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

The Best Financial Gifts For Children Is Not Money - 20 Oct 2013 14:54


I’m sure there will be some backlash on this one but the best financial gifts you can give your children does not involve handing over a pile of cash. As a parent I have three simple goals for my children:

  1. teach them how to survive in today’s world
  2. help ensure their survival
  3. love’em till the end of time

These are pretty simplistic but work for me. Two of the goals involve survival and part of surviving in modern times involves financial security. Here are the financial gifts I have or will be giving my children.


Budgeting (Age 8+)
Do not be shy about sharing your paycheck and monthly bills (commitments) with your children. It exposes them how to balance the needs and wants of the household. Kids are smarter than we give them credit for and grasp the concept quickly. It helps them understand that money is not an unlimited resource and planning is required to survive.

Savings (Age 10+)
Explain to your children what you are saving for and why. It is important they understand the concept of planning for major purchases, emergencies, and retirement. Planning for emergencies is always a great topic, what a child or even young adult perceive as an emergency is entirely different than you would expect. With my children I express it in little emergencies & big emergencies. Where little emergencies are like your car breaking down and big emergencies are when you cannot collect a paycheck and pay the bills.

Investing (Age 12+)
To most kids savings is very simple; you put it in a bank (piggy or commercial). From their perspective things like the stock market are only in the movies or for the incredibly rich. Share what investing techniques you are using to reach your saving goals. Why a bank, why the stock market, what are bonds, and so-on.

Saving Priorities (Age 18+)
A young working adult comes into something they never had before; a steady income. With a steady income for savings they need to understand which saving goals have more priority than others.

  1. Emergency savings
  2. Saving for a major purchase (house, wedding, etc…)
  3. Retirement

I realize the retirement zealots will scream bloody murder that retirement should be number 1 as time is the best ally for ensuring a funded retirement (and I agree). But so much can go wrong between when your child first starts working and retirement. Being able to manage emergencies so they do not impact their retirement is just as or more critical. Of course I will preach how dividend growth investing can help with both emergency & retirement savings.

Loans & Credit (Age 18+)
With a steady income stream comes the potential to borrow money. It is important to teach your child the different types of lending or credit debt so they can make proper decisions about debt. What is a mortgage, yield & interest, payments, early payoffs, auto loans, etc…

At the end of the day all of these life lessons are creating financial literacy for our children. If you expect a local high school to teach these things to your children do not count on it. I find it amazing that teaching financial literacy is not a mandatory class or set of classes during high school. A recent study by Champlain College summarized the issue and provides for an interesting read on the financial literacy of our youth of which I was not surprised to see my home state with a grade of F.

Living at Home

Allowing your children to live at home is probably the greatest gift to give your children as it gives them a tremendous head start. But there are horror stories about children living at home and in some cases never leaving. To make this work parents and children each need to change. Talk to your child about why they want to live in your home. If the answer is simply, ”I can’t afford to live on my own” then it is the wrong answer. Instead ask them to lay out some goals that start with the phrase “I want to live at home for X years to save for…”.

Also let them know why you want them to live at home. They need to understand that living at home is truly a gift and here is why you are offering such a gift.

With a little luck I hope to offer my children the opportunity to live at home and give the advice to save 60% of their salary for the first two years and to not touch it unless a big emergency or retirement comes along. After the first two years, they can begin saving the next 2 to 3 years for whatever they want in life. I strongly believe a Dividend Growth Portfolio can create an income stream latter in life that can help with emergencies and retirement.

Whether or not they heed the advice is another story but at least offering them the opportunity to live at home & save to start a new life is the best gift I can think of. - Comments: 0

Recent Buy - 16 Oct 2013 00:40

Tags: ppl

On the road to diversifying my portfolio by adding to my position of PPL with an additional 20 shares which will contribute $29 annually.

