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

Opportunities I'm Watching - 24 Feb 2018 21:56

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In March I will have enough to make my next purchase. Luckily prices pulled back enough for some opportunities to surface, these are not huge value plays but at least fairly priced. While there are some nice deals in REITs right now I am going to pass this month. With rising interest rates REITs should be at depressed prices all year so I can get shares at decent prices later so no need to rush.

With REITs on the sidelines I can focus on adding equities of which 5 look like decent values and another 3 are close to my buy price. I already have positions in UPS and PFE so I am leaning towards ABBV, EAT, or LEG.

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- Comments: 3

Adding EAT to my Watchlist - 18 Feb 2018 18:45

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Brinker International (EAT)
Share Price: $32.88
Yield: 4.62%
P/E: 11.88

Brinker (EAT) is the owner of restaurant chains Chili’s and Maggiano’s Little Italy. EAT has had a tough time with stagnate sales over the last 3 years at its largest franchise Chili’s but the bleeding is finally starting to slow thanks to an improved (simpler) menu and an increase to advertising. Additionally the simpler menu should reduce costs and increase service times which is a welcome improvement for not just company owned restaurants but also franchisees.

The bright spot is their new franchise Maggiano’s which last reported an increase in sales but with just 52 restaurants it is not enough to compensate for Chili’s. One limiting growth factor to Maggiano’s is that it serves a higher end class of eating which EAT refers to as “polished casual”. Unfortunately, this higher end market is limited to locations near high wage earning affluent major cities.

EAT pays a generous 4.62% dividend that is well covered with a payout ratio to earnings of 55% and significant free cash flow. The dividend has 13 straight years of dividend increases with its most recent increase of 11.76% and a 10 year average of 12.33%.

One knock against EAT has been the accumulation of debt which is starting to weigh on financials as annual interest expense jumped from $33M to $50M or an increase of 52%.

Overall EAT is far from a growth story but sales are stabilizing and should start to increase revenue in the low single digits. The current dividend is well funded and even has room to grow. From a financial perspective, EAT would be smart to stop share buybacks, cap future dividend growth to 8% and use the surplus cash to pay down long term debt to reduce annual interest expenses. It is be hard to ignore a stock with a yield that exceeds 4.5% and has potential to reasonably grow dividends 5-8% annually. Though I do not own any shares it is a stock I am considering to buy with my next transaction if prices stay below $34/share. - Comments: 0

February has been Awesome! - 17 Feb 2018 14:09

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I’m not shy when people ask if I’m in the market as my response is always I’m fully invested. Since my friends, family and co-workers understand how invested I am I was shocked at how many were cautiously avoiding discussing the stock market with me assuming it was a bad time with the recent correction. The few that did ask were shocked when I responded with a huge grin stating “I’m having my best month ever!” With the markets in correction it may seem weird for someone to be smiling like the Cheshire Cat from Alice in Wonderland but if you are a dividend growth investor you probably already know my reasons why.

February has been one of the best months in my investing career. Sitting at the middle of February there have been approximately 110 companies that reported dividend increases and an amazing 61% of those companies increased dividends greater than 9%! Also, January wasn’t too shabby either as 48% of dividend increases also exceeded 9% growth.

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We are not talking just small companies, there were a plethora of big names throwing their increases around like; 3M, AbbVie, Air Products, Allstate, Corning, Clorox, Gilead Science, Hasbro, Hormel Foods, NextEra Energy, Pepsi, T Rowe Price, UPS, Waste Management, and Wendy’s. I do not own all of these but enough to provide a nice boost. And if double digit increases were not enough even some of my high yield stocks got into the game with decent raises from: Brookfield Renewable Partners (BEP)
4.81%, EPR Properties (EPR) 5.88% and Medical Properties Trust (MPW) 4.17%.

All together these raises have increased my annual dividend income by 3.4% in just two months! This increase is not even reflecting any dividend re-investment or new purchases and we still have 10 months left to the year for even more raises! Typically the first and last quarter of every year represent the bulk of my dividend increases and going out on a prediction limb it appears my portfolio is on pace to grow 6 to 7%. Considering I designed my portfolio for 3.8 to 4% annual organic growth this will be a huge beat.

2018 will more than likely go down as one of the best all-around years for organic dividend growth among DG investors. It is years like this that help fan the flames for what has become my passion. - Comments: 0

Pensions Are Big Business - 10 Feb 2018 14:09

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16 months ago I was offered a choice of cashing out my pension or begin receiving a monthly check for the rest of my life. At the time I was 49 and this was a major life decision with retirement 10 to 15 years away.

