Tuesday, December 11, 2018

The Broke Mindset Versus the Poor Mindset

A common misconception among those that are relatively new to the world of personal finance or those that are unfamiliar with personal finance is the belief that being broke is the same as being poor. Sure, the two terms both are similar in that one has limited access to wealth. That's where the similarities end though.



As a college student, I've lived relatively broke for the past 3+ years despite having a portfolio worth over $10,000. However, for all intents and purposes, I'm basically living paycheck to paycheck like most everyone else while I pay my way through my last 8 months of college.

What separates me and other newcomers to this community of FIRE and dividend growth investing from everyone else though is the mindset that we adopted at some point in our lives.

Although newcomers to the community such as myself may be broke currently, the distinction is that because of our mindset, with a bit of luck, we won't continue to have limited access to resources. We will eventually be free of our reliance on an employer to maintain our lifestyle. This is the very essence of the community.

We could contrast this to the poor mindset. Being poor is a circumstance that extends well beyond being dependent upon an employer or others to support one's lifestyle; the poor mindset is a set of beliefs that makes this dependence a chronic or permanent situation, at least until one's mindset or perspective radically changes. Obviously, there are exceptions to someone having no money solely because of an improper mindset. Bad luck can make it incredibly difficult to transition from no money to being financially secure.

The point of this is to inform everyone that unless you are born wealthy with a multi million dollar trust fund, you too will start with fairly limited resources or money (Gee, how insightful, Kody). Therein lies the opportunity to take control of your destiny to an extent and realize that the mindset you choose to adopt will be the difference between whether you identify as being broke or poor.

Chances are if you are reading this, you have reliable access to awesome amenities like electricity and the internet. These are privileges that those 100+ years ago weren't blessed with. They have fundamentally improved the lives of many millions of people.

We live in the Information Age. It wasn't long ago that if you wanted to learn about a subject, you needed to read books. That was the only real opportunity to learn anything. Now, almost anything you would ever like to know or need to know can be found in seconds with a simple Google search.

You have the choice how you view your current situation and how to respond. Maybe your circumstances are similar to mine and you're just getting started investing. Maybe you haven't yet started investing. Whatever your circumstances are, I want you to know that you are the architect of your life. If you aren't happy with your financial circumstances, just know that can be drastically improved with a bit of time, patience, luck, and discipline.

Discussion

Were you able to distinguish between being poor and being broke before reading this post? What do you believe is the most striking difference between being poor and being broke?

Tuesday, December 4, 2018

November 2018 Dividend Income

Another month has passed and we have officially entered the last month of the year! It really is unbelievable how quickly the year has passed us by, especially in my case. I guess work, school, and running a blog will seemingly speed up a year. Anyways, with the passage of another month, it's time for me to delve into what November provided for me in terms of dividends.







Analysis

Overall, I received $41.42 between my Robinhood account and M1 Finance account. Of the $41.42, I received $41.13 from 12 different companies in my Robinhood account with the remaining $0.29 coming from 15 companies in my M1 Finance account. This amount was a YOY increase of over 333% from the $9.56 in dividends that I received in November 2017!

You may have noticed that my Robinhood says that CVS paid me on October 31, which I instead included as November income because the dividend was payable on November 1. I'll certainly take a dividend a day early though! When compared to my dividend income in August, I experienced 0.6% quarterly growth from $41.19 in August to $41.42 in November. Although this seems like a low growth rate, this is primarily due to the effective distribution cut from the Energy Transfer merger. For my 11 shares of ETP, I received 15 shares of ET. This reduced my quarterly distributions from $6.22 to the $4.58 shown above, for a quarterly reduction of $1.64. I received an additional $0.10 from EQM with their recent dividend increase and an additional $0.02 from EPD, for a total of $0.12 in additional dividends from dividend increases (link to November Dividend Increase article). Also, I received dividends for an additional share of T and an additional share of ABBV (from my purchase of ABBV a couple months ago). This increased my income by $0.50 and $0.96, respectively, for a total increase of $1.46 from purchases. Finally, the dividends from M1 Finance added $0.29 in dividends compared to August. The above distribution cut, dividend increases, additional Robinhood accoubt purchases, and the opening of the M1 account led to an increase in dividend income of $0.23 compared to last quarter.