This pulls up my investment in utilities to 3.5% of my portfolio. 3.5% meets my target allocation as it is more of a defensive position than one of growth. - Comments: 0

How DGI Fits Into My Goals - 12 Oct 2013 11:37

Tags: emergencies income retirement

My investment goals are very simple and probably similar to most investors:

Intermediate Goals (10+ years)

  1. Maintain a significant cash position for emergencies
  2. Build a passive income stream to supplement lost income during emergencies

Long Term Goals (Retirement)

  1. Build a passive income stream to replace my income
  2. Maintain some wealth my children can inherit

Dividend Growth Investing (DGI) is one of the key strategies that I am employing to meet both intermediate & long term goals. For passive income of intermediate goals, DGI is my 100% solution. If I find myself unemployed prior to retirement I plan on supplementing unemployment payments with my dividend stream and cash position in the hopes it will tide me over until I land a new job. If I’m lucky enough and a severe emergency never arises then there is the additional bonus of rolling this into my retirement.

For long term retirement goals, DGI is not my 100% income solution and there are two primary reasons for this. The first is asset risk diversity which I have posted about in the past. Since DGI composition is entirely tied to stocks your portfolio lives and dies by the success of stock markets. By diversifying in other asset classes it reduces exposure. The second reason for multiple solutions has more to do with my spouse. My spouse is extremely intelligent but has no care or interest in investing. If I pass away during retirement and our portfolio was entirely DGI what position would that leave her in? DGI is not a “set it & forget it” investment, it requires constant financial monitoring to ensure dividends are stable and dividend growth is still achievable. Without those skill sets it leaves my spouse exposed to long term risk.

Taking my spouse & risk into consideration here is my projected income stream to simplify things:

20% Social Security
20% Annuity (with survivor benefits)
30% Bonds (combination of U.S. Govt, Corporate, Foreign & Munis)
30% Dividend Growth Investing

As far as preserving some wealth for my children the plan is to leave 15% of my 401K invested in an ETF index fund that mimics the S&P 500.

Without a crystal ball this is my strategy with what is known today and if the investing landscape changes in the next 20 years I’ll have to re-think my approach but for now I believe this to be a conservative and considerate approach. If you have not thought about replacing your income in emergency or retirement situations then now may be a good time to reflect on the topic and start your plan. - Comments: 0

Recent Buys - 08 Oct 2013 15:37

Tags: bp cvx

With the recent minor pullback in the markets (thank you debt ceiling crisis) I took advantage of the situation to diversify my portfolio.

As of September I held zero shares in the energy sector but that has changed. I picked up a decent amount of shares of Chevron (CVX) and started a small position in BP (BP). The two purchases have increased my annual dividend by $115.

Chevron sounds like it was a no brainer but when deciding between Chevron or Exxon/Mobil it is not an easy choice. Both are excellent companies and you cannot go wrong purchasing either. At the end of the day I went with CVX and its higher yield and I was nervous about how much Exxon/Mobil has invested into natural gas.

BP was an entirely different story. With a dividend yield north of 5% it makes one stop in their tracks. But high yields do not come without risk the largest of which is BP still dealing with the Gulf oil spill settlements. Another risk was that BP has only recently started to increase their dividend again so any hiccup down the road may cause the dividend payment to become static. To adjust for the risk I only started with a small investment (24 shares). - Comments: 0

My Watch List Explained - 05 Oct 2013 14:47


A watch list is crucial for any investor and each investor tracks key values or ratios to what is perceived as important. It allows investors to keep an eye on changes to potential investments that may represent a buying opportunity.

One of my fears entering into dividend growth investing is I will fall back into my bad habit of trying to time the market and only buy stocks at a price that represents a discount or value. While this type of thinking does lead to some hidden gems it can hinder my portfolio as I may not invest for long stretches of time limiting my ability to capture dividend growth and to diversify at a decent pace.

To get over the fear (or bad habit), I have structured my watch list to align with my portfolio strategy. My portfolio strategy is to initially invest with a 3% dividend yield and minimum growth rate of 9%. This criterion is then used to calculate a max price point or buy price for an individual stock and then adjust it for any perceived risks. Once a buy price is established it is then measured by the % of how much over or under it is versus the current stock price. The result tells me how much of a discount the stock price is in relation to my portfolio strategy.

This approach has resulted in more regularly investment periods, a larger population of stocks, and eliminated trying to time the market which historically for me has never panned out (probably because I cannot predict the future).

