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

New Buy LEG - 12 Aug 2018 17:55

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Friday I added to my Leggett & Platt (LEG) position by picking up some shares at $43.40 and a yield of 3.51% which will add another $68 annually to my dividend income. Currently my LEG holdings is at a two-thirds position so my next buy should place me at a full position.

This was at the upper end of my buy price and probably could have been a bit more patient but more than happy to grab shares at a 3.5% yield. I realize these are not big purchases but the best thing for me is to continually invest and steadily work towards my retirement goal. - Comments: 0

Long Term Goals Seem Too Big, Bring’em in Closer - 11 Aug 2018 19:00

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The advantage of being older is the benefit of experience which I occasionally get to impart on others. One area I would like to touch on is primarily for young or new investors is to simplify long term goals.

Over the years I have witnessed many an investor being too aggressive where goals are set so high that they expend massive amounts of energy (or money) and then get burned out and if life throws a couple of curve balls it can bring you down even further making you feel like this little cartoon…

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The secret to long term investing is to remember this is a marathon and you have many years to go. The easiest approach is to break-up your long term goals into progressive smaller goals. Take for example retirement, retirement goals are typically a set dollar amount ($1M, $2M, or more) or some percentage of cash flow (% of expenses or % of income) via passive income investing. Those are some pretty intimidating numbers and it is not hard to see how one can feel like they are not making progress.

Because this blog is about dividend growth investing we will take the passive income route where you need to replace 100% of expenses by retirement (say $60,000 a year). To keep motivated, develop smaller incremental goals that fit short term and long term goals. The table below is a simple plan to grow passive income as a percentage of your annual expenses that is segregated into achievable targets by age and still meets our intended long term goal.

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In this example, our young investor needs to have the equivalent of 1.5% of expenses in passive income by age 25 (0.75% from their brokerage account & 0.75% from their ROTH IRA) or $900/year. Suddenly $900 becomes a much more achievable than trying to replace $60,000. As the investor progresses, the passive income target doubles every 7 years keeping them focused on the end goal while having pride of achieving the smaller goals in between.

The intent of this approach supports the old saying of “How do you eat an elephant? One bite at a time.” Bringing long term goals closer by breaking them into smaller goals has long been a successful planning approach and is sometimes underappreciated or forgotten. If you are an investor who feels like they struggle from time to time then do yourself a favor and try it out. - Comments: 0

New Buy NWL - 07 Aug 2018 14:55

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On Monday I made an unplanned purchase that was not on my watch list by buying a small position in Newell Brands (NWL) at $22.56/share and a dividend yield of 4.08%.

The reason NWL was not on my watch list is because this is not a dividend growth stock. NWL from my perspective has become an income value stock which on occasion I buy when I see the market undervaluing a company. NWL’s stock price got hammered on Monday after they missed revenue estimates with a huge miss and lowered full year EPS guidance down $2.65 to $2.85 /share. However, even with the lower guidance this places NWL’s forward P/E near 9 and their price to book value at 0.91 which means the company has crossed the line where assets are worth more than their stock price.

NWL is in the middle of a transformation, they went on a buying binge over the last 5 years and have bit off a bit more than they intended to chew. NWL has evaluated all of the brands under their roof and set forth a strategy of categories that they believe will allow them to concentrate on growth. The remaining brands that do not fall into their categories for strategic growth are being revaluated as potential divestures such as their recent sale of their sporting goods (namely the Rawlings brand).

Their strategy is fairly simple, keep businesses that have similar manufacturing processes and distribution channels and to consolidate manufacturing which will result in reducing footprint which will in turn reduces operating costs and strengthen the remaining manufacturing and logistic streams. The chart below is an excerpt from their 2018 Consumer Analysts presentation in New York that shows the brands they intend to retain and the ones being considered for divestiture.

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It may take a couple of years to fully implement the strategy and until that time NWL’s stock price may go lower until their strategy begins to show EPS growth. Since I only opened a small position there is room to add additional shares and average down. I view this as a long term investment with a 3+ year time horizon and a target sell price of $42/share and in the meantime I will collect a 4% dividend. - Comments: 0

August Watch List - 02 Aug 2018 00:05

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I overhauled my watch list and removed stocks that I already have a full position. I also changed the format a little as I now use the U.S. Inflation Beaters Index as my source for equity stock picks and also added the inflation beat statistic to the Real Estate section of my watch list.

