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

Missed Opportunity - 29 Jun 2018 23:33

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Early in June I posted an article “A Little Light at the End of the Tunnel“ where I documented some of my investing mistakes over the years and one of them was locking up too much of my savings in retirement accounts and here is a great example of how this was a mistake and made me miss an opportunity.

Last week my employer for the last 31 years sent me a voluntary layoff offer where based on my seniority I would get a lump sum 6 months of pay. Unfortunately because most of my savings is locked in retirement accounts and I am only 50 years old I simply could not jump at the opportunity to retire early with an extra pile of cash. Argh!! This was so frustrating! But alas it is my fault.

I realized my mistake 8 years ago and started aggressively saving into my brokerage account. My brokerage account to date generates on average $350 per month which is far short of living on month to month. If I invested the lump sum payout it would generate an additional $200 per month for a total of $550/month or $6600 a year. While this is not an insignificant amount it is still not enough to live on. I will probably have to watch this scenario play out again as I still have 9 years until I am 59 ½ though it is frustrating chasing the opportunity train and not being able to hop on.

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- Comments: 2

Recent Sell F - 24 Jun 2018 18:02

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Earlier in the month I did a semi-annual portfolio analysis and identified Ford (F) and General Motors (GM) whose dividend growth has been zero for two years in a row. As a follow-up, F hit my sell price of $12.09 but GM however got tangled up in the trade tariff issue and has yet to hit my sell price of $45/share. The sale of F netted a capital gain of 4.98% plus two years of dividends for a total return of 16.4%. Not the best return but good enough to bank roll.

To replace the lost income I bought shares in Lexington Realty (LXP) at $8.66/share with 2% annual dividend growth which was at the upper end of my buy price but saw momentum in REITS and wanted to secure some shares before it went beyond the buy price. Good thing I did as the share price continued to increase to $8.99/share. Since LXP had a significantly higher dividend yield I was able to keep 1/3 of the F sale as cash to invest later and still maintain the same income (including F's special annual dividend). Ordinarily, I would not swap a qualified dividend for an ordinary dividend due to tax reasons (15% vs. 25%) but since I had the holding in an IRA the point was moot as all withdrawals from an IRA are taxed at your income rate (25%).

Hopefully some good news will come GM’s way and trigger my sell price. I already have targets for reinvesting the cash into AbbVie (ABBV), International Business Machines (IBM), and Prudential Financial (PRU) if share prices remain where they are. - Comments: 1

Recent Buy PRU - 16 Jun 2018 12:38

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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


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