So how does your watch list work? - Comments: 0

Kids Are So Much Smarter Today - 01 Oct 2013 11:10

Tags: custodial kid

My 11 year old son approached me last week asking about stocks and if he can invest. At first I was taken back by the comment but after seeing how serious he was about the subject my mood changed from surprised to pride.

I sat with him and explained the risks of investing and he just soaked it all in. After explaining market basics we then went over the differences between stock price gains/loss and income (i.e. dividends) and how this was different from his savings account.

It did not take long for him to grasp the value aspect of dividend investing so we next talked about how much money he was willing to invest. He decided to cash out his life savings ($317) and I promised him that I would match him dollar for dollar. This brought his total up to $634. Our next task was to find brokerage for a custodial account, we ended up at as there was no minimum balance required and they would credit him $50 after his first trade.

Next was to show him a list of dividend paying stocks and after a few days he came back with three selections. McDonalds, Proctor & Gamble and an electric company PPL. When asked of my opinion I gave him approval and of course asked him why those three. His response was, "I love McDonalds, almost everything around our house has P&G on the label, and everyone uses electricity." He also said when he gets more money he wants to buy a water company because everyone drinks water. Not a bad response from an 11 year old and it showed me just how aware of his surroundings he is. At that age I couldn't get past baseball, comic books, & fishing. When the heck did kids get so darn smart?

The bank transfer should clear in a week so I'll sit with him and guide him through his first buy. Once he buys his first stock he plans on sharing with his math teacher so they can go over the stock & dividend yield. This should be a great life lesson for applying math concepts like calculating & using percentages and ratios.

As he gets older I'll start teaching him how to tear apart a financial statement but I'm probably getting ahead of myself :) - Comments: 0

Change to Watch List - 30 Sep 2013 22:13


In a matter of just 3 weeks Sturm Ruger (RGR) saw its stock price surge 19.5% going from $52 to $63 per share. The sharp increase placed RGR on thin ice for staying on the Watch List. As a backup to RGR I added BP to My Watch List.

Currently I have BP rated with a high level of risk for the simple fact of potential legal liabilities and the lack of historical dividend increases. But with a couple years of dividend growth, a 27% payout ratio, and a yield just north of 5% does make this something to keep an eye on. - Comments: 0

End of a Quarter, Start of My DGI - 28 Sep 2013 22:30


It is the end of my first quarter and received all of my dividends. Luckily I was able to save an additional $200 and just transferred it to my brokerage account and combine that with some leftover funds from rebalancing my portfolio to a DGI strategy leaves me with enough to invest in 2 or 3 securities over the next two months.

Now that the first quarter is behind me I can start tracking and updating how much dividend growth occurs from quarter to quarter of which I’m off to a head start as Microsoft (MSFT) announced a 21.7% increase in their dividend that starts in December.

In the quarter ahead my attention will be on Seagate Technologies (STX) to see if they announce a dividend increase in November or December. STX payout ratio is currently 32% leaving lots of room for growth. On the other hand this is a technology stock and dividend payments (never mind growth) is still something new for this sector so I see the odds of a dividend increase at 50/50.

With no dividend increase it will leave me with a tough decision. STX has been a stellar performer, they announced a dividend increase right after I bought the stock pushing the yield up at that time to 6% (now currently 3.49%). Additionally STX has also returned a 70% increase in stock price.

Selling STX may be my first test of trusting dividend growth criteria versus looking at the potential for stock price growth. This will also present a scenario that is currently not part of my strategy. If I sell then what do I buy? Do I stick with the 3% criteria? If I do then I lose the dividend growth. Right now my knee jerk reaction would be to invest in a DG stock paying at least 3.5% to compensate. Of course December is still three months away so still some time to strategize what-if scenarios. - Comments: 0

Risk Part 2 – Equity Diversity - 20 Sep 2013 21:20

Tags: diverse diversity risk

A fact with Dividend Growth Investing is that it is 100% invested in stock equities. Though historical stock performance can provide some patterns it cannot accurately predict the future on how stock markets perform. The lack of uncertainty exposes you to some level of risk if stocks perform poorly.

