Follow the dividend investment decisions of a person who has no background in financial investment and wishes to take control of their financial future to retire at 60.

Less to Invest but Peace of Mind - 19 Jan 2014 13:16

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Over the last 10 years I have been notified 3 times that my personal information may have been compromised and Target now makes the 4th. Private businesses inability to adequately secure my data over the years just re-enforces the belief that in this digital age nothing is secure.

It will be interesting to see how the Target fiasco with more than 70 million transactions of data being stolen will play out. Short term I believe they will be the poster child of cyber hacking and will pay out reparations or services provided that will be more excessive than other retailers recently hacked. Being the poster child I'm sure sales will suffer but only for a couple of quarters as most have short memories and after a year this will be a thing of the past. But, in the meantime Target has to suck it up and keep a stiff upper lip throughout. I would not be shocked if the dividend remains static this year but would be surprised if it decreases or halted.

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That aside, I can no longer stick my head in the sand and think all businesses have my back in regards to securing personal data and have to assume some responsibility. On this note, I started a subscription to protect my identity and financial position in life. I signed up with Identity Guard for $14.99 a month that not just monitors but also provides $1 million of insurance protection and recovery assistance.

As I have posted in the past, spare money is never easy to come by and I'm always looking for ways to save and invest of which this commitment will take away from that effort. Yet, the positive is peace of mind protection. - Comments: 0

Getting a raise every month this quarter :) - 08 Jan 2014 00:16

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I love the first two quarters of a new year as two thirds of my holding announce dividend increases!

So now I sit here waiting patiently for the news announcements to be released. Kind of reminds me of being a kid again having to wait for Christmas. Gotta love this anticipation and feeling over getting a bunch of raises over the next six months.

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- Comments: 0

Regional Banks have a place in my portfolio - 04 Jan 2014 21:04

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Bank of the Ozarks (OZRK) is officially the first company of 2014 to announce a dividend increase. OZRK is a local regional bank that declared a 4.8% increase in their annual dividend.

It is not surprising that the news did little to excite markets. Local or regional banks are thinly traded small cap stocks that barely register on Wall Street’s radar screen. Though listed on major exchanges they have low daily trading volumes and you never hear of anyone becoming a millionaire from gains in stock prices from these little financials.

There are positives to investing in small regional banks. Unlike their larger brethren they are not exposed to massive financial scandals or undermining of the economy. They exist as part of our community by providing financial services to you and most of your neighbors. They sponsor little league teams or help with the Women’s Auxiliary Club. They have personal relationships with other businesses in the community helping them grow their businesses. And many have been serving their communities for more than 100 years.

So if stock price gains are slow why invest? Surely there are better investments. But, if you are a dividend growth investor these can be little gems of steadiness in your portfolio. Many pay dividends and even grow their dividends year to year. Most likely not the fastest dividend growth rate in your portfolio but when you factor in their low stock price volatility they act similar to utilities and provide some steadiness during market down times.

David Fish’s “Dividend Champions List” from http://dripinvesting.org/ provides a list of all stocks that have continually grown their annual dividend payouts for 5 years or more in a row. Of the 482 listings 50 are represented by banks. Of the 50 bank listings 45 are small cap regionals. And to break it down even further 18 of those companies have a dividend yield greater than 3%.

From that list I chose 6 nice little gems:

Company Symbol Yrs of Div Growth 12/31 Price Div Yield TTM P/E Beta Location Mkt Cap
Landmark Bancorp Inc. LARK 12 19.60 3.69% 10.54 0.05 Kansas 61.18M
Eagle Financial Services EFSI 27 22.50 3.38% 11.08 0.19 Virginia 77.38M
Norwood Financial NWFL 16 26.90 4.46% 12.12 0.05 Pennsylvania 98.84M
Farmers and Merchants Bancorp FMAO 9 22.06 3.81% 11.20 0.29 Ohio 106.44M
Bar Harbor Bankshares BHB 10 39.99 3.20% 12.38 0.44 Maine 157.48M
Southside Bancshares SBSI 19 27.34 3.07% 14.24 0.72 Texas 482.23M

The price chart below depicts the tight trading range over the last eight years and even the financial crash in 2009 had little effect on share value.

