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?


Tuesday, November 13, 2018

What My Recent Raises At Work Taught Me About Financial Independence

It's been an exciting couple months. It was towards the end of August that I received a promotion at work, with a raise of just over 4% shortly thereafter. Since starting my first "real job" in July 2017, I have received 3 raises watching my pay increase from $10/hr and no benefits to a base pay rate of $12.25/hr, and with benefits included compensation around $13.00/hr (3% dollar for dollar match on retirement, free vision, free dental, and free life insurance of 2x my annual salary). With that said, I have learned two valuable lessons besides what I have learned over the past year at my job.



Lesson #1: Controlling Expenses Is Great, But Don't Forget The Other Side of The Equation

There are two levers that you can use to speed up your time to achieve financial independence, being lowering expenses, increasing income, or a combination of the two. What I've realized over the past year is that controlling expenses is absolutely pivotal to achieving financial independence at an early age or simply retiring at all. Basic math tells us that if you live at or above your means, you will never be able to retire or pursue your passions. However, just as important is the other side of the equation. Adopting the abundance mindset and recognizing that the opportunities in life are nearly limitless is conducive to the pursuit of financial independence. I'm talking about increasing your income. You can do this by starting a side hustle (large or small) depending upon your skill set and how much work you're willing to do, increasing your skills (and consequently, your value) in the workplace, or preferably both. As I alluded to, controlling your expenses is great. Adopting the scarcity mindset is something I highly recommend. Shifting to a mindset in which you see your time and resources as limited will likely better help you manage both, which will obviously be of great benefit to you. However, as great as the scarcity mindset (lowering expenses) is, you can only lower your expenses so much. The reverse is true for increasing your income. Theoretically, your income potential is limited only by how hard you're willing to work. In reality, there probably is an actual limit to your earning potential, but adopting the abundance mindset that resources (like money) are plentiful and there are numerous ways to make money will energize you to finally start that side hustle or to increase your marketable skills for the workplace, allowing you to increase your income (and capital available to save or invest). In my instance, my total compensation has increased from $10/hr gross to $13/hr gross in the past year. This is an increase in annual income of $6,240/year before factoring in taxes! Assuming that the effective tax rate of this increase in income over the past year is 20%, that would leave me with an extra $5,000 to invest. With the max contribution for an IRA for those under 50 being $5,500 as of 2018, that is the difference between almost maxing an IRA or not contributing to one at all. This is just one year of raises from work. Imagine what the next 10 or so years will likely offer as I enter my prime earning years.

Lesson #2: Never Stop Learning

In my experience, the key to getting raises (aside from having a generous employer and showing up consistently with your best effort) is to continue to hone your craft. Over the past year, I've taken on numerous tasks at work in a few facets of the business. The benefit of this is that I've actually observed how much of what transpires at work ties into each other. You don't simply get 3 raises in a short period of time without continuously learning. Your employer doesn't spend their day thinking of how they can improve your paycheck; your employer is concerned with increasing the financial performance of their business. There are numerous ways that this can be accomplished, and it's to your benefit to be proactive in seeking out ways to improve the bottom line of your employer, whether that's cutting non-essential expenses or increasing productivity resulting in added revenue. Your boss will likely take notice if you are able to measurably improve the performance of the company. They will then likely be compelled to share a small portion of those improved results with you knowing that a motivated, diligent employee such as yourself won't stay around long if you don't at least reap some of the benefits of your insight.

Takeaways:  The first point is that while adopting a scarcity mindset and controlling expenses is great, you can only cut your expenses so much. If you are serious about reaching financial independence at an early age or in a short time span, don't discount the importance of investing in increasing your human capital (improving your marketable skills). This will eventually lead to an increase in your income, which when combined with your scarcity mindset will lead to great surpluses of cash being invested, and eventually financial independence. The real universal lesson that applies not only to financial independence but to life in general is to never stop learning. If you stop learning, you will stagnate. This will also lead to stagnant wages as you won't be providing as much value to your employer or your clients as you could if you did continue to learn.

Discussion: Are there any lessons that you have learned upon reflecting on a recent raise or promotion at work? Are there any "universal" lessons that could apply to both financial independence and work/life in general?












Tuesday, November 6, 2018

October 2018 Dividend Income

As this article is about to be published, it's already early November. Basketball season is in full swing and I couldn't be more excited about Milwaukee Bucks basketball! With that said, another month has gone by, which means it's time to examine what the dividend portfolio provided for me in dividends for the month of October.





Overall, I collected $21.32 in income from the holdings in my Robinhood account and M1 Finance account. Of the $21.32 in income, $21.13 originated from 8 companies in my Robinhood account with the remaining $0.19 in dividends coming from 10 companies (as PEP and D paid dividends in September) in my M1 Finance account.

Analysis

The $21.32 in dividend income that I collected in October represents a 26.7% QOQ increase from the $16.83 that I collected in July. $3.47 of the additional $4.49 in dividend income that I received originated from my first dividend from GlaxoSmithKline (GSK) since buying back in June, just days after the ex-dividend date. Furthermore, I received an additional $0.41 from PPL due to an extra share that I added shortly after the last dividend from them. A dividend increase from WP Carey (WPC) accounted for an additional $0.02 in income, while a dividend increase from Altria Group (MO) accounted for another $0.40 in additional income. The remaining $0.19 in dividends came from my M1 Finance account that I established in early September of this year.

Although the trend of the first month of the quarter being my slowest continues, my dividends have grown nearly 577% from the $3.15 collected in October 2017! I'm expecting another quarter of somewhere around 25% growth in my dividend income in January 2019 as I recently initiated a position in Iron Mountain Inc (IRM) and will continue to add to it if the price stays in the low to mid $30s.

Discussion

How much did you receive in October? Did you have any newcomers to your dividend payers like I did? What was your YOY dividend growth?

Tuesday, October 30, 2018

Expected Dividend Increases for November 2018

The Milwaukee Bucks remain the only unbeaten team in the NBA and another month has passed us by, which means it is time for another installment of the expected dividend increases series. Prior to delving into the dividend increases that I anticipate for the DGI portfolio for the month of November, I'll start by recapping the dividend increases from October, and their impact on my dividend income.







