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

Recent Buy PRU - 16 Jun 2018 12:38

Tags: pru prudential

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Friday I made an initial investment in Prudential Financial (PRU) at a price of $97.41 per share and a dividend yield of 3.69%.

At the start of the month I had targeted four potential stocks to buy this month, though I only had funds for one, Leggett & Platt (LEG), Pepsico (PEP), IBM and Prudential (PRU). By the time I had funds available to make a purchase LEG & PEP climbed 5% and IBM climbed 3% in equity price while PRU dropped 1%. This was not that hard of a decision at this point so I capitalized on the weakness of a price decline and settled on PRU.

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

A Little Light at the End of the Tunnel - 11 Jun 2018 21:54

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This month marks and interesting milestone for me. As of now I am no longer counting double digit years until financial independence and now have 9 years left to my goal! And the best news of all is that I am exactly on target.

To achieve financial independence I need to replace two-thirds of my income and currently have replaced one-third of my income with passive dividend growth. If all goes well, I can continue to grow my passive income by 10% annually and hit the mark dead on. Of course this success has not come overnight but represents 30 years of saving and investing with the last 6 years converting my portfolio to a dividend growth strategy. Initially it was not an instant success and mistakes were made. Luckily the mistakes were early and small enough amounts that it did not de-rail my efforts.

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As the old saying goes you have to break a few eggs to make an omelet and here is a list of the mistakes and lessons learned during that time:

1. Chasing High Yield

Yep this was an early guilty pleasure but the pain of a falling knife hurt more. Luckily stumbling out of the gate this early did not act as a deterrent. Instead I went back to the basics by going back to my Accounting 101 days from college to tear into financial statements and built this into my investing rules. Yes I did save my AC101 college text book from so long ago and I am so glad I did. I still refer to it on occasion and it remains one of my most valuable books

2. Investing in What You Don’t Know

After fixing the chasing yield problem I thought I had my act together by incorporating financial statement analysis but this did not apply to commodities and I learned the hard way after investing in iron, mining and oil stocks. With commodities a strong financial statement is a small component of selection and what you really need is a strong understanding of commodity markets (which I did not have). Boy did I time this wrong and invested at the top of a cycle, when it dropped it was ugly. To this day I still wince at the topic and have avoided commodities since. I am not saying commodities are bad but if you do not invest the time understanding commodity markets then you are playing with fire.

3. Buying Stocks Too Early

This is not timing the market as much as it was buying stocks without understanding how it should work with my goals. The issue was two-fold; first I placed too much urgency on diversification and second my goals & strategy were way too broad. In regards to the later I did not do the hard math to understand exactly how and when I needed to invest to meet my goals. This lead to me creating my dividend yield to dividend growth rate combinations that I needed to meet my goals.

4. Not a Tax Efficient or Beneficial Portfolio

For the first 20 years of saving & investing I made the mistake of placing 90% of my investments in a 401K which locked in my money till age 59 ½ and when withdrawals are made they are taxed as ordinary income. I should have just contributed just enough to the 401K to get a match and then split the rest up evenly between my regular brokerage account and a Roth IRA. I did not realize this until 2010 when I was watching friends get laid off and I thought about how would I get by if I was laid off? Better late than never but I started a Roth a few years back and thankfully I still have 9 years left to invest.

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Looking back I can see how each one of these lessons influenced my investing rules and I was fortunate enough to recognize the issues early and course correct accordingly. I am sure there are more lessons to come but hopefully they will not be that painful. With only 9 years left to my early retirement it is getting pretty awesome that I can see some light at the end of the tunnel. - Comments: 2

It's June - Is it Time for a Checkup? - 07 Jun 2018 23:12

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For many the month of June is the start of summer; kids & teachers get out school, barbeques are smoking and swimming pools become a common hangout. But for me the month of June gets me excited because it is time for my semi-annual checkup and not the kind with my doctor (I dread those).

This checkup is a review of my portfolio and something I recommend everyone do twice a year to keep you focused on your goals and not let your portfolio stray from your strategy. While there are several things I will review during a checkup the first thing I review are my holding against my investing rules.