When I received the final offer in the mail I was shocked at how small the amounts were after working for 29 years at the same company. The buyout was 30% less than I had hoped for and the monthly check option, summed upped annually, equated to 5.6% of the buyout balance. This didn’t exactly seem like a fantastic option and I knew I could match and eventually beat that return with just dividend & interest income. Like any good investor I ran the numbers, developed an investment strategy and back tested the strategy using Portfolio Visualizer and even did a Monte Carlo analysis. Sure enough everything I ran had a greater than 90% success rate so I decided to take the lump sum payout and invest the money in dividend growth equities, real estate, bonds, and preferred stocks.

It took 14 months to invest all the funds which was completed with my last REIT purchase at the start of February. Within this first year of investing I only received 4% dividend income but my forward dividend income for the remainder of 2018 will exceed the pension payout and my forward yield is 5.8% thanks in large part to a full year of dividend income and recent torrent of dividend increases. Going forward it appears my portfolio income will grow at a rate of 4-5% annually, not great but not bad either considering I have non-growth income products like bonds and preferred stocks. If this was so easy to accomplish then why wasn’t the pension paying more? One theory I had was pensions must have high fees so I embarked on an investigation into my State’s pension fund and was shocked to see that Pensions are big business.

The Pension fund I investigated has a total value of $32 billion and generated $867 million in net dividend and interest. That is only a pathetic 2.71% yield. If this wasn’t bad enough, I discovered there was $99 million in investment fees which further reduced the income to $768 million with a yield of just 2.4%. These fees, which do not even include an additional $4 million pension management cost, represents 11.42% of net income. If I add up all of my personal trading and ETF fees it equates to only 0.5% of my dividend income. Holy cow 11.42% is expensive!

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A breakdown of the fees revealed that the bulk of the fees are associated with “Investment Advisors” which totaled to $78M. Looking at the list of advisors it was like a who’s who of Wall Street! Just over 70 different advisory firms were there holding their hands out waiting for their annual payment.

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This is just one pension fund, if we include all public and private pensions it is not hard to see that this is big business for Wall Street and it all comes at the expense of pension plan participants and in some cases tax payers. In hindsight, taking a lump sum payout was the best option. The ability to invest and control investment expenses is in my hands and after seeing what pension plans pay in annual expenses I’m feeling extremely confident in my decision. - Comments: 0

UPS Increases Dividend 10% - 09 Feb 2018 11:41

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UPS just announced an increase to its quarterly dividend from $0.83/share to $0.91/share a 9.64% increase! This makes the annual dividend $3.64/share and increases the yield to 3.33% as of Thursday's 2/8/18 close at $109.28/share.

With a new yield of 3.33% this moves my fair value price up to $121/share making it slightly undervalued to its dividend growth rate and the long term goals I have set for income growth. While I have no surplus cash to purchase additional shares I do have another tool at my disposal to capture the opportunity called dividend reinvestment. So first thing this morning I logged into my brokerage account and turned on the auto dividend reinvestment.

This correction is slowly starting to make some dividend growth equities attractive again and hopefully there will be more opportunities to come. - Comments: 0

STAG - Low Growth Not a Good Fit - 04 Feb 2018 18:22

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Earlier this week Stag Industrial (STAG) increased its monthly payout from $0.117 to $0.118, an increase of 0.85%. This is the third year in a row where annual dividend growth is less than 1% and a bit disappointing.

While STAG is a well-managed company it no longer fits into my dividend growth expectations/goals and I will sell my entire position. Hate to sell a consistent monthly dividend payer but with 10 years left until retirement I need something with a better dividend growth rate of at least 2% annually. The biggest question is what to back-fill with.

Selling STAG actually gives me some time to look closer at my REIT diversification. After review I already have a significant position in the industrial & warehouse space through W.P. Carey (WPC) so now would be good time to diversify into a new REIT equity space. Interestingly there have been several articles on Seeking Alpha comparing WPC to Realty Income (O) as to which is the better investment but I just can’t see the comparison. O has a focus on retail space while WPC’s portfolio only has a 16% allocation to retail. If anything I thought comparing WPC to STAG was a better analysis as 44% of WPC’s portfolio is in the industrial warehouse space.

Regardless of the Seeking Alpha articles, I decided to reinvest the STAG proceeds into Iron Mountain (IRM) as I have no position in the data storage space and this will not just help me diversify my REIT holdings but will also provide a 20% income boost as IRM is has a 6.98% yield versus STAG’s 5.75%. The other aspect I like about IRM is its geographic diversification as 33% of its revenue is outside of the U.S. which should provide some buffer to rising interest rates and lower dollar on the foreign exchange.

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- Comments: 0


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