As expected, there were 3 raises in the month of October. However, the dividend raise from Dominion Energy (D) that I expected didn't materialize. I suspected that Dominion would continue a trend that began last year with them increasing their dividend by a small amount in October, but that raise appeared to be a one time event. Luckily, I do anticipate a high single digit dividend increase from D in January as that has been the month in which they have announced dividend increases for years now. Instead, the dividend increase came from a recent purchase as I'll detail below.

Dividend Increase #1: 

Iron Mountain (IRM) announced a dividend increase of 4% from a quarterly dividend of $0.5875 a share to $0.611 a share. Furthermore, the company also posted strong Q3 results with 12% YOY revenue growth and 9% YOY adjusted funds from operations (AFFO) growth. Unfortunately, IRM wasn't able to make any progress on the deleveraging front in paying down their debt, as they have debt that is above average when compared to their peers in the self storage and data center segments. On the plus side, they were also able to avoid issuing any new shares which would dilute their strong growth. This increase added $0.19 in annual dividend income across my 2 share position which I intend to add to over the next couple of months. Overall, I'm very pleased with my recent purchase of IRM and I'm confident that they will successfully deleverage their balance sheet, and subsequently receive a credit upgrade.

Dividend Increase #2:

Enterprise Products Partners (EPD) announced a dividend increase of 0.6% from a quarterly dividend of $0.43 a share to $0.4325 a share. This dividend increase was exactly as I expected as EPD continues to increase its dividend by a small amount every quarter. This increase added $0.09 in annual dividend income across my 9 shares.

Dividend Increase #3:

EQT Midstream Partners (EQM) announced a dividend increase of 2.3% from a quarterly dividend of $1.09 a share to $1.115 a share. This dividend increase was also as I predicted in my expected dividend increases in October post. This raise increased my annual dividend income by $0.40.

Although I'm not expecting any dividend increases across my 32 holdings in my Robinhood portfolio, I am expecting a dividend raise that others in the community are also eagerly awaiting in my recently opened M1 Finance brokerage account.

Predicted Dividend Increase #1:

Hormel Foods Corporation (HRL) is one of 50 roughly equal positions in my rather small M1 Finance portfolio. HRL is a company with a reasonable payout ratio that could likely expand a bit in the coming years as the payout ratio is a bit over 40%. With earnings expected to grow in the high single digits to low double digits over the next 5 years, I wouldn't be surprised if HRL announced at least a 9% increase in their quarterly dividend from $0.188 a share to $0.205 a share. This would increase annual dividend income by just under $0.005.

Conclusion:

Overall, my forward annual dividend income increased by $0.68 from dividend increases alone. This doesn't even include the continued retirement contributions and occasional Robinhood portfolio purchases, which will soon manifest themselves in my monthly dividend income reports. Although I'm only expecting 1 dividend increase in November and it's not even from my Robinhood holdings, I'm expecting quite a few in the months beyond November.

Discussion:

What was the impact of October dividend increases on your annual dividend income going forward? Are you expecting any dividend increases in November or are you expecting a light month as I am?






Tuesday, October 23, 2018

Why Today Is The Day You Need To Pursue Your Dreams

What do you believe is the single greatest reason that most people decide to never pursue their dreams? I personally believe that failure is the single greatest fear that most people have. For whatever reason, people are embarrassed of failure. It leaves them in paralysis with fear. They defer their dreams because maybe other people don't support their dreams, and they need that support. Perhaps you have a dieting goal, a fitness goal, a goal to start a blog, or to achieve financial independence. Whatever it may be, there's no logical reason to keep deferring your dream. There will never be a better time to start pursuing your dreams than today. If you keep waiting for the "perfect time," you'll never take action. I'm going to provide you with 3 reasons to pursue your dreams, regardless of if they are FIRE related.


First Reason: Avoiding Regret

It's understandable that people are afraid of failure. It's difficult to put yourself out there, giving everything you have only to come up short. What you have to remember about failure is that it doesn't have to be the end. Failure is just the beginning. As Thomas Edison said to a reporter of his 1,000 failures to invent the light bulb, "I didn't fail 1,000 times. The light bulb was an invention with 1,000 steps." When you reframe your failure as Thomas Edison did, you continue to keep trying until you eventually find success in whatever goal it is you are pursuing. Another inspirational story is the story of Abraham Lincoln. Born into poverty, Lincoln endured a life of failure. He lost 8 elections, failed twice in business, suffered a nervous breakdown...oh yeah, and then became arguably the single greatest president in American history. The incredible thing about dreams is that you never really know what could happen until you take massive action towards fulfilling them. Imagine if Thomas Edison gave up on the light bulb. How much longer would it have taken to illuminate the world? What if Abraham Lincoln gave up before he lost 8 elections, failed twice in business, and before he suffered a nervous breakdown? Would the United States have survived the Civil War to achieve its place in history among greatest countries had it not been for Lincoln? Thankfully, we'll never know because Lincoln pushed through the adversity in his life to cement his legacy as an all time great president. It's not the failure that defines you, unless you quit. It's the success that comes despite all of your failures that defines you. The definition of a winner is a loser that never quits. Many never even knew that Lincoln failed as much as he did. We all remember him for his success.

Second Reason: You Are The Author Of Your Life

You are the director, producer, writer, and main protagonist in your life. Before you can achieve great things, you need to let this fact of life soak in. Because you are the author of your life, you must decide the life that you want to live. Do NOT let anyone else tell you how you are supposed to live your life. If you surrender your life to the whims of society, you will lead a life unfulfilled. Societal norms are not a one size fits all solution to life. Perhaps some people are apt to work at jobs they dislike for the best decades of their lives, to purchase items they don't need with money they don't have to impress people they don't even like. If you're reading this blog, I'm very willing to bet that you are not one of those people. If you want to break away from the mindset that the majority of people have, you need to develop the "minority mindset" as Jaspreet Singh puts it on his Youtube channel. If you don't want to live like the majority live, you need to stop thinking similar to how the majority thinks.