So here we are in the dog days of summer and it usually brings with it some interesting volatility swings as so many investors and traders are on vacation and volume drops. Though in this new world of robo-advisers, ETFs, and artificial intelligence I wonder if we will see the traditional August slumps and bumps.

Equities

Equity prices inched up yet again placing most of my watched items outside my buy zone. The lone exception is Leggett & Platt (LEG). I have enough cash this month to make one buy and if the markets remain stable I will probably increase my stake in LEG.

Real Estate

For a very brief moment in July REIT prices retreated and I picked up a position in Iron Mountain (IRM). Unfortunately that window was closed quickly and prices have since recovered. Unless interest rate fears creep in I may not make a REIT purchase this month.

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- Comments: 0

New Buy IRM - 27 Jul 2018 16:18

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Surprise, Surprise…Thought I was all done with purchases this month and it just goes to show how the market can change on a dime. Today I grabbed some shares of Iron Mountain at 33.71/share with a 7% yield. This buy will add $70 annually towards my dividend income.

I made this buy in my Roth IRA and besides another buy in July what was surprising was I bought a REIT. REITs have not been in my buy zone since April but now it looks like prices are softening. Who knows I may make another REIT for my Roth IRA in August. - Comments: 2

Largest Monthly Expense is Gone - 20 Jul 2018 14:23

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I just got back from the bank and signed the papers that will authorize the use of my escrow balance to pay off my mortgage. After 23 years my wife and I are finally waving goodbye to the largest debt load we have ever taken on and accomplished this by the age of 50!

How we got here

We did not do anything crazy to get where we are today and just followed a simple plan of keeping one house and we never refinanced to extend the loan. Back in 1995 when me and my newlywed were house hunting I had only one rule for the purchase; to buy a home we can afford on one income. That August we bought our home for $100K. For the first 5 years we had dual incomes (life was good then) and did make some extra payments to reduce the loan term (we paid an additional $100/month). But, in 2000 things changed dramatically with our income.

In 2000, my wife decided to leave the workforce to focus on raising our children and remained a stay at home mom for the next 17 years. At the time that was a 50% drop in income but things were manageable because we bought a house I could afford on my salary alone. Of course with the big drop in salary we could not afford to pay extra on the mortgage after that. It is amazing how paying just a few extra dollars in the first 5 years shaved off 7 full years on the mortgage.

Lower Expenses and Found Money

It is kind of surreal paying off the mortgage and the reduced expense hasn’t settled in yet. I am sure when we pay next month’s bills it will finally settle in that our monthly expenses have gone down $700 a month and we will have less financial stress throughout the year.

Of course the big question is now that we have an extra $700 what are we going to do with it? I can already imagine most readers screaming at their screens “save it you fool”, heck I'd do the same thing. However, life doesn’t always work out that way. As much as I would love to invest all of the money we do have other needs. Most important is my wife’s 10 year old minivan which probably has 2 more years left in it before it starts to become a money trap. So we agreed to split the difference and will set aside $350/month towards a new car in the next 2 years and to invest the other $350/month into the market.

Luckily this couldn’t come at a better time. Over the next 9 years the possible risk of me losing my job would devastate our plans to retire at age 60. Saving and investing an additional $350/month into dividend growth stocks will ease that risk and combined with my wife’s recent return to the workforce I can finally breathe again. It has been a long time having to watch every penny. Now that I don’t have to maybe it is time to start enjoying life just a bit more. - Comments: 0

Inflation Beaters Index Updated - 17 Jul 2018 23:46

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Last weekend in a blog post I unveiled the Inflation Beaters Index that is a compilation of companies who have grown their annual dividends for 25 or more consecutive years and their annual dividend increases exceed the inflation rate for each year. Today I am posting an update to the list that now includes inflation beating contenders who have exceeded the annual inflation rate for more than 10 consecutive years.

The data is not 100% complete as I still have to research stocks that exceeded 18 years (currently listed as 18+ in the file). For these companies I have to download the dividend history for each company and then manually adjust for all stock splits. It is a tedious process so they will be a bit longer to get updated but I felt the list complete enough for myself or others to use.

Hers is a quick metric summary of the components of contenders list:

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Recent Buys IBM & PRU - 15 Jul 2018 11:11

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I made two purchases Friday in PRU at $95/share and IBM at $146/share that combined will add $73.68 annually to my dividend income. I have been accumulating the two over the last four months and now have a full position in both. Just to note, a full position in my regular brokerage account is ~$3000 and I usually buy in $1000 increments.

