Tuesday, May 28, 2019

Why Others May Not Choose Dividend Growth Investing

As a follow up to my article on why I chose dividend growth investing, I thought it would be useful to examine the other side of the argument and determine why people don't choose DGI as their investment strategy. After all, the thing about personal finance and investing is that there isn't a one size fits all approach, as with just about anything in life.

First Reason: Maybe They Have No Strategy And Underestimate DGI

It's entirely possible that one may underestimate the power of DGI and feel the need for a get rich quick strategy. Sadly, no viable get rich quick strategy exists. If it did, do you really think some "expert" would teach you for just 5 easy payments of $19.95? The dreaded short-term trader mindset is unfortunate because there are hundreds of fantastic companies out there for investors to choose from and own over the long-term, rather than rent for the short-term with the hope of making a profit. This short-term mindset is the very reason most investors underperform the market.

It's the long-term mindset coupled with aggressive savings that have allowed idols of mine such as Jason Fieber to unlock financial independence at such an early age to enable them to live their ideal life. Jason's story is absolutely incredible and really demonstrates the power of DGI better than I could even put it into words. It's absolutely breathtaking what a high savings rate and DGI is able to accomplish in such a relatively short amount of time.

Sure, you probably won't be able to support a lifestyle in which you buy a Lamborghini for each of your vacation homes on every continent besides Antarctica while also maintaining closets full of $5,000 suits through DGI. DGI isn't exactly a way to a quick windfall like winning the lottery or anything, but it's actually a viable and reproducible way to build wealth unlike winning the lottery.

But the real takeaway is that regardless of whether you need $20,000 a year to meet your expenses or $500,000, the concept of DGI is viable for both of those needs. You simply need to be able to identify excellent companies and what the fair value is for those excellent companies. Then it's just a matter of consistently investing capital in those types of companies at or below fair value for 5, 10, 15, or 20+ years, and the results become meaningful.

But it's completely understandable that many just go by what the financial media tells them and maybe some of these people without a real strategy simply don't have the time to educate themselves enough to be disciplined and rational with their investment strategy, which leads me into the next point.

Second Reason: Maybe They Don't Have The Time Commitment Or Passion Necessary

In the world we find ourselves in, many people simply don't have the time and/or passion necessary to commit to learning an investing strategy such as DGI or growth investing. It is very time consuming initially and there is quite a bit to learn in terms of analyzing companies and determining reasonable prices to pay for ownership in such companies, not to mention the occasional monitoring that goes into all these investment holdings.

While Americans technically benefit from the marvelous advances in technology over the past century, many have used that extra "free time" to grind it out at work in the hopes of moving up the corporate ladder and generating more income. And as long as they are keeping their major 3 expenses (housing, food, transportation) under control, I certainly don't blame them for doing so. After all, you can only cut expenses so much before there is nothing left that you can realistically cut.

While I'm not going to say income is completely infinite, just about all of us could be doing more to increase our income for the better of our financial futures if that is a priority for us in our own lives.

Learning new skills can increase one's value to society and if they would like a more hands-off approach to investing, index investing is absolutely, without a doubt, the best investment strategy for them to do.

If Warren Buffett advises most people to choose index investing, who the heck am I to disagree? In the words of famed economist Gene Fama Jr., "Your money is like a bar of soap. The more you handle it, the less you'll have." Index investing takes out all of the emotion that often goes into investing, which reduces the risk of stupid decisions that basically all of us as humans are susceptible to. Simplicity is incredibly powerful and the utility of index investing can't be overstated.

Third Reason: Perhaps They Equate GE Dividend Cuts With A Failure Of The Strategy

Yet another reason people may not choose DGI as their investing strategy is that maybe they hear horror stories of companies like GE and steer clear of DGI because of these stories. They fail to realize that a well-diversified DGI portfolio can withstand massive dividend cuts or even dividend suspensions.

Even if a company whose dividends account for 3% of an investor's income decides to completely suspend its dividend, the likely 5-7% dividend growth from the other 97% of dividend payers. So even in a worst-case scenario with a couple of outright dividend suspensions, an investor can roughly tread water excluding inflation. It's also important to note that these dividend cuts can often be predicted.

As was the case with GE, Simply Safe Dividends predicted GE's dividend cuts by issuing dividend safety scores of 18 and 10, before the cuts in 2017 and 2018. Simply Safe Dividends has predicted 98% of dividend cuts since its formation in 2015. While there are some exceptions like small caps which have more dynamic capital allocation policies and the Pacific Gas & Electric Company wildfire disaster that have led to dividend cuts and suspensions, these are abnormalities and are the exception to the rule that investing in excellent companies with strong fundamentals over the long-term works wonders when one is properly diversified.

Although sticking with only companies of dividend safety scores higher than 60 likely won't prevent an investor from experiencing a single dividend cut over the course of their investing lifetime, it will go a very long way in doing so. After all, the selection process is arguably just as important as the occasional monitoring of investments.