Although the growth was basically non-existent this quarter, there was one massive benefit that came out of the past few months. The completion of the Energy Transfer merger will streamline the company structure and strengthen the company's financial position, leading to a much safer distribution. With a coverage ratio of over 1.7 in the recent Q3 report, ET offers one of the safest distributions in its industry, compared to a coverage ratio of just over 1.1 when ETP was an independent publicly traded company. Although a coverage ratio of over 1.1 is considered to be safe for MLPs, 1.7 is absolutely incredible and once more of ET's projects come online, those results will continue to improve.

Within my Robinhood account, my dividend income actually declined from $41.19 in August to $41.13 in November. This decline was offset by the addition of the M1 Finance portfolio that produced $0.29 in dividends.

Looking ahead to the dividends that will be paid in February 2019, I am forecasting a modest growth from the $41.42 that I received in November 2018. Abbvie announced an increase in their quarterly dividend from $0.96 to $1.07. O, EQM, and EPD should also be announcing modest dividend increases. I don't envision adding any capital to any companies that will pay dividends in February (as I continue to add to Iron Mountain), so the growth will be entirely from dividend increases.

Discussion:

How was your November? Did you have any new brokerage accounts pay dividends similar to how my M1 Finance portfolio paid me dividends?

Tuesday, November 27, 2018

Expected Dividend Increases for December 2018

Another month has passed us by, which means it is time for another installment of the expected dividend increases series. Moreover, we're in the busiest month of the expected dividend increase series thus far. Prior to delving into the dividend increases that I anticipate for the DGI portfolio for the month of December, I'll start by recapping the dividend increases from November, and their impact on my dividend income.


November Dividend Increases

Increase #1:

Abbvie (ABBV) announced an 11.5% dividend increase from a quarterly dividend of $0.96 to $1.07 a share on November 2. The company also raised its EPS guidance to $7.90 to $7.92 a share, representing a 41.3% YOY growth at the midpoint of $7.91 a share, with much of the growth coming from tax reform. Sales of Humira increased 9.0% YOY, topping $5.124 billion in Q3 2018. Furthermore, Imbruvica reported net revenues of $972 million which is a 41.3% YOY increase. Overall, Abbvie continues to deliver for dividend growth investors, and with a strong drug development pipeline (74 new and expanded indications and counting), it is highly like that these increases will continue for years to come, in my opinion. This dividend increase added $1.76 in annual dividend income across my 4 shares!

Increase #2:

Hormel (HRL) announced an 11.7% dividend increase from a quarterly dividend of $0.188 to $0.21 a share on November 19. Overall, this raise was actually a slight bit higher than what I projected in my Expected Dividend Increases for November article. I anticipated an increase in the quarterly dividend to $0.205/share. This increased my projected annual dividend income by $0.005.

Expected Dividend Increases

Increase #1:

Realty Income (O) will likely be announcing another small dividend increase in December. I anticipate a dividend increase of about 0.2% from the current monthly dividend of $0.2205 a share to $0.2210 a share. Across my 4 shares of O, this would increase my forward annual dividends by $0.024.

Increase #2:

WP Carey (WPC) will likely continue its trend of increasings its quarterly dividend by $0.005 a share. I anticipate that WPC will increase its quarterly dividend by 0.5% from $1.025 a share to $1.03 a share. This would increase my annual dividends by $0.06 across my 3 shares.

Increase #3:

Ventas (VTR) will likely announce a dividend increase in December. I believe the quarterly dividend will be increased by 1.9% from $0.79 to $0.805 a share. This would increase my annual dividends by $0.24.