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One of my big rules is to ditch stocks that have not increased their annual dividend for more than 2 years. This review has identified two stocks that meet this criteria; Ford Motor Company (F) and General Motors (GM).

Ford I held onto as justifying the holding because they issued supplemental special dividends. On the surface special dividends act like an increase but unfortunately are not sustainable. The last time Ford raised their annual dividend was 2014 and it just doesn’t appear to be changing for 2018 and beyond.

General Motors on the other hand gave me a dividend bump shortly after I bought it but dividends have remained unchanged for the last two years. I actually liked GM as I believe CEO Mary Barra has done a fantastic job reshaping the company, getting focused on profit and accelerating new product launches. Where the CEO is falling short is listening to bankers and using cash flow for buybacks. Personally I would have preferred some cash going to reduce pension liabilities, some to reduce debt and finally share some with shareholders via a dividend raise. But alas it is just not happening and there are no signals that a dividend raise is coming.

I hate to sell both but those are my rules and at the end of the day I want a growing cash flow. Some may think I am being hasty or too strict with my rules yet for me it keeps me emotionally detached from individual stocks and keeps focus on the real goal of increasing cash flow so I can retire from the old 9 to 5 job. I still have more checkups to do and we will wait to see of any other adjustments that need to be made. - Comments: 0

Moment of Silence for David Fish - 04 Jun 2018 23:35

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As reported on the blog site Dividend Growth Investor David Fish, author of the Dividend Champions list and other useful tools, has passed away.

He never once asked for a single penny and freely disseminated his hard work to investors. His efforts have helped to teach so many of us that we can invest and invest well. David will be missed :(

Normally I blog post every weekend but this upcoming weekend ( 6/8 to 6/10) my blog will go silent to honor David with a moment of silence out of respect and post my normal weekend post on the following Monday.

RIP David you will be missed but we were blessed with your presence. - Comments: 0

June Watch List - 02 Jun 2018 11:06

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I’ll be making my monthly cash deposit later this month and will have enough to make a buy transaction in my brokerage and Roth IRA accounts. Looking at my watch list there are 8 equities and 3 REITS sitting in my buy zone.

Equities

AbbVie (ABBV) retreated back below $100 and became attractive again and they were not the only drug stock to make it back onto the buy list. Johnson & Johnson (JNJ) has drifted down to the 3% dividend yield mark and I have never gone wrong purchasing JNJ when it breaks the 3% mark.

Pepsico (PEP) slowly inched up back to triple digits to sit at $100.25/share at close on June 1 but still sits in my buy zone. Another staples defensive stock not on my list that looks attractive is General Mills (GIS). GIS is not on my watch list as I prefer consistent annual dividend growth rates of 6% or more but if you are just beginning to create a portfolio this might be a nice buy to help diversify. I believe the market has grossly underestimated the value of the GIS acquisition of Blue Buffalo pet foods. With a 4.6% dividend this looks like a great opportunity to buy.

IBM continues to get punished and it may be overdone as it now yields 4.42%. IBM’s last quarter was good (not great) but is a vast improvement from previous quarters. Unfortunately, IBM lives in the tech sector and in comparison to other tech stock the revenue & earnings growth is not up to par and the market is punishing them.

Leggett & Platt (LEG) still continues to languish due to steel tariffs. LEG’s 3.47% dividend yield goes ex-dividend on June 14 which may motivate me for a quick dividend turn. Finally, Prudential Financial (PRU) drifted back below the $100/share mark and from a diversification perspective my portfolio is light in the insurance area.

Lots of decent buys this month and it will be tough to choose. I have full positions in the drug industry so more than likely I will choose between LEG, PEP, IBM, and PRU

Real Estate

REITS have been slowly climbing back with only a few names remaining in my buy zone and even those sit at the upper end of my buy price. Yahoo finance recently reported that investing money is rotating out of European markets and back into the U.S. with REITs being one of the benefactors which may push prices further.