Some might argue that while investment cost is a concern it is not the top priority for DGI. As long as a portfolio continues to receive income and income growth through dividends the downward stock prices are not a major impact. Or more simply…”Why do I care if equity prices rise or fall as long as I keep getting my dividend checks?” While this may be a valid statement it does not address unforeseen risks.

No one has a crystal ball and there are too many external factors that can influence the stock market. For example, what if a drastically higher corporate tax is applied by the I.R.S? The increased tax expense may require companies to decrease dividend payments and invest the capital back into the company to sustain growth and compensate for the excessive taxation. Of course this is not a real scenario but only one of many what-if topics that could derail your investments and DGI strategy.

As much as I enjoy, support, and strongly believe in the benefits of DGI I would be wrong to say that it should be your only investment. Much like stocks, you should diversify your equity investments to reduce risk and preserve equity. Of course if you are a young investor starting out this probably is not feasible as you have limited financial savings but equity preservation should be a part of your long term investing plan.

Examples of some investments you can use to diversify your equity:


  • Bank Savings Account
  • Bank Certificate of Deposit
  • Money Market Account


  • U.S. Government Debt
  • Foreign Government Debt
  • U.S. Corporate Debt
  • Foreign Corporate Debt
  • Municipal Bonds

Hard Investments

  • Real Estate / Rental Property
  • Precious Metals

Other Investments

  • Annuities
  • Preferred Stocks

I do not recommend investing in all the items above but simply listed potential alternatives. Never invest blindly, if you wish to diversify then investigate each one and become well versed on the good & bad or talk to a financial analyst if you do not have the time.

The next question is if you diversify how much? I do not believe there is one single answer to this question. It depends on your personal situation. The best I can share is my situation where I have 7% in cash, 78% in stocks and 15% in bonds. Since I am in my mid-forties I believe I can withstand a decent level of exposure to risk and still have enough time to recover. My current house has 90% equity and should be paid off in 3 years so I see no reason to add rental property. Additionally, I am one of the lucky few who will receive a small pension which provides further security in later years so I feel extremely comfortable maintaining my 78% stock exposure up to retirement. - Comments: 0

Risk Part 1 – Stock Diversity - 19 Sep 2013 21:08

Tags: diversification diversity risk

(This post is the first of a 2 part blog to identify potential risks in your portfolio.)

As a DGI investor it is easy to get caught up in the wrong numbers. In a constant pursuit to find the best combination of dividend yield and growth it is not hard falling into the trap of continually buying the same stock or set of stocks in the same sector placing a large percentage of your investment into one basket.

Exposing most of your portfolio to a single stock, sector or industry is one of the most risky items you can financially take on. All of the modern stock market crashes had specific sectors or industries at their core.

  • 1987 – Banking Industry
  • 2001 – Technology Sector
  • 2008 – Financial Sector

If your portfolio was heavily weighted during any of the crashes your portfolio would have been in ruins. Of course some would argue that the overall markets dropped like a rock in each of these incidents but it was worse for these specific stocks as you not only lost equity value but also income as they slashed or eliminated dividend payments during that time.

Need another example? You do not need a stock market crash to be exposed to loss. In 2012 the S&P 500 gained 13.4%, a good year by any means. But, there was one sector that was suffering…basic materials. As China went through its massive growth cycle basic material stocks were booming, especially those involved with coal, iron, steel, and other base metals. These stocks were sporting high yields & fantastic dividend & earnings growth rates. Once China growth had slowed the basic materials sector was hit hard in late 2012 and most of 2013. Companies such as Cliff’s Natural Resources dropped their dividend 76% and all the while their stock price dropped like a rock.

As a DGI investor you need to be diligent in balancing of your portfolio weighting in relation to individual stocks, industries, or sectors. I have yet to figure out if there is a magic weighting but for now I have the following plan but as my portfolio grows in size I’m sure these numbers will decrease:

  1. No more than 15% of my portfolio weighted to an individual sector
  2. No more than 10% of my portfolio to one industry
  3. No more than 7% of my portfolio to one stock

Of course if you are a new investor just starting out this is most likely not feasible but you should have a plan that with each investment you build the diversification. That is why in my watch list I always use a target weighting to determine how much I want to spend and to place me on track for a diversified portfolio. - Comments: 0

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