Third Reason: You Can Be An Inspiration to Others

Dreams come in many different shapes and sizes. Jason Fieber is one such person that is an inspiration to me and many others in the FIRE community. His story of going from a 27 year old below broke college dropout to financially independent at 33 is so empowering because Jason proves that just about anyone can achieve financial independence at a relatively young age with discipline and determination. There are also more well known figures that have endured quite a bit of adversity on the arduous journey to success. JK Rowling is one such figure that comes to mind. After she suffered a miscarriage in Portugal and gave birth to her daughter, Jessica, Rowling moved back to England as a divorced and destitute single parent living off welfare benefits. As we all know, JK Rowling went on to publish Harry Potter, subsequently becoming a billionaire. She is an inspiration to aspiring writers around the world. No matter the size or scope of your dreams, you can be an inspiration to others just as Jason Fieber and JK Rowling are.

Takeaways: 

If you never take action towards your dreams, you'll never really know what you could have been. The feeling of regret is not a feeling you want to experience. I'd rather fail than never try. Ultimately, you are the author of your life. Do not conform to societal norms as they are not a one size fits all approach to life. Live your life the way you design it, rather than how society thinks you should live it. Lastly, you can be an inspiration to others. Chasing your dreams takes courage. You'll probably be ridiculed along the way, but just remember that when you succeed, you will pave the way for countless others to forge their own path.

Discussion:

Because I've only provided 3 reasons to chase your dreams, I'm certain that I've missed several great reasons to pursue your dreams. Are you able to think of any additional compelling reasons to chase your dreams?

Tuesday, October 16, 2018

Recent Stock Purchase - Iron Mountain Inc (IRM)

It was about 3 weeks ago that I last added another share of AT&T (T) to my portfolio. If anyone has checked my Portfolio page recently, they would have possibly noticed that I recently initiated a position into Iron Mountain Inc (IRM). IRM has been quite a popular stock in the DGI community as of late with Dividend Diplomats and Dividend Sensei of SeekingAlpha recently mentioning them. With that said, I'll discuss a few reasons into my decision to initiate a position in this REIT.



Iron Mountain Company Overview

Iron Mountain is the largest physical records storage provider in the world. The core business of physical records management accounts for 63% of revenue. IRM serves over 225,000 customers in 53 countries on all 6 of the inhabited continents through its 1400 storage facilities.

Reason #1: Strong Customer Base

I was delighted to learn that IRM's clientele includes 95% of global Fortune 1000 companies. It is this kind of positioning among many of the largest and most powerful corporations on the planet that gives IRM a strong competitive advantage over its competitors. 

Reason #2: Resilient, Recession Resistant Business

Because of the necessity of record management in today's information driven business environment, IRM has an incredibly stable cash flow with annual customer retention rates of 98%. According to Eric Compton of Morningstar, monthly storage prices are roughly 19 times cheaper than storage retrieval prices. This gives the 225,000 customers of IRM strong incentive to continue to store their records rather than remove them from storage, and explains the strong customer retention rates.

Reason #3: Exciting Future Growth Plans

IRM is expanding its presence into data centers, which supports the incredible growth in cloud computing. IRM's data centers are situated in some of the top tech hotspots in the world such as Singapore, London, and New York City, with 90% occupancy and average remaining leases of nearly 3.5 years. Management expects that by 2020, its rapidly growing data center business will account for 10% of operating cash flows. 

Reason #4: Strong, Safe Yield

With my entry yield into IRM being 7.4%, IRM doesn't even have to grow very much to be an attractive long-term investment. My entry yield of 7.4% compares very favorably to the 5 year average yield of 5.9%. Of course, a dividend yield can't solely be the basis of an investment decision unless one believes that the dividend is safe. IRM's adjusted funds from operations payout ratio currently sits at a reasonable 81%, with expected AFFO/share growth of 5% through 2019 and nearly quadruple that growth in 2020, that will reduce the AFFO payout ratio to around 73% as the company's multitude of growth projects are completed. This growth in the AFFO/share should lead to 4% dividend growth over the next couple years. The concern in the near term with IRM is its junk bond rating. With an interest coverage ratio of 3.6 and debt to EBITDA of 5.6, the company's IC ratio is slightly better than the sector average of 3.5 while the company's debt to EBITDA ratio is slightly better than the sector average of 6.0. With management planning to reduce its long term leverage ratio to only 4.75, it is reasonable to assume that IRM will receive a credit upgrade in the next few years though. 

Closing Thoughts:

The initiation of a position of 2 shares in IRM has increased my forward annual dividends by $4.70, with a very strong starting yield that is expected to at least keep pace with inflation. The primary risk of buying IRM currently lies in the concerns that investors have over long-term interest rates spiking higher. Rather than delve into this into further detail, I'll leave the link to Dividend Sensei's recent article on IRM as he does a fantastic job of providing an in-depth analysis of IRM that served as part of my motivation to initiate this position in IRM. 

Discussion: 

What recent purchases have you made? Do you have a position in IRM? If not, do you expect to initiate a position in IRM at some point?




Tuesday, October 9, 2018

September 2018 Dividend Income

The beginning of the month is my favorite time. It's a time to look ahead at increasing your dividends, and a time to reflect on the previous month. Another month has gone by, which means it's time to examine what the dividend portfolio provided for me in dividends for the month of September.

Overall, I collected $44.26 in dividends for the month of September from 13 different companies and 1 mutual fund. $31.73 of the dividends originated from the 13 companies in my Robinhood account that paid dividends this month and $0.04 came from my recently opened M1 Finance brokerage account. The remaining $12.49 came from CAIBX in my Simple IRA through my employer.





Analysis

When examining my dividends, I noticed that I received two dividend increases that accounted for the $0.22 increase in Robinhood account dividend income from June to September. BP announced a 3.4% raise from a quarterly dividend of $0.595 to $0.615 at the end of July that increased the quarterly income I collected from my 4 shares by $0.08. Also, JM Smucker announced a near 9% raise from a quarterly dividend of $0.78 to $0.85 that increased my quarterly dividend income by $0.14.

Of course, the real growth in my dividend income came in my Simple IRA account as CAIBX paid dividends of $7.13 in June compared to the $12.49 it paid me in September. This came as a result of my continued contributions to my retirement account over the past few months.

Overall, my dividend income increased from $38.64 in June to $44.26 in September. This is a quarter over quarter (QOQ) growth rate of 14.5%. I consider this to be satisfactory given that I didn't initiate any new positions or add to positions in my Robinhood account that paid me in September. Of the $5.62 increase in dividend income from June to September, $0.22 or 3.9% of it was derived from dividend increases, $0.04 or 0.7% of it came from the newly opened M1 Finance account, and the remaining 95.4% came from continued contributions into my retirement account.

