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 & Sell – ABBV and PFE - 20 Sep 2018 20:59

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AbbVie (ABBV) continues to be range bound and on Wednesday its stock price bounced along the bottom of that range and I just couldn’t resist adding to my position so I purchased ABBV at $90.80/share with a 4.23% dividend yield.

Unfortunately I already have a full position in Healthcare Pharmaceutical stocks with sizable positions in J&J, Pfizer, and Merck. The purchase of ABBV threw my sector weightings out of balance and instead of being overweight I simply rotated out of one company and into another by selling 20% of my Pfizer (PFE) position at $43.75/share on Thursday.

This was not a hard decision as I bought PFE two years ago and the price has since gained 36% not including dividends. At $43.75/share PFE had a dividend yield of 3.11% versus my ABBV pickup at 4.23%. By using a rotation instead of using new funds I was allowed to increase my income, maintain my sector weighting and add diversity to my pharmaceutical stocks. You gotta love it when your money is working hard at making money so you don't have to. - Comments: 0

Done with Credit Card Debt - 09 Sep 2018 16:37

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On Saturday I logged onto the website of a credit card company and finally paid off my credit card! This was the last goal I had set for myself to accomplish by age 50 and now it is behind me and closes one of the darker financial chapters of my career. Mentally this was incredibly relieving and has really energized my ambitions to retire in 10 years. Debt is no longer a burden and obstacle for moving forward!

How we got here

Living within one’s means is an age old mantra for fiscal wellness but sometimes there are things out of your control. In my case it was expenses increasing at a rate faster than my pay. Up to the year 2010 my family of 5 was supported on a single income, we never had credit card debt and we maintained a balanced budget.

Beginning in 2011 things outside my control began to accumulate. First, state income taxes were increased dramatically and then local property taxes increased significantly and then in 2013 our state income taxes increased yet gain. If taxes were not enough, the percentage I had to contribute to my healthcare was increasing annually at a rate of 12% during these years. The final cost topper was when the Affordable Care Act was introduced and now I had to contribute an additional amount to a Health Savings Account (HSA).

Initially the debt started small. The increase in taxes moved me from a balanced budget with no debt to being short $100/month. At the end of 2011 I had a credit card balance of $1300. The amount seemed small and I figured I can catch up after I get an annual raise. Unfortunately it became a widespread industry pattern to give minuscule raises and this was my first indicator that expenses were rising faster than my income.

Like any responsible adult I tightened the belt but then additional tax increases and rising healthcare kept coming and by the end of 2012 my credit card balance was sitting at just over $3,000. Suddenly I was short $250 month (yikes!) and seeing this shortfall would eventually lead to stress and then depression. The stress of not just keeping me financially stable but the welfare of my wife and 3 children began settling in and was the start of an emotionally dark time because I knew the debt was growing not because of a lavish lifestyle or uncontrolled spending but simply to cover monthly bills. At this point we were already living a frugal lifestyle and there was nothing left to cut.

By the end of 2015 the credit card debt had ballooned to just over $13,000 and by the end of 2016 it was a balance of $12,000. It only came down because the price of oil & gas crashed making home heating and gas for the car less expensive. At the end of 2016 I had to have a serious sit down conversation with my wife about how bad a financial position we were starting to delve into. In 2017 she started a part-time job and that is when things changed for the better. By mid-2017 her part-time job turned into a full-time job and everything became manageable after that.

I consider myself lucky during this time. I never lost my job or house and only did minor damage to my credit rating. Thankfully there were no major financial issues like medical surgeries or other catastrophes which was probably the only reasons why I did not have to raid retirement savings or the kid’s college savings or sell my house.

Milestones Accomplished by Age 50

In md-2017 I mapped out some milestones I knew I had to accomplish by age 50 if I wanted to meet my long term goal to retire at age 60. These goals were simple but significant in nature and the goals achieved were:

  1. Generate dividend income equal to 1/3 of my expenses - accomplished in June
  2. Pay off my mortgage by September –accomplished in July (2 months ahead of plan)
  3. Eliminate all credit card debt by end of year – accomplished in September

Eliminating the debt of our mortgage & credit cards have cleared the way for our final push towards retirement savings and reducing our monthly expenses. At this point the only debt we have remaining is a home equity loan which we are on target for paying off in 3 years.