I restrict REIT purchases to my Roth and if prices continue to climb then I will make no buys for June and will let the cash accumulate. Hopefully another rate scare comes and pushes prices back down.

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- Comments: 2

Updated Watch List - 11 May 2018 20:45

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No new additions or changes to the list just updated prices as of Fridays close. The market has been just nudging up in small enough increments that keep reducing the number of stocks in my buy price range. Even REITs have been inching upwards and even here they are in the upper end of my buy range.

I already invested all I had for this month so I am nothing but a spectator at this point. PepsiCo (PEP) still looks to be the best bargain out there, not sure how long it will last but it has not gone unnoticed with other dividend growth investors and currently is one of the most popular stock buys this month. Prudential Financial (PRU) has dipped below $100 and may be another bargain, too bad I won't have enough to buy until next month.

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- Comments: 0

Same Old Cliché Helps No One - 06 May 2018 17:07

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One thing I despise are when articles discuss the lack of savings and the author brings up the old cliché ”if you just cut back on going out to eat…” and like magic all your problems are solved. That is what one recent author published in a Motley Fool article.

The article focused on a recent Capital One survey which asked its survey participants why they weren't saving. The top 2 results were; not earning enough money at 41%, and counting on Social Security at 18%. The thesis was that these are bogus and nothing more than excuses because people have failed to give up non-essentials. I really cannot believe people like this are allowed to write these articles. They sit up high, act self-righteous and provide no facts for their position.

I will admit a percentage of people fall into the category where better budget skills will improve their saving habits but I bet dollars to doughnuts that percentage is smaller than these opinionated authors or experts think. Here are a few facts to help support my position.

The Federal Reserve Bank of Atlanta posted this metric that tracks the percent of people that have not seen wage growth for the year and as of Mach 2018 that figure stood at a whopping 14.3%. As a side note; my wife falls into this category as she was told no raise for this year. Overall for 2018 the median increase in earnings is foretasted to be 3%. The Bureau of Labor Statistics currently has inflation pegged at 2.4% so real wage growth is closer to 0.6%

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Overall unemployment numbers are down but not if your education level is high school or less according this statistic from the Labor Department’s Bureau of Labor Statistics.

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Finally, inflation is not the only item eating away at our wages. In a recent study by the Kaiser Family Foundation found that the average amount enrollees paid toward their deductible rose a whopping 229%, from $117 to $386, between 2005 and 2015 while wages rose just 31% during the same period.

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After all this I did not even factor in tax increases from local and state governments which vary from an increase of 1% to 4% depending on where you live. At the end of the day folks are dealing with low wage growth, inflation, rising health care and rising taxes. We are being asked to live on less money, exactly how does someone save more?

All of the folks I know that are struggling know where every single dollar is being spent and have already eliminated non-essentials. The last thing they need are lectures or to be reminded of where they should be in life. If you are one of these authors that writes these articles and believes you are helping then please do us a favor and go back to your ivory tower and stay there. We don’t need you! These folks need encouragement and positive reinforcement that they can achieve something.

One thing I can agree with is if you have a job no matter your expenses there is always an opportunity to save something just not as much as many of these articles claim. You may not believe it but just a couple dollars a week can change your life. Wouldn’t it be nice if you had a $100 or $200 emergency fund you can raid in a time of need? To take advantage of these opportunities you need to have a couple things.

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First thing you need (beside a job) is a checking account.
Not just any checking account but a free checking account with online bill paying capabilities. It may sound hard but they do exist. One of the first places to try are local banks. Local banks tend to offer much better accounts with free or small service fees that beat the big banks (like Wells Fargo or Bank of America). I never understood why so many people are willing to take the fee abuse from these big banks. If there are no banks in your area then try online banking. You can find a recent review of online banking sites at Nerdwallet.

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Second thing you need is internet access.
This doesn’t have to be a computer, a smartphone plan works just as well. If you cannot afford to pay for internet or a smartphone plan then try your local public library. Most public libraries offer free internet access and computers to use, this is not the most secure option but it can serve you until something better comes along.