Discussion:

How was your September? Did you set a personal best in September? Did you have any new dividend payers for the month?

Tuesday, October 2, 2018

Expected Dividend Increases for October 2018

Another month has passed us by, which means it is time for another installment of the expected dividend increases series. Prior to delving into the dividend increases that I anticipate for the DGI portfolio for the month of October, I'll start by recapping the dividend increase(s) from September, and their impact on my dividend income.


As expected, there were two raises for the month of September. This isn't surprising as I've found that most of my dividend raises are concentrated in the last couple months of the year and the first couple months of the year.

Dividend Increase #1: 

Realty Income (O) announced a 0.2% dividend increase from $0.22/month per share to $0.2205/month per share. This dividend increase was about in line with what I expected. This raise in the annual payout from $2.64/share to $2.646 increased dividend income across my 4 shares by $0.024. Not the most impressive raise, but I'm most excited for O's raise that will be announced early next year as O's first raise of the year is historically the largest (at around 4%).

Dividend Increase #2:

WP Carey (WPC) announced a 0.5% dividend increase from $1.02/quarter per share to $1.025/quarter per share. This dividend increase was also in line with what I expected as WPC has raised its quarterly dividend by $0.005 every quarter for the past 2 years. This raise in the annual payout from $4.08 to $4.10/share increased dividend income across my 3 shares by $0.06. Again, a small raise but when considering that my yield on cost (YOC) is 6.8%, I'm not expecting gang buster raises from WPC. There are other companies in my portfolio that will augment my dividend increases, such as Abbvie (ABBV), Lowe's (LOW), and Home Depot (HD) to name a few.

Expected Dividend Increases for October

#1: Enterprise Products Partners (EPD) will likely be announcing a dividend increase some time this month. If EPD continues to follow the pattern that they have been for the past 3 quarters, they should be raising their dividend by 0.6% yet again from $0.43/quarter per share to $0.4325 per share. If this is the case, my annual dividend income will increase $0.09 across my 9 shares.

#2: EQT Midstream Partners (EQM) will likely be announcing a dividend increase some time during this month. I believe that EQM will announce a raise similar to the last one. That would mean that the dividend will be increased 2.3% from $1.09/quarter per share to $1.115/quarter per share. If this does happen, my annual dividend income would increase $0.40 across my 4 shares.

#3: Dominion Energy (D) is the wild card of this group as they did announce a small dividend increase around this time last year, but they historically announce their largest dividend increases in January. If D does announce a raise this month, I'd expect it to be in the low single digit range like 2% or so, from $0.835/quarter per share to $0.85/quarter per share. If this happens, my annual dividend income would increase $0.18 across my 3 shares.

Conclusion:

September was a fairly light month in terms of dividend increases, but for this time of year, that is to be expected. Although the total impact on my annual dividend income was only $0.084 in dividend raises, the important point is that my income is continuing to grow through dividend raises, reinvestment, and the fresh capital being contributed to my retirement account with each paycheck. 

Discussion:

How many dividend raises are you expecting for the month of October? Are you expecting any large raises (i.e. double digits)? What will be the total dollar impact of the raises that you are expecting?





Tuesday, September 25, 2018

How I Reached $10,000 in Investments At Age 21

I've recently crossed what I believe to be quite a milestone for anyone that is pursuing financial independence. After over a year of saving and investing my excess capital into my portfolio of mostly dividend growth companies, I have reached $10,000 in investments with no debt. Why is there an emphasis on the investment aspect of net worth? Well, that's because a $10,000 car or $10,000 of furniture doesn't have the same effect as $10,000 in investments. A $10,000 car will get you to work quite reliably, but a $10,000 portfolio will generate hundreds of dollars of growing income on an annual basis. My money is starting to work for me! Whether you're 21 years old or 41 years old, I believe my story could give you a few key takeaways on how I reached this milestone, and how you can too. Or if you've already passed this milestone months or years ago, this could serve simply as a reinforcement of your beliefs. Without further ado, let's dive straight into the reasons I was able to achieve this milestone.



The First Reason: Supportive Parents

As I alluded to in (How I've Avoided Student Loan Debt), I've been incredibly fortunate to have supportive parents. If it wasn't for my parents, I would be at least $10,000 in debt rather than worth $10,000. I want this site to be completely transparent, and I think it would be a terrible act of omission for me to not mention that my parents have let me live with them rent free. To act as though I have achieved this entirely on my own would be intellectually dishonest. It's this support from my parents that will allow me to graduate debt free with my undergrad degree in accounting next summer. As I've said before, graduating college with little to no debt is virtually the first step on the path to becoming financially independent at an early age. The basic lesson from this is that if you're able to, live with your parents while you are still in college. This will set you up very favorably once you graduate college, and you'll be leaps and bounds ahead of your peers on your path to financial freedom. When you don't have any debt upon graduating college, that leads us into the second component of turbocharging your wealth building.

The Second Reason: Keeping Expenses Under Control

Although my parents have been incredibly generous in letting me continue to live with them, this didn't actually guarantee that I would reach $10,000 in investments at the age of 21. There are only two "levers" to pull to increase your net worth and build wealth. The first of which is to keep your expenses under control. Life is full of choices, and when you're in your 20s like I am, there are often many terrible choices readily available for you to make. The absolute worst choice you could make that has led to the metaphorical and literal demise of many promising young lives includes drugs and alcohol. Fortunately, I've never been the sort of person that is naturally inclined to go out "clubbing" or partying. Not only is it not healthy for the wallet, it's terrible for your health. Society tries to make you believe that these acts of going out and getting intoxicated are really "living," but I believe that to be absolutely false and marketing propaganda used by nightclubs/bars and alcohol companies. The crux of the matter is that when you avoid doing stupid things like seeking to impress people or engaging in "vices," it generally isn't very difficult to save money and get started on the path to financial independence. By doing the above, and by keeping the "Big 3" expenses (i.e. housing, food, and transportation) under control, saving money is very doable.

