain my diversification in that sector I added Pepsi (PEP) to my watch list.

PEP currently sports a 2.88% dividend yield and a 10 year dividend growth rate of 8.9%. Currently DPS has a 1.97% dividend yield and my intent is to replace that with PEP and a minimum dividend yield of 2.95% which will provide a 50% increase in annual dividends.

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- Comments: 0

Nice Raise but Div Growth is Way Better - 04 Mar 2018 17:51

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It was that time of year again where I had to sit down with my supervisor and discuss what went well, what didn’t, and where my career is going. You probably guessed it, this was my annual review. Once we disposed of the pleasantries it was time for the real purpose of this meeting…how much of an annual raise was I getting!

As usual it was in the very low single digits range that was above average and exceeded the current inflation rate. I typically receive very good reviews but anyone that has been working in the corporate world can attest raises for the last 10 years have been at the low end but I’m not discouraged.

On the dividend growth investing side my annual dividend grow rate will be more than double my annual raise for the 6th year in a row! At this pace my dividend growth income will catch up to my annual salary near my early retirement goal 10 years from now. Trick is not to get overconfident and to also keep an eye on the third runner in this race called “Inflation”. It is a slow and methodical race to early retirement but with dividend growth keeping its momentum I just might cross the finish line.

Just goes to show how powerful dividend growth is over the long term. Just wish I had started this style of investing 30 years ago.

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- Comments: 1

New Buy LEG - 03 Mar 2018 12:37

Tags: leg

Picked up one of the holdings on my watch list and further capitalized on the selloff of anything steel or aluminum related thanks to President Trump's hint at a tariff or reciprocal tax. It was hard to let Leggett & Platt (LEG) slip by so I grabbed some shares at $42.10, not quite the bottom of the day but close enough.

LEG has paid dividends for 46 years straight and with a 10 year dividend growth rate of 7.2% and dividend yield of 3.4% it fit perfectly into my income & growth profile range of 3.5% yield with min 6.7% growth.

I still have a buy order in for Brinker (EAT) but the price went in the opposite direction and climbed to $35.96. I am assuming once the ex-dividend date passes the price will drop and I can get the order filled.

After LEG & EAT I'm tapped out until the end of the month when I add more cash and receive more dividends. Next targets for a buy appear to be ABBV and/or IBM if the price drops back below $154.

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- Comments: 0

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