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Once you have these two things the world opens up to you. To begin everyone can dig to find a small amount to save and you can start with $6 a week. I realize it doesn’t sound like it can make a difference but it can if you keep the faith and maintain a steady saving habit. First split the $6 into two categories: emergency savings and investing (yes you can start to invest with $3). After one year you will have $150 in emergency money and $150 in investments. Think a $150 a year will not make difference? Think again. If you are 30 years old and invest $150 a year till retirement (age 68) you could earn $165 a month in retirement to supplement your social security. How is that for $3 a week! The best part is this is the minimalist approach and if your situation improves then it only gets better over time as you can save more.

As far as investing, there are free trading apps out there that can help. The one I recommend is M1 Finance as you can access using a computer or smartphone and it allows you to buy fractional shares. The only drawback is you need a minimum of $100 to open an account ($500 for a retirement account) however once you reach that milestone you can make any size investment after that. The beautiful feature of M1 Finance is that it lets you create a basket of ETFs and/or stock where you set the allocations and it automatically buys everything at those percentages all for free.

In conclusion here the steps to take:

  • Get a checking account
  • Get internet access
  • Save regularly even it is just a few dollars a week
  • Invest for free - Comments: 0

New Buy PEP - 03 May 2018 00:29

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5 years ago when I was hard at work building out diversification of my portfolio I was down to choosing between Coca-Cola (KO)), Pepsico (PEP), & Dr. Pepper Snapple (DPS). I went with DPS thinking they had better growth prospects but PEP came in second. Fast forward five years later and I had the opportunity to buy my runner-up.

Today I purchased a small position in PEP at 97.50/share which adds $37 annually to my dividend income. PEP is 20% off of its 52 week high but its current P/E 28 is still higher than its 5 year average of 24. I may have slightly over-payed however it is a small position and if prices retreat further I can add more shares.

The positive of PEP is its stable of top brand names and consistent dividend growth history. The negatives are PEP is far from breaking growth speed records and with a 72% payout ratio future dividend growth will need to come from revenue growth or share buybacks. PEP will have to perform near flawlessly to keep its consistent dividend growth of 6-7% a year. - Comments: 0

Update to my Watch List - 02 May 2018 20:06

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Market volatility is continuing and quickly creates (and takes away) opportunities to buy stocks on sale! The big news for April was the word inflation. Anyone mentioning inflation, pricing pressure or rising material costs was not treated well with respect to share price opening more opportunities. This month 5 new stocks have made it onto my radar; Air Products (APD), Fastenal (FAST), Johnson & Johnson (JNJ), 3M (MMM) and McDonald’s (MCD).

Air Products & Chemicals
APD Recent Dividend Yield: 2.71%
Most Recent Dividend Increase: 15.79% announced January 2018

Air Products & Chemicals engages in the manufacture and distribution of atmospheric gases such as oxygen, nitrogen, argon, and rare gases; process gases such as hydrogen, helium, carbon dioxide, carbon monoxide, syngas, and specialty gases. The also produce equipment for the production and processing of gases such as air separation units and non-cryogenic generators.

Fastenal

FAST Recent Dividend Yield: 2.99%
Most Recent Dividend Increase: 15.6% announced January 2018

Fastenal engages in the provision of fasteners, tools, and supplies which can help in the manufacture of products, build structures, protect personnel, and maintain facilities and equipment. Products include cutting tools and metalworking; fasteners; material handling, storage and packaging; power transmission and motors; tools and equipment; electrical; abrasives; hydraulics and pneumatics; plumbing; lifting and rigging; raw materials; fleet and automotive; welding; office products and furniture; janitorial; and lighting.

Johnson & Johnson

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

Johnson & Johnson, researches and develops, manufactures, and sells various products in the health care field worldwide. Its Consumer segment offers baby care products, oral care products, beauty products, over-the-counter medicines, women's health products, and first aid products. The company's Pharmaceutical segment offers various products in the areas of immunology, infectious diseases and vaccines, neuroscience, oncology, cardiovascular and metabolic, and pulmonary hypertension diseases. Its Medical Devices segment provides orthopedic products; general surgery, bio-surgical, endo-mechanical, energy products, sterilization and disinfection products, diabetes care products, and vision care products.