The Third Reason: Increasing My Income

While I talked about one of the two "levers" you can pull to build wealth, I didn't want to leave out the second which is increasing income. Building wealth can really be this simple. Just before I graduated college in August 2017, I accepted my first "real" job and current job working in the legal field. Before this, I was working part-time as a cashier making barely above minimum wage. Since starting my current job, my pay has increased with 3 raises from $10/hr with no benefits to about $12.75/hr including benefits. Obviously, this has been quite an increase from the roughly $300/month I was making while still attending my 2 year college. This has more than offset the increase in expenses I have experienced since obtaining my 2 year degree, and subsequently starting my current job, as my current expenses with tuition/textbooks/living expenses have increased about $1,400/month while net income has increased $1,550/month.

Takeaways:

When you're in the early stages of building wealth like me, having supportive parents is very helpful. I have been very blessed to have parents that allow me to live with them (and that put up with me lol). If you don't have this support system, it isn't impossible to build wealth, but it's certainly much more difficult! Moreover, the easiest way to begin building wealth is by avoiding debt. I'll be graduating next year with no debt. The final takeaway is pulling the two levers to build wealth. You can either decrease expenses, increase income, or do a bit of both. You can decrease your expenses and keep them under control by refraining from nonsense like drugs/alcohol/gambling or trying to impress others, and by focusing on minimizing your "Big 3" expenses. Lastly, you can increase your income through developing additional skills or taking up a side hustle. As my friends over at DividendDiplomats say, every dollar counts on the journey to whatever dollar amount you are aiming for.

Discussion:

Have you saved your first $10,000 in investments? If so, how long did it take for you to reach your first $10,000 in investments? How much easier was it to accumulate the next $10,000 once you had your wealth building on autopilot? Do you have any other advice to those seeking their first $10,000?


Tuesday, September 18, 2018

Navigating The Insanity of Transportation Expenses

As readers of this blog or really any personal finance blog are aware, there are 3 particularly large expenses (housing, food, and transportation) that account for over 60% of household spending. We're focusing today on the madness occurring in the transportation category of the budget for many Americans.


For those of you that follow my Twitter account, you may or may not remember a tweet from several weeks back about how the average new vehicle loan is $31,099, while the average used vehicle loan is $19,589. Furthermore, Americans on average spend 16% of their income on transportation. Although I do realize the necessity of a car in many areas of America (try getting to work in a small Midwestern town in the middle of January without a car), I also don't believe it's necessary to take on this kind of debt when purchasing a vehicle or to spend this much on transportation. Maybe I'm a bit biased as my father is quite handy with cars, and we have always purchased cars that were in collisions, and then restored them back to road condition. This has allowed us to use our cars for over 10 years at a relatively low cost in comparison to many Americans. I realize that this isn't something that is an option for everyone, but many Americans without a doubt would benefit from carefully considering their options when it comes to the transportation category of spending.

Option #1: Try To Live Close To Work

I am fairly lucky to live 7 miles/10 minutes each way to/from work. The average American has a commute of 16 miles each way to/from work. With gasoline prices at an average of $2.85/gallon at the time of writing this, I spend $356/year on gasoline assuming working 50 weeks/year and 5 days/week, while averaging 28 miles per gallon. The average American would spend $814/year on gasoline with the same assumptions. Of course, the amazing part is this doesn't even factor in the other expenses that are magnified when one lives further from work. For instance, you'll need to replace your tires sooner, change your oil more frequently, and your car will depreciate at a much more rapid rate the further you need to commute to work. The other not so obvious cost is the added commute time that results from living further away from work. This cuts into your time to relax or pursue side hustles.

Option #2: Purchase A Practical Vehicle

Remember how I assumed that other Americans were also driving vehicles that averaged 28 mpg? It actually turns out that the average fuel economy in the United States is somewhat lower than that at 24.7 mpg according to Reuters. You're probably thinking "Kody, that's only a difference of roughly 13% in terms of fuel efficiency." However, when you drive as much as the typical American drives, it's that extra 13% in fuel efficiency that I'm getting out of my 2012 Chevy Impala that really adds up (I drove mostly highway miles, which is how I arrive at an average of 28 mpg for my commute). Of course, the average fuel economy of SUVs and trucks are still noticeably lower than that of subcompact and compact cars. With the strengthening US economy, stable gasoline prices, and improved design, the uptick in demand for SUVs and trucks has been drastic. Since 2008, the share of SUVs/trucks sold has increased from 49% of sales to 65% in 2017. Before purchasing a vehicle, be sure to evaluate your needs. Nothing is more illogical than to buy a spacier vehicle than you really need. It senselessly drains your wallet and leads to more carbon emissions in the process.

Option #3: Incorporate Opportunity Costs Into Your Spending Decisions

One of the most useful things that I learned from both the online personal finance community, and my economics class is to incorporate opportunity cost into any decision you make. This will help you make an informed decision, and you'll ultimately feel confident in whatever decision you make after analyzing your options. For instance, let's say that you stumble across two barely used cars that are in nearly identical condition in terms of miles, model year, etc. The only difference is that one car is less desirable and perceived as "uncool" by society, whereas the other is viewed as a "status symbol" by society. The "uncool" and undesirable car costs $14,000, whereas the "status symbol" car costs $20,000. When determining which car to pick, it essentially comes down to how much you value validation from your peers. The $6,000 difference when invested for 15 years at a 5% inflation adjusted return turns into nearly $12,500. So at the end of the possible lifetime of both cars, we can see that one choice leads to you having $12,500 in extra wealth, and the other leads to $0.

Takeaways:

Live as close to work as you can provided it doesn't materially impact other spending categories like housing. This will save you time, and money provided you don't spend more on housing (living closer to work) than the reduction in your transportation expenses. If you are really lucky, you may even be able to work from home part of the week depending upon your job. Secondly, be sure to be mindful of your needs when evaluating what vehicle to purchase. How much space do you need from the vehicle you're looking to purchase? What is the fuel efficiency of the vehicle as measured by mpg? What are the safety ratings of the vehicle? All these factors should be taken into account prior to pulling the trigger on purchasing a vehicle. Lastly, be sure to weigh the opportunity costs of one vehicle against the other. Is a prestigious or unnecessarily spacious vehicle that is priced higher than a reliable, workhorse vehicle worth amassing substantially less wealth 10 or 15 years from now?