Increase #4:

AT&T (T) will also likely be announcing a dividend increase. I would assume the trend of raising the quarterly dividend by a penny per share will continue, meaning T will increase its quarterly dividend by 2% from $0.50 a share to $0.51 a share. This would increase my annual dividend income by $0.64 across my 16 shares.

Increase #5:

Pfizer (PFE) will likely be increasing its quarterly dividend by 5.9% from $0.34 a share to $0.36 a share. This would increase my annual dividends by $0.64 across my 8 shares.

Increase #6:

Amgen (AMGN) will also likely be announcing a dividend increase in December. Based upon the most recent 14.8% dividend increase from a quarterly dividend of $1.15 a share to $1.32 a share, I believe its entirely reasonable to project a quarterly dividend raise from $1.32 a share to $1.49 a share. This would increase my annual dividends by $0.68 with my single share.

Conclusion:

Overall, I project my annual dividend income to increase by at least $2.28, with a few additional raises in my M1 Finance portfolio likely. I'm very excited with the month that is ahead of us to see how it unfolds. Looking ahead to January, I expect an even stronger month of dividend increases from my holdings. It's always exciting to be a dividend growth investor, especially in the coming months.

Discussion:

How many dividend increases are you expecting in December? How much of an increase in your annual dividends are you expecting?

Tuesday, November 20, 2018

The Tangibility of Dividends

As a dividend growth investor, one of the least talked about strengths of the strategy is the tangibility of dividends. When you receive dividends from quality dividend growth stocks, you are receiving cash that you can use for whatever purpose you assign to it. Whether that's to save, spend, or reinvest, the choice is yours. Not only do you receive dividends that you can determine the purpose of, but you can often see the products and services of the companies that you own shares in.



When you're a dividend growth investor, you have the benefit of being able to transition from the knee jerk trader mindset to the investor mindset. As a dividend growth investor, you take the long term view rather than the short-term view that has so many "investors" buying and selling over every quarterly report or non-event, which is one of the main reasons many retail investors significantly under-perform the market. I believe the primary reason for this is that when you drive past companies that you own shares in or when you see their products in stores, this only reinforces the concept. Many of the best companies that you can own are also the largest companies that hold strong competitive advantages in their industry, with strong balance sheets, and a strong track record of paying growing dividends year after year despite financial market volatility, partisan politics, economic downturns, and wars.

For instance, as I drive through my hometown, I encounter the following businesses that I own a stake in:

AT&T store (T)
Genuine Parts Company (which owns NAPA stores) (GPC)
Royal Dutch Shell gas stations (RDS.B)
BP gas stations (BP)
CVS Health (CVS)
Exxon Mobil gas stations (XOM)
Verizon store (VZ)
Home Depot store (HD)
Lowe's store (LOW)
Prudential Financial (PRU)

Moreover, these companies sell health products, beverages, snack foods, etc that are produced by other companies that I own:

Pepsico (PEP)
General Mills (GIS)
Procter & Gamble (PG)
Hormel (HRL)
GlaxoSmithKline (GSK)
Pfizer (PFE)
Johnson & Johnson (JNJ)
Hershey (HSY)
JM Smucker (SJM)
Altria Group (MO)

From the time I was in middle school, I was always that kid who checked labels on household products to see which companies owned which products that my household used. I came to the realization that if I owned enough shares in the companies that are so well represented in my household, such as Procter & Gamble, Johnson & Johnson, JM Smucker, General Mills, and Hershey, I could have a stream of entirely passive income in the form of dividends. I'm interesting, I know.

This mindset is one that I have had for the past several years now, but since I began investing in September 2017, the mindset has only been reinforced. With every additional dividend that I receive from the above companies and other great companies, my belief in quality dividend paying companies as my path to financial independence only grows.

Full Disclosure:

I am long all the above stocks. As always, please do your own research before buying positions in any of these companies.

Discussion

Do you check household products to see who they're owned by? When you drive past companies that you own shares in or see the products of companies that you own shares in on store shelves, do you light up like I do?