3M Company

MMM Recent Dividend Yield: 2.79%
Most Recent Dividend Increase: 15.7% announced January 2018

3M Company operates as a diversified technology company that produces products which serves automotive, electronics and automotive electrification, appliance, paper and printing, packaging, food and beverage, construction, medical clinics and hospitals, pharmaceuticals, dental and orthodontic practitioners, health information systems, food manufacturing and testing, consumer and office retail, office business to business, home improvement, drug and pharmacy retail, and other markets directly, as well as through wholesalers, retailers, jobbers, distributors, and dealers worldwide.

McDonald's Corporation

MCD Recent Dividend Yield: 2.47%
Most Recent Dividend Increase: 7% announced September 2017

McDonald's Corporation operates and franchises McDonald's restaurants in the United States and internationally. Its restaurants offer various food products, soft drinks, coffee, and other beverages, as well as breakfast menu. As of December 31, 2017, the company operated 37,241 restaurants, including 34,108 franchised restaurants comprising 21,366 franchised to conventional franchisees, 6,945 licensed to developmental licensees, and 5,797 licensed to foreign affiliates; and 3,133 company-operated restaurants.

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- Comments: 0

A Different Dividend Streak - 28 Apr 2018 22:30

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As a passive income investor there are two major threats that can hurt your long term passive income. The first is the dreaded dividend freeze or cut. However, most (if not all) investors are constantly monitoring for this threat and resolving the issue before it does any harm. You can see this in action on countless blogs as investors document their investing journeys.

The second major threat is the one less talked about and probably could use a little more attention is inflation, that long term killer that slowly eats away at our gains. In a low inflation period, like we have been in for the last 10 years, it is easy to forget about factoring in inflation to your investing portfolio.

Things can and will change especially if your investing horizon is more than 20 years. Me personally I’d rather have a portfolio prepared and diversified enough to adapt to that change than waiting to react. Unfortunately we do not have crystal balls and cannot predict when and how much inflation will change. Historical performance does not guarantee future performance but it can provide insights as to how a company and its management typically react during high or low inflationary years. Using that as a basis I plan on incorporating historical dividend growth to inflation as part of my analysis for stock selection.

A Different Kind of Dividend Aristocrat

We have all heard of Dividend Aristocrats or Champions where companies have increased their annual dividend payouts consecutively for 25 or more years. But how big would that list be if it was how many companies have increased their dividends more than inflation consecutively for 25 or more years?

The proper way would be to analyze every component year by year but for the purpose of this post I will use the average inflation rate over 1, 3, 5, and 10 years and compare them to the current 118 Dividend Champions compiled by David Fish and available at the DRIP Investing Resource Center. When you over lay the inflation rates 19 companies failed the test and reduced the list to 99 companies.

The chart at the end of this post is a summary of the analysis. The color coding is as follows:

  • Red =Failed to Match or Beat Inflation
  • Yellow = Matched or exceeded inflation up 0.9%
  • White = Beat Inflation from 1 to 3.9%
  • Green = Beat Inflation 4% or higher.

Johnson & Johnson is a True Dividend King

Johnson and Johnson (JNJ) recently announced a 7.1% dividend hike marking 56 years of consecutive growth. JNJ has long been a favorite among dividend growth investors but what few are aware is it has one of the longest streaks for increasing dividends that exceed inflation. The last year JNJ did not perform this feat was 1980! That is a 38 year streak! The most impressive thing is that they did not just beat inflation each year they thoroughly spanked it consistently over all 38 years!

I did an similar analysis in a 2015 blog post on a ½ dozen companies with JNJ as one of the companies and had year by year data available to make this more detailed claim including this follow up JNJ blog post. Back then Walmart held the title with a streak that started in 1974 but that streak came to an end last year when they failed to beat inflation. 42 years was an impressive run but I think JNJ has a much better business model and will eclipse that streak.

If you prefer to view in Google Sheets here is the link

- Comments: 0

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