Discussion:

What are your thoughts on the transportation expenses of the average American household? Do you have any tips that you can think of to reduce transportation expenses?

Saturday, September 15, 2018

Lessons After One Year of Investing

For those that are new to the blog, I began dividend growth investing at the beginning of September 2017. As such, I have been investing for just over one year at the time I'm writing this post. Along the way, I have applied much of what I already learned over the years. Although I already knew these lessons, I think it's a bit different to apply these lessons from a practical standpoint versus the theoretical standpoint I had before I began investing. With that being said, let's delve into 3 lessons I've applied after one year of investing.



Lesson 1: Ignore The Noise

When you're first starting out investing, it can be tempting to watch the financial media like CNBC. However, what I've realized about the financial media since investing is that it seems as though they are interested in driving ratings. They do this by playing on the two most detrimental emotions an investor can fall back on in lieu of cold, hard analysis. Those emotions are fear and euphoria. It's these strong emotions that bring back viewers time and time again. It's also these strong emotions that lead to irrational behavior, and disappointing results. For instance, the average investor has substantially under-performed the S&P 500 index over the past twenty years. This is primarily because investors let their emotions get the better of them. When you tune out the noise and focus solely on the fundamentals of your investments, that is when you are able to perform in line with the market or even beat the market. Even recently, investors had to endure a market correction this past February that saw the S&P 500 enter into correction territory, only to battle back and end the month down 3.9%. I'm sure during this time the financial media was selling fear, prompting some investors to exit the market. Unfortunately, for investors that did exit the market at the low on February 8th, the S&P 500 has since rallied 11.3% (as of September 9, 2018). This just proves that nobody can accurately predict the market, and that you shouldn't try to either.

Lesson 2: Capitalize on Market Inefficiencies

No matter what the stock market does, there will always be intelligent investments available to you. We have been in a bull market now for nearly 10 years. As a result of this, it is becoming more difficult to find intelligent investments worth considering. But make no mistake about it, there will always be intelligent investments available for your consideration. For instance, one of those investments at the present is Abbvie. According to the Nasdaq, Abbvie is projected to grow its earnings by 14% a year over the next 5 years on top of the current 4.1% dividend yield. Assuming the valuation multiple remains the same, investors are looking at 18% annual returns over the next 5 years. Even if those growth estimates prove to be inaccurate with the risks of an investment in Abbvie materializing, and the company achieves only 8% growth in earnings during the next 5 years, an investor at today's prices is looking at a roughly 12% annual total return over the next 5 years. Abbvie is one of several companies out there that I believe is trading at a compelling valuation despite the overvaluation in some sectors of the market at present valuations.

Lesson 3: Utilize Diversification

One such reason I advocate for diversification among sectors can be seen in the oil market of 2016. Massive energy companies like Chevron reported a quarterly loss for the first time since 2002, with many MLPs cutting or suspending their dividends altogether. I think it goes without saying that if you derived a large chunk of your income from MLPs during this time, you were absolutely horrified during the most recent bear market in oil. It is for this reason alone that one should be well diversified across all sectors of the US economy. When the economy enters a recession, consumer staples and utilities should hold up well as the anchor of your portfolio, whereas the consumer discretionary and financial stocks in your portfolio will likely be trounced in comparison, possibly resulting in a few dividend cuts, from a combination of generous dividend payouts and a decline in profits that is common during recessionary periods.

Takeaways: The financial media can do a great job in reporting key economic indicators that can give you insight into the state of the economy, but it often tries to sell fear and euphoria. For the most desirable results in investing, tune into the fundamentals of the market, while tuning out the emotions in the market. Secondly, the market will always present attractive opportunities. Although they are scarce in an extended bull market like we're currently experience, they are still out there. As I said before, the market may be up or it may be down, but there will always be intelligent investments available for your consideration. Lastly, owning 30 companies isn't enough if all those companies you own are in one sector of the economy. You must be diversified across all sectors of the economy for adequate diversification. This way a setback in one sector of the economy doesn't jeopardize the entirety of your dividends, but only a small portion.

Discussion: How long have you been investing? What lessons have you put into practice since you began investing?

Tuesday, September 11, 2018

Money Can't Buy Happiness...But Here's What It Can Buy

How many times have we heard the phrase "money can't buy happiness." It's a platitude that has been embedded into societies across history. As overused as I believe the phrase is, I do believe that there is a grain of truth in it. There's no doubt that money is useful, but as we've seen time and time again, vast amounts of money actually just bring headaches. I believe one of the primary reasons that ultra wealthy celebrities endure divorces as often as they do is because they don't really know who genuinely likes them versus who likes them because of their fame and fortune (ulterior or hidden motives). As Jason over at MrFreeAt33 said in a recent article (and has proven for years now), beyond the basics in life like food, housing, electricity, etc., money really doesn't buy happiness.



What Does Money Not Buy?

Before we delve into what money does buy, I just wanted to briefly discuss what it doesn't buy so we aren't under any illusions. Money isn't some sort of possession that can fix the underlying issues that we may have, such as addiction or insecurities. In other words, it doesn't fix our faults. Those will remain regardless of your net worth until you first admit you have a problem, and seriously work to mend that problem. Moreover, and most importantly, money doesn't buy love. Think of those in your life that are closest and dearest to you. Would they do anything for you because they love you? Yes, of course they would. What separates love from every other emotion is that true love is unconditional. It doesn't matter what your net worth is or what you have to offer in return; true love gives and asks for nothing in return. Conversely, if you have to give somebody money or items of value to do things for you, this doesn't equate to love. It is merely a business transaction.

If Money Doesn't Buy Happiness, What Does It Buy?

When you have enough money working for you (generating passive income in excess of expenses), it is said that you are financially independent. This means that you have the autonomy or the freedom to pursue whatever in life fulfills you, which interestingly enough often brings happiness and meaning to your life.

But How Could This Be? It Seems Paradoxical.

You're probably wondering how we've just said that money can't buy happiness, yet at the same time we've said that it actually indirectly can. I don't actually intend to communicate that money alone is the key to happiness, but I'm trying to convey that once your basic expenses are met, it's that freedom and autonomy that are you afforded that allows you to live the life that you want rather than "job" for a living. Instead, you can "work" on whatever you find delivers value to others without the expectation of making money from it (although eventually you probably will), and as a result, you often find a sense of worth and fulfillment in these pursuits. True happiness originates from a sense of purpose and a feeling of meaning that you attach to your life. 