If you're looking for dividend ideas, you can even visit Seeking Alpha for great ideas (including mine, I mean I had to fit that in there). I generally only present actionable and timely ideas for companies with dividend safety scores of 60+, which indicates the dividend is safe or very safe for the foreseeable future.


While dividend growth investing is an incredible investment strategy for many, it simply won't be the appropriate strategy for everyone, and that's perfectly fine. The overall takeaway is that regardless of your investment strategy (be it growth investing, index investing, you name it), you absolutely MUST have the courage and conviction to stick with it through both good and bad times. You can certainly tweak or refine your strategy here and there, but abandoning a strategy every time you encounter adversity is a recipe for failure.


Are you a DGIer? Or are you an index fund investor? A growth investor? As always, thanks for reading and I look forward to replying to your comments.

Tuesday, May 21, 2019

Recent Purchases - Albemarle (ALB) and Eastman Chemical (EMN)

It's been about 4 months since I last made a splash and invested several hundred dollars at a time, so I figured there were decent opportunities that presented themselves recently and I would look to change my recent inactivity/small purchases by initiating positions in both ALB and EMN.

I won't go into too much detail for the rationale into these purchases as I already have on Seeking Alpha.

The main reason for acquiring shares in ALB is due to my optimism toward the future of lithium and its applications in our world, along with the fact ALB is the largest lithium producing company in the world and is trading at an appealing valuation. For more of an in-depth analysis on ALB, feel free to read my recent SA article on ALB. My $70.25 cost basis on each of my three shares represents a decent 2.09% entry yield that will likely grow in the high single digits to low double digits for years to come. This purchase added $4.41 in annual forward dividends.

The rationale for the EMN investment is similar to ALB in that EMN is among the largest chemical companies in a world that is dependent upon chemicals across a variety of industries and EMN is trading at an attractive valuation. My $73.25 cost basis on each of my three shares represents a 3.39% entry yield with high single digit dividend growth likely in the years ahead. This purchase added $7.44 in annual forward dividends.


These purchases added $11.85 to my forward annual dividends and represent an entry yield of 2.75% based on the $430.50 that I invested. They also brought my annual forward dividends to just under the $560 mark. This brings me one massive step closer to my goal of ending 2019 with annual forward dividends of $600+. In hindsight, I don't believe I set my annual forward dividend goal high enough and I believe a revision to $650 is justified here, given that there is still 7 months left in the year. This will likely be my last major purchase for several more months, so dividend reinvestment, dividend raises, and continued retirement contributions are expected to be the main drivers of my dividend growth until later this year.


What companies have you recently invested in? Are there any companies that have your attention currently? How much progress are you making toward your 2019 goals? Did you set them too low like I apparently have? As always, thanks for reading and I look forward to replying to your comments.

Tuesday, May 14, 2019

Why I Chose Dividend Growth Investing

While I'm a huge proponent of dividend growth investing, I don't believe I've ever taken the time to explain my the rationale for why I'm a dividend growth investor. Ever since I learned about the DGI movement 5+ years ago, I've become absolutely obsessed with it and the possibilities that it can bestow upon someone that diligently and consistently invests capital over time. Without further ado, here are five reasons I'm a dividend growth investor.

First Reason: I Love To Own Companies Whose Products I Know And Love

As I alluded to in my blog post discussing the tangibility aspect of dividends, this is one of the major selling points for dividend growth investing, in my opinion. One can drive into their town and be greeted with the likes of companies such as Royal Dutch Shell (RDS.B) gas stations, Exxon Mobil (XOM) gas stations, BP (BP) gas stations, a CVS Health (CVS) store, an AT&T (T) store, and within those stores products of companies such as PepsiCo (PEP) and Johnson & Johnson (JNJ).

The core of my portfolio is comprised of companies whose products and services I use on a constant basis. As a shareholder in PepsiCo, I find myself buying Aquafina water on a weekly basis while also eating Lay's chips on a weekly basis. Simiilarly, my phone's wireless service is through Cricket Wireless, which as you might guess, is a wholly owned subsidiary of AT&T. 

Graham of Reverse The Crush had an excellent piece on method investing a couple months back, and before that article, I didn't even know it but I was also somewhat of a method investor. 

It's really great when you're able to purchase pieces of ownership in a company whose products you believe in and use on a consistent basis, which is one of the major reasons I chose DGI.

Second Reason: I Can Focus On Cash Flow To Measure The Success Of My Portfolio

The benefit to DGI is that rather than focusing on the value of your investment portfolio, you're able to continually focus on the income the portfolio is producing for you. This reduces the chances of you acting on your emotions and doing something stupid that you shouldn't do.

I believe the mere fact that most investors dramatically underperform the broader market is because they let emotion influence their investment decisions. Part of that could be because rather than seeing the companies in their investment portfolio as excellent companies to own for the long-term, they choose to rent them and try to flip them for a profit.