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With the exception of LARK and SBSI, the dividend growth rate from year to year falls into a median range of a 5.5% increase year to year. Some years obviously were better than others but long term a 5% to 5.5% average growth rate is not too shabby.

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As stated earlier, regional banks with their low volatility in stock prices make these very similar to utility stocks but with an average dividend growth rate of 5%-5.5% a year makes it by far a better long term investment. I am of the opinion if you are looking to reduce risk within your portfolio through diversification then consider adding some regional banks and not limit yourself to utility stocks. In the long run your passive income stream will thank you. - Comments: 0

2014 Goals - 29 Dec 2013 14:42

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1. Contribute $6,000 to new DGI purchases
This will be a tough one. I am the sole earner for a family of five and extra money is never easy to come by. I am hoping that my continued search for money saving ideas yields $1500, a combination of tax refund and annual bonus check adds $3000, that just leaves a challenging $1500 to find. If my company decides to eliminate or drastically reduce the bonus I may have to have discussions with my wife about getting a full or part-time job (she has not worked since 2001). My wife going back to work was always in the cards when my oldest starts college but this may just accelerate things by two years.
2. Re-invest $2,000 into DGI purchases
This is more of a discipline goal than anything else. For 2014 I should be on pace for $2000 in dividends so I just need to not let things sit idle.
3. Increase forward DGI yield by 20%
This is really a combination of goals 1 & 2 as well as counting on a portfolio dividend growth rate of 7%. Sounds easy but at least 2 of my investments are for income only and provide no growth.
4. Increase 401K balance by a minimum 10%
To achieve this I need to maintain my existing 401K contribution rate and I’ll need at least a 4% growth of my existing 401K balance.
5. Increase IRA balance by 5%
I have no plans to contribute and money to my IRA so this will need to be accomplished through price appreciation
6. Have 10% cash reserves in IRA/401K
With the run-up in the stock market in 2012 & 2013 my cash reserves have fallen to a woeful 4% allocation. To maintain my risk reduction, things need to change. My plan is to direct my 401K contributions to cash and any paid dividend/capital gains by existing mutual fund holdings will also be directed to cash. I am hoping that by this time next year I will hit my cash allocation goal. - Comments: 0

Quarterly Portfolio Update - 27 Dec 2013 15:35

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Quarterly Dividend Growth
% from Div Growth 3.56%
% from New Investments 18%
% from Reinvested Div 0.00%
% Overall Growth 21.56%

This is my second quarter utilizing a DGI strategy and time to measure growth. In early November I completed the remainder of my portfolio rebalancing with the purchase of Ensco Plc (ESV). I was also able to re-invest the last quarter dividends by buying additional shares of the utility company PPL to level off my diversification into utilities but that purchase did not contribute to this quarter for dividend growth.

For the quarter there were four stocks that contributed to passive growth; Microsoft (MSFT), Seagate (STX), BP Plc (BP), and Prospect Capital (PSEC).

MSFT continues its historical dividend growth but surprised investor with the size of the increase which came in at a whopping 21.7% increase. Personally I was expecting between 9-12% so this was a nice Christmas present. Additionally MSFT has been firing on all cylinders in the last quarter of 2013 with brisk sales of enterprise solutions, Xbox One, Surface 2, and Windows Phone products. A year ago I saw the potential of Windows 8 commonality across devices and jumped on MSFT for this reason and so glad I jumped in when I did. Even though MSFT has seen a run-up in share price this year I still like the stock as long as it yields at least 3%.

STX continues to be a star in my portfolio as they increased their dividend by 13.16% and I’m looking at a capital gain of 120% in just one year. Though the stock has become expensive for me to consider adding additional shares I do not plan on selling as their strategy for SDD, HDD, and cloud storage appears strong and I foresee continued dividend growth going forward.