This is a particularly complex subject, and every person is somewhat different in regards to what makes them happy. With that being said, I believe that most can find happiness in improving themselves, in turn unlocking their full potential, and using that potential to help others learn how they can improve their lives. Quite simply, when you feel content with yourself, you are more pleasant to be around. When you are more pleasant to be around, you indirectly improve the lives of others, and serve as a template for others pursuing happiness because basically everyone wants to be happy. As a result of others seeking happiness, they may ask how you are almost always content with your life. Although no two people want the exact same things out of life, you could be the catalyst that drives others to actually examine in detail what they want out of their life. When you are financially independent, you don't have to be your inauthentic self anymore. That alone should bring you some measure of joy. You don't have to report to a boss or deal with difficult coworkers anymore. You're free to be whoever you'd like to be, or what I like to call your authentic self!

Takeaways

Extraordinary amounts of money to the point that you can't really hide your wealth are actually detrimental, and in these cases, money basically buys "misery." Practicing stealth wealth is ideal and to your benefit if you are able to pull it off (which you should be able to do unless you are on the Forbes list of billionaires). It is difficult to distinguish between hidden motives and those that actually like you for who you are when you are obscenely wealthy, which often leads to trust issues (and further relationship issues). The perfect amount of money is an amount that is enough to allow you to pursue your passions, while also being discrete about your wealth to not attract unnecessary attention. Ultimately, it's up to you to decide what brings you happiness and joy. But just know that money isn't necessarily good or evil, it's just a tool to allow you to pursue what brings you fulfillment when you have enough of it to meet your basic needs. This is the precise reason that I blog about unlocking financial independence through dividend growth investing. 

Discussion

What are your thoughts? Do you believe money can indirectly buy happiness by allowing us to pursue our passions and fill our lives with meaning and purpose?

Saturday, September 8, 2018

How I Have Avoided Student Loan Debt

Before we begin this article, I'd like to ask a quick question. What is the second leading source of debt in the United States? I'm sure that you probably guessed it was student loans. Behind mortgage loan debt, student loan debt is the second leading source of debt in the United States. The average student loan debt for Class of 2017 graduates was $39,400. Not surprisingly, as time goes by, these figures will continue to steadily increase. For more information on the extent of the student loan crisis, StudentLoanHero is an excellent source of information.



Fortunately, when I graduate next summer in 2019, I will not be among those graduating with student loan debt. I say this not to boast, but to possibly help those that are younger consider their options. Because when you decide to embark upon the path to financial independence, avoiding debt whenever possible is critical to achieving financial independence at a young age. Admittedly, my story does involve one of privilege because although my parents are normal middle class folks, they have helped tremendously as we'll come to find out. Without further delay, let's examine the actions I took (and the fortunate events that transpired) that allowed me to graduate with no student loan debt.

My First Step: Attending My Local 2 Year College

For those that didn't know, I attended my local technical college (Mid-State Technical College) to obtain my Associate's degree in Accounting in 2017. Shortly thereafter, I utilized a transfer agreement between MSTC and Lakeland University so that I could transfer ALL 72 of my credits at MSTC to Lakeland. Even better, Lakeland has a Blended option that allows me to choose whether I will attend class on any one of their several campus locations besides their main campus location or if I will attend online. This allows me to actually take advantage of the next step.

My Second Step: Supportive Parents

Since graduating high school 3 years ago, I've continued to live with my parents. With rent around this area realistically costing around $550 a month were I to live on my own, I have saved 3 years of rent which would total around (36 months * $550 a month) $19,800. Given that I currently have a net worth of nearly $10,000, I would currently be in debt to the tune of $10,000 if not for my living arrangement with my parents. That's why living with your parents and attending your local community college or state university is often pivotal to graduating with no debt, provided your parents aren't providing much financial support if you are attending university half way across the country. Secondly, my parents have also allowed me to use one of their cars without having to purchase it. The only requirement is that I pay all expenses associated with it, which is more than fair. Although I have received about $3,000 of the total $40,000 from my parents/grandparents that I will spend on books/tuition to attain my undergrad degree in accounting, my parents have saved me an insane amount of money by allowing me to continue living with them (plus they're not that bad either haha).

My Third Step: Earning As Much As You Can Before & During College

Because college will probably cost you at least in the mid 5 figures, it is incredibly important that you earn as much as you can before and during college. In my own story, I didn't earn very much before I started college, as I didn't get a part-time job cashiering until my senior year in high school that I held until I graduated college in 2017. In this regard, I could have done much better as many kids get jobs at the age of 15 or 16. I believe that the benefits of the first step also can be utilized in this step because after you obtain your two year degree from your local community college, you become more marketable to employers. I used my degree to obtain a job that pays over $12.00/hr with benefits (which isn't bad for the small mid-western town that I live in). It is this substantial increase in earnings that is also helping to pay for the substantial increase in expenses associated with attending Lakeland University (it is a private non-profit with tuition nearly triple that of the two year college I attended). With my current earnings against my current expenses (tuition, books, living expenses i.e. food, transportation), I am roughly treading water after accounting for the 7% that I contribute to my retirement account through my employer, and their 3% match. So, through all of this, I am still building wealth at a clip of about $2,000 a year.

Conclusion:

I recognize that I am incredibly privileged and if my story made you a bit nauseous, I can understand that. Obviously, not everyone will be able to take advantage of my second step. I even know of some parents that basically kick their kids out of the "nest" once they graduate high school. I can sort of understand the reasoning, in that it does force your kids to learn to fend for themselves and develop independence. Unfortunately, it is probably one of the primary reasons that kids go into so much student loan debt these days, combined with the fact that it's difficult to even comprehend how much debt $30k or $40k is when you're in your late teens or early twenties, and the consequences of borrowing that kind of money. I've saved almost $20,000 by being able to live with my parents which has made all the difference in being able to graduate with no debt and a roughly $12,000 net worth next summer.

Discussion:

How was your experience with college? Were you able to avoid student loan debt? Did you enjoy privileges similar to mine? Or did you have to really grind it out to graduate with no debt?