I view stocks in a completely different manner. While net worth is a cool metric to gauge your progress, I prefer focusing on cash flow to measure the success of my portfolio. After all, portfolio value is entirely dependent upon the mere opinions of the market over the short-term. However, as the legendary Ben Graham put it, "In the short run, the market is a voting machine but in the long run, it is a weighing machine." I believe that while the market is inefficient over the short-term and medium term (and this presents opportunities for stock pickers that indexing simply doesn't), everything evens out eventually and stocks receive the valuation that they deserve over the long-term.

At the time of my writing this article, I am receiving $544.40 in annual dividend income from dozens of excellent companies simply for owning their shares. Given that I don't plan on selling these shares ever (unless fundamentals of the companies deteriorate), I really could care less about the value of my portfolio. I'd actually prefer it go down so I could double or triple down on the stocks that I own.

Third Reason: You Don't Have To Sell Your Portfolio Off Constantly To Raise Capital

I won't explain this point in too much detail as I believe the post by Jason Fieber over at Dividend Mantra titled "Why I Vastly Prefer Dividend Growth Investing to Index Investing" so eloquently proves this point.

As one may guess, yield matters and with the S&P 500 currently yielding a paltry 1.86%, this simply isn't enough for most investors to live off of unless they have over 50 times expenses saved up. 

Having to sell of wonderful assets at valuations that are dictated by the market because of the extremely low yield seems undesirable to me when an investor could pick companies that are more fairly priced with higher yields to support one's lifestyle without having to sell off assets just makes more sense to me.

Fourth Reason: DGI By Its Nature Invests In Only Quality Companies

While there are the inevitable General Electrics in every portfolio eventually, the companies an investor invests in as a dividend growth investor are by their very nature fantastic companies. The bedrock of most DGI portfolios in this community is built upon the Johnson & Johnsons, PepsiCos, and Realty Incomes of the world.

As one could imagine, it takes a fantastic company with a great business model to sustain dividend increases long enough to become a Dividend Champion or Aristocrat. 

Even if a company contributing 3% to an investor's overall dividend income completely suspends their dividend, the other 97% of an investor's dividend income will likely increase more than enough to make up for the elimination of the dividend by that one company in the portfolio. 

Fifth Reason: I Love The Process Of Investing

While DGI may not be for everyone due to the amount of work that goes into the selection process of stocks and monitoring them periodically, I love investing. I wouldn't have it any other way. While I also enjoy following my Milwaukee baseball and basketball, and Green Bay football, there's just something about investing that I enjoy more than my other hobbies and I can't really put it into words. 


Discussion: Do you DGI? If not, what investing strategy do you use? As always, thanks for reading and I look forward to replying to your comments.

Tuesday, May 7, 2019

April 2019 Dividend Income

May is already upon us, which is pretty difficult to believe. The time sure flies by between work, school, the blog, and writing for Seeking Alpha. Watching the Bucks make their deep playoff run also helps pass the time. In just three months, I'll be finished with my undergrad days and possibly most formal education aside from a certification or two. With that said, the passage of another month means it's time to examine what April provided to us in dividends.

$31.67 in total dividends, of which $31.42 were from Robinhood companies and the remaining $0.25 originated from M1 Finance.

Overall, I received $31.67 in total dividends during the month of April. Of this, $31.42 came from 10 companies in my Robinhood account while the remaining $0.25 came from 11 companies in my M1 Finance account.

This is an incredible 196.3% YOY growth rate compared to the $10.67 that I collected in April 2018. Moreover, it's a 22.7% quarterly growth rate compared to the $25.81 in dividends that I collected in January 2019.

Breaking it down, the $5.86 difference in April's dividend income versus that of January's dividend income include the following:

An additional $1.60 received from Altria (MO) due to my first dividends received on the two shares I purchased shortly after the ex-dividend date.

An additional $0.01 received from WP Carey (WPC) from the most recent dividend increase.

An additional $0.02 received from Realty Income (O) from their most recent dividend increase.

An additional $0.76 from GlaxoSmithKline (GSK) as their dividend fluctuates from quarter to quarter.

The notable subtraction from January to April is Pepsico (PEP) as their dividend schedule is a bit wacky with a dividend being paid in January and then March rather than April, and then June and September as expected. This made a $1.86 difference.

Notably, I received my first dividend from my 4 share position in Philip Morris International (PM) stock. This provided an additional $4.56 for me in dividends.

An additional $0.61 from Iron Mountain (IRM) as I received my first dividend on one of the shares I bought a couple months back.

An additional $0.13 from Genuine Parts Company (GPC) from their most recent dividend increase.

An additional $0.02 from PPL Corp (PPL) from their most recent dividend increase.

I also received an additional $0.01 from my M1 Finance account compared to January.


Overall, April marked my first $30+ month for the first month of the quarter. I also am continuing to make strides in increasing my income for the first month of the