BP has slowly been coming off of its Gulf disaster and starting to see light at the end of the tunnel by rewarding investors with a 5.15% increase in dividends. While this is below my minimum 7% growth rate I purchased BP with the hope that as more of the liability of the Gulf incident decreases the dividend increases will start to exceed my minimum.

PSEC increases were minimal from month to month but I bought this as a high income dividend payer positioned for a rising interest rate environment and to date PSEC has not disappointed.

As far as additional contributions I only managed to save $140 this quarter. In my house we have quite a few computers (3 kids plus me & the Missus) so I switched to a free anti-virus software package which detected more viruses, malware, and tracking cookies than our current software. By not renewing our software it saved $140 which I redirected to the portfolio. - Comments: 0

Time for Planning - 18 Dec 2013 13:07

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At the start of November I made my last purchase of 2013 with Ensco Plc. At this point I am fully invested into my DGI portfolio and have no additional cash. Nothing to do for a few months but sit back and collect dividends while determining what to buy next.

This downtime comes a great moment that allows for re-evaluation of all my financial positions, goals, and strategies for the coming years. A quick glance and I noticed my 401K is grossly deficient with a cash position leaving me exposed to risk so my first goal for 2014 is to return to a 10% cash position within my 401K.

Over the next few weeks I'll start slaving away looking at expenses (both current and retirement) and remaining debt to determine what my savings rate/balances should be.

Another area I will take time to analyze will be my exposure to risk in all of my investments. For my DGI portfolio I feel pretty confident on my diversification but there are a couple of areas I still need to get into but just do not have the money.

One area of risk I desperately need to plan for is the scenario of a layoff. Where I work there are already rumors spreading of a significant first quarter 2014 layoff and even if I miss that one I can foresee annual layoffs up to 2018. I hope that my DGI portfolio can buffer some of the loss but my current portfolio does not even come close to my monthly salary. As I am the sole income earner for my family this would be devastating! I will need to think long and hard on this one. - Comments: 0

Minimum Growth Rate - 27 Nov 2013 13:10

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One screen for dividend growth stocks is the percentage growth rate. But. what happens if a stock (after you purchase) fails to increase at your preferred rate?

Most DGI folks have rules when to sell, usually if a company decreases or eliminates a dividend or even fails to increase a dividend (0% growth). But what if the dividend only grew 3%, you planned on 7% and you still like the business, do you sell?

In this case I actually use two rules, the first is to hold the stock for an additional year (sometimes two depending on circumstances) and see where the dividend growth moves from there. Every stock is bound to have a bad year and most growth rates are based on averages so a 3% one year may result in a 15% gain the next giving you an average of 9%. You must be flexible to accommodate for averages.

The second rule I have is to establish a minimum growth rate. Your selected growth rate is usually a preferred rate and may not always be achievable especially if the economy is on a slow growth path. So again to remain flexible you should have upper and lower limits for dividend growth.

To calculate a minimum growth rate for my portfolio I use a percentage based on the average U.S. inflation rate over the last 10 years plus 2%. A problem I have with yearly inflation rates is that they are averages. Inflation rates fluctuate from month to month so for my calculation I use the "Max" inflation rate for each year. Based on this theory my minimum growth rate stands at 5.6%. If a stock cannot maintain this rate it becomes a candidate for a potential sell (note that I said "potential").

Year Ave Max Min Div Growth (Max+2%)
2013 1.51% 2% 1% 4%
2012 2.08% 2.9% 1.4% 4.9%
2011 3.16% 3.9% 1.6% 5.9%
2010 1.62% 2.6% 1.1% 4.6%
2009 -0.35% 2.7% -2.1% 4.7%
2008 3.85% 5.6% 0.1% 7.6%
2007 2.86% 4.3% 2% 6.3%
2006 3.23% 4.3% 1.3% 6.3%
2005 3.38% 4.7% 2.5% 6.7%
2004 2.68% 3.5% 1.7% 5.5%
2003 2.27% 3% 1.8% 5%
10 Yr Ave 2.39% 3.59% 1.12% 5.59%

This second rule is for my overall portfolio. If I see my portfolio of stocks not meeting this growth rate I begin the search for new "buys" while reviewing my list for potential "sells". That said, I may have some stocks with a growth rate of 2% and others at 12% as long as the portfolio dividend grows between a min 5.6% and a preferred 7.2% annually then life is good. - Comments: 0

Watch List Updated (finally) - 25 Nov 2013 22:19

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After all of my recent purchases my watch list was becoming woefully useless so with a little elbow grease it has been cleaned up.