Tuesday, September 4, 2018

August 2018 Dividend Income

The beginning of the month is my favorite time. It's a time to look ahead at increasing your dividends, and a time to reflect on the previous month. Another month has gone by, which means it's time to examine what the dividend portfolio provided for me in dividends for the month of August.




Overall, August was yet another record month for me in terms of dividend income. I collected $41.19 in dividends from 12 different companies. When compared to my dividend income for the middle month of the prior quarter in May, my dividend income grew 21.6% from $33.86 to $41.19! This sort of growth is primarily because I am starting from such a small capital base that even a small investment, along with dividend increases and dividend reinvestment have a measurable impact on my dividend income.

Let's delve into how my income grew from $33.86 in May to $41.19 in August, shall we?

This $7.33 growth in income from May to August can be explained by 3 things. Over the past few months, I've initiated a new position of 4 shares in EQT Midstream Partners LP (EQM) (by selling 3 shares or half my stake in CVS), a new position in Abbvie of 2 shares (ABBV), and a new position in General Mills (GIS) of 4 shares. The addition of ABBV increased dividend income by $1.92, the addition of GIS added another $1.96 in dividends, and lastly the substitution of CVS for EQM added $2.86 in dividend income ($4.36 in income from EQM versus the $1.50 of income from CVS that I gave up when I sold my 3 shares). In total, these transactions alone added $6.74 in dividend income.  Another $0.43 came from the purchase of 1 more share of Enterprise Products Partners (EPD). The final $0.16 in additional income was a result of the dividend raise from Lowe's (LOW) from $0.41/share quarterly to $0.49/share manifesting itself as I own 2 shares.

The great thing about this is that my dividend income in November will be even higher without any additional effort on my part. I recently added to my stake in Abbvie, so that will add another $0.96 in quarterly dividends alone. This doesn't take into consideration any possible dividend increases that will occur among my holdings by November. For instance, EQM has a trend of raising its distributions on a quarterly basis, and I expect this to be no different for the next distribution. Although I won't be able to contribute any new capital to the account that could possibly increase my dividend income for the middle month of the quarter, I will continue to pool my dividends and selectively reinvest into an existing holding. I'm not sure whether it will be a holding that has paid me dividends during this month, or a holding from a different month because I don't know what opportunities Mr. Market will present to me in a couple months. I will, however, continue to contribute to my retirement plan through my employer which will be a nice boost to my end of quarter month income.

How was your August? Did you get any dividends from new names in your portfolio or is your portfolio pretty well established already? What was your quarter over quarter dividend growth from May to August?






Saturday, September 1, 2018

Expected Dividend Increases for September 2018

Another month has passed us by, which means it is time for another installment of the expected dividend increases series. Prior to delving into the dividend increases that I anticipate for the DGI portfolio for the month of September, I'll start by recapping the dividend increase(s) from August, and their impact on my dividend income.



For the month of August, I only received one dividend increase. Although it's nice to get multiple raises in a month, a raise is a raise and I'll take it. Especially when the only raise you receive is a double digit increase! Altria Group (MO) raised its quarterly dividend from $0.70/share to $0.80/share, amounting to a 14.3% raise for shareholders. This raise added $1.20 to my forward annual dividend income. As I alluded to in last month's expected dividend increases article, Altria is a company that absolutely creates value by returning its gobs of cash to shareholders. They recognize that their investors are dependent upon them as a source of their income, and they don't disappoint. This company has raised its dividend every year, without fail for the past 49 years. For perspective, Altria (and its predecessor, Philip Morris Companies) raised its dividend through the highly uncertain and litigious 1990s for tobacco companies, through the Great Recession, the Vietnam War, the tech bubble, and despite the smoking prevalence in the US declining from 42% of adults in the early 1960s to 14% currently, the company has been able to achieve this due to the highly addictive and inelastic nature of cigarettes. Fortunately, the company is diversifying into the smokeless segment to combat this shift from cigarettes to e-cigarettes. The company also owns a wine business, Ste. Michelle Wine Estates, and a roughly 9.6% stake in AB Inbev (BUD). Management has been very diligent with managing its dividend over the years as it maintains a target payout ratio of roughly 80%, while using the other 20% of adjusted diluted earnings per share to pay down debt, engage in share buybacks, and to fund its transition away from traditional cigarettes. This attitude of returning cash to shareholders was on display again as the company's annual dividend amounts was raised to $3.20/share against latest 2018 earnings guidance of $3.94 to $4.03/share.

As we get further into the year, dividend increases are clearly becoming sparse. I've found that the vast majority of dividend increases come in the last month of the year, as well as the first couple months of the following year. With that said, I don't expect many dividend increases in September.

Predicted Dividend Increase #1

Realty Income (O) last announced a 0.2% dividend increase this past June. If O follows its trend of raising its dividend every quarter, we should be set for a dividend raise sometime in September. Given that O raises its dividend every quarter, the increase will be smaller than what investors receive from companies that raise their dividend once a year. Having said that, I believe that the raise will be somewhere in the ballpark of 0.3%, increasing the annual dividend from $2.64 to $2.648. The total impact of this dividend raise on my 4 shares of the company would amount to just over $.03 a year. While these dividend increases seem minuscule, one has to keep in mind that the largest dividend increases from O generally come at the beginning of the year to the tune of around 3-4%.

Predicted Dividend Increase #2

Like O, WP Carey (WPC) typically increases its dividend every quarter by a small amount. For the past two years, they have increase their dividend by 0.5% each quarter. I expect this trend to continue into this September. The quarterly dividend should be increased from $1.02/share to $1.025/share. This would increase the annual dividend income that my 3 shares produce from $12.24 to $12.30, for an increase in annual dividend income of $0.06.

Conclusion

Although I am only expecting two small dividend increases this month that will increase annual dividend income by $0.09, the alternate situation of never starting dividend growth investing is much worse. Who could say no to getting raises simply for acquiring shares in a company and holding them as long as the fundamentals of the company remain intact or improve? It's absolutely, without a doubt the most passive source of income out there, and the dividend raises are the gift that keeps on giving.

Discussion

How many dividend raises are you expecting for September? What impact will the projected increase have on your dividend income going forward?