On the income front, reaching the milestone of 1/3 expenses was crucial because I needed as much income as possible now to grow over the next 10 years and do the bulk of the heavy lifting via dividend growth & reinvestment which in turn will relieve some of the stress of needing to save large sums of money.

It is hard to believe that just two years ago we were teetering on the edge of falling into a hole of indebtedness and here I am today with a clear runway towards retirement. And the best feeling of all is that it now places my wife and myself in a secure financial position that will allow us to be there to help our future adult children if a crisis arises and not be a burden to them or others. Now all that is left to do is to stay on plan and grow my dividend income annually by 10% and build up a cash position equal to one year of our expenses. I feel like that x-wing pilot in Star Wars with his squad leader telling him to stay on target.

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- Comments: 1

Sold LXP - 08 Sep 2018 13:05

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Friday afternoon I sold off all of my shares in Lexington Realty Trust (LXP) and banked a 9% gain. I sold on the basis of lack of visibility where the company was going based on their recent sell-off of 21 properties and formation of a joint venture for said properties with a 20% stake. article link

Of course with a loss of properties their would be a reduction in earnings and in turn a reduction in the dividend payout. But this didn't bother me as much as it was unclear as to what the company was doing with the remaining proceeds after paying debt obligations. Initially I did not sell in the hopes that the company would have an additional press release to add more clarity to the transaction and future plans but as of Friday there was nothing.

One could argue that LXP has made it's vision clear more than a year ago by refocusing its strategy towards industrial properties and that this deal simply accelerates that shift. So should investors be surprised? I agree that LXP has communicated its strategy over the last two years and that this is not that big of a surprise. What bugs me is the lack of clarity into timelines, projected targets or even possible talent acquisition for managing & acquiring industrial properties. Summed up, I sold because of their lack of communication on details of future execution.

I have learned my lesson about holding stocks with uncertainty and speculation. If things become more clearer for the positive then I'll buy back in, if not I'll enjoy the 9% gain. - Comments: 0

Plan For Sept – Be Sloth-like - 01 Sep 2018 18:18

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The month of August produced some surprising gains in the markets and it has left me in a tough spot. Every single stock I am watching is at least 10% away from my buy price and not even worth publishing my list this month. Even with a couple days ending August on the downside did little to soften prices.

Stocks with current and historical high dividend growth (greater than 7%) are getting expensive and I hate investing for the sake of investing knowing I’m not getting the yield & growth that I want. This is not to say there are no decent companies to buy it is just that I already have full positions or something in that sector already in my portfolio. Abbvie (ABBV), IBM, Prudential (PRU), and Dominion (D) are all reasonably priced with yields above 3% and decent growth rates but I own the first 3 and already have a full position in utilities via Brookfield Renewable (BEP) so D is out.

One stock that is starting to look tempting is Illinois Tool Works (ITW) which is sitting nears its 52 week low and after a massive 28% increase in dividends announced on August 3rd is getting interesting and is a nice alternative to Fastenal (FAST) on my watch list. With the recent dividend increase this brings the dividend yield to 2.88% which is pretty close to my minimum 3% yield. However, that means I would have to wait a year for the next dividend increase to put me over my 3% target if I bought at today’s share price.

On the REIT front is there anything that hasn’t shot up in price? I really misjudged this sector, back in March I really thought REIT prices would remain depressed for the remainder of the year due to rising interest rates. At that time there was no rush to build a big position as I thought the opportunities would be available throughout the year.

With everything outside my buy zones the only thing for me to do is embrace a sloth-like investing style. I’ll make my monthly cash deposits into the appropriate brokerage accounts, maybe nibble on some ITW and take it nice and slow just watching the markets. - Comments: 0

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

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