First to go were companies I already purchased like Chevron, PPL, and General Mills, which I still have sights on buying more General Mills.

Second to go were sector stocks I no longer needed. After evaluating my diversification I eliminated energy stocks HP, Exxon Mobil, and Sunoco Logistics.

The last set of stocks to go were items that became just too pricey. First up was Sturm-Roger which went crazy from August to October as its price shot from $52 to $77 per share a whopping 48% jump made this a tad pricey. The last stock to be removed was Meredith Corp. which went from $42 to $52 a share in just two months. A 28% jump for an industry I think is in a slow death spiral made me lose my appetite.

Quite a few removals but a few were added to address some diversification concerns (desperately needed some industrials) so Cummins and Union Pacific were added. A long term prospect I have my eye on was also added so say hello to Steris Corp. Yes the dividend yield on the new additions are below my 3% requirement but for the diversity it will make sleep a little better at night. - Comments: 0

Dividends = Pride of Ownership - 23 Nov 2013 16:05

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While I love the steady and rising passive income from dividends it is not my favorite aspect of dividend investing. What I enjoy most is that being able to receive a dividend validates me as both an investor and business owner.

When I was in High School it was mandatory to take a basic financial class. The class focused primarily on income, debt, and budgeting. Near the end of the class we were introduced to the different saving/investments available and one of those instruments were common shares of stock. Though we were not taught how to analyze a stock we were given the basic definition that it was an investment in exchange for a percentage of company ownership.

Dividend investing has reminded me of that basic definition I learned many decades ago. It validates my ability of understanding a company (both financially and business wise), making a sound investment, and feeling the pride that I am a part business owner in some of the biggest corporations. This is much different than trying to speculate if a stock price will rise or fall of which I was mediocre at.

Being an owner in a company I expect to financially share in a company’s success (as should any owner). Dividends are what meet my expectation of wealth sharing. Why more shareholders of companies do not share this view is really mystifying. If a friend or relative asks you to invest in their new business idea the first question you would ask is "What is in it for me?" If the answer is anything less than XX% of profits you would send them packing.

Investing via stocks is no different than investing in your friend or relatives business idea. Owning stock in a company that shares wealth makes you the ultimate silent partner in a business and as the business is more successful the more wealth is shared with you. How can you not love this? - Comments: 0

Impulse Buy - 09 Nov 2013 22:38

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Last week I did something out of character. Normally I track a potential stock on a watch list, tear apart its annual report, and monitor its performance over time before I make a buy decision. Instead I made an impulse buy and bought a small position (20 shares) in Ensco PLC (ESV). This purchase completes my diversification with energy and has increased my annual dividend by $60.

ESV is a contract drilling company based in the U.K. that specializes in offshore drilling contracts. Their financials are strong but historical consecutive dividend increases were weak with only 3 consecutive years. After the market close on 11/5, ESV announced a 50% dividend increase increasing their annual dividend yield to just over 5%.

Originally I had been tracking and targeting Helmerich & Payne (HP) as my last energy investment but its stock price shot up from $66 to $78. Out of fear that ESV could do the same I placed a buy order on the next market open.

After having time to tear apart the annual report I now feel confident about my purchase. Yet, I was surprised at how quickly I assessed the stock and made an impulse decision and this was a bit troublesome. On the positive side it was limited to a small investment but would I do it again in the future? I honestly do not know. Assuming I may, I will need to adjust my appetite in relation to risk for these types of purchases so I am adjusting my rules that any impulse buy must be limited to small purchases of $1,000 or less. - Comments: 0


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