Unless something big happens in the markets this should be my last big purchases for the month. I still have a little cash in my regular brokerage account, IRA & ROTH IRA to make purchases if I need to but most likely will carry this balance into August. - Comments: 2

My New List - 13 Jul 2018 17:25

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I did not post any blog updates last weekend and if I disappointed anyone I apologize but it was for a good reason as I was hard at work developing a new list that I’m pretty excited about. With that being said, I developed a new list called the U.S. Inflation Beaters Index. This list is a compilation of companies who have grown their annual dividends for 25 or more consecutive years and their annual dividend increases exceed the inflation rate for each year.

When I first imagined this list I thought it was going to be a quick exercise in spreadsheet number crunching but I couldn’t have been more wrong. I started by using the ever-so valuable U.S. Dividend Champions List from http://www.dripinvesting.org/ as a base model. The limitations of that file was that dividend payment history only went back to the year 2000 and would not fit the analysis needed to be done. From there I spent the next 5 days downloading the dividend history for each champion (there were 123 companies) and then had to manually adjust for all stock splits.

Once I had all of the relevant information it was an easy analysis after that. Using the inflation table from https://www.usinflationcalculator.com/inflation/current-inflation-rates/, the inflation rate from each year was overlaid to see how often a dividend increase exceed inflation. The data was then formatted and migrated to google sheets and now available to all. This will be a fairly easy thing to maintain going forward so I am pretty happy with the way it turned out.

Now that the data is available, the largest surprise was of the original 123 dividend champions only 32% met the criteria of beating the inflation rate for 25+ years. The really impressive companies are those with 30+ year streaks as they did this while navigating the significant downturns from:

  • Black Monday Crash of 1987
  • S&L Crisis in the early 1990’s
  • Dot-Com crash of 2000
  • 9/11 Terrorist Attacks in 2001
  • Financial Crisis of 2008-2009
Hers is a quick metric summary of the components of the list:
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Recent Buy PRU - 11 Jul 2018 22:42

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Picked up another small position in Prudential Financial (PRU) at a price of $95.89/share and a dividend yield of 3.75% while adding $36 annually to my income. This purchase was made in thanks to the recent massive dividend resulting from the Keurig & Dr. Pepper/Snapple (DPS) merger.

My original intention was to buy three stocks with the DPS distribution but all of my watched stocks with the exception of PRU decided to increase in price after I got the distribution. One that I was really interested in was Fastenal (FAST) who dipped into my target buy price a day before but quickly rose back above and then reported a positive quarter only to see its share price escalate even further placing FAST well outside of my buy zone. Pepsico (PEP) was another possible replacement but they also reported a positive quarter and their shares moved well above my buy price.

I still intend to buy two more positions and just need to be patient. Like any investor I prefer opportunistic buys and will just have to wait and see what the market offers up in the future.

PRU has 10 straight years of dividend growth with its most recent increase of 20% announced back in February 2018. The recent dividend increase places their payout ratio at a low 32% of earnings. While the payout ratio allows for dividend growth it is not the primary feature that I like about PRU (but it does help). There are two aspects of PRU I find more attractive for long term potential of continued dividend growth; increasing rates and global aging populations.

The Federal Reserve just increased rates again and announced their stance on future rate increases. For the insurance side of the business this is good news. Insurance companies keep a significant amount of cash and short term investments on hand for claims and risk reduction, with increased rates this will increase the interest earned on those funds. Subsequently, the European Central Bank just announced an end to their Quantitative Easing (QE) program and while they have no immediate plans to increase rates I am assuming they will begin gradually increasing rates 12-18 months after the end of the QE. So globally we will see rising rates and better interest returns for short term investments.

The largest attraction of PRU I saved for last. The United States is not the only country facing an aging population issue and it is becoming a global issue. The map below is forecasted population growth by 2030 where 20% of the population will be 65 or older. The good news for PRU is that they are positioned in all of the major markets with the exception of Oceania countries like Australia and New Zealand. PRU global foot print include the America’s, Europe and Asia. It is no coincidence that their three main services of life insurance, retirement solutions and investment management services are all targeted to an aging population positioning them to capitalize on the global aging phenomenon. Considering there are forecasts that the aging crisis will peak in 2050 to 2055 before declining PRU has the potential to grow dividends for another 30 years.

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source http://money.cnn.com/interactive/news/aging-countries/index.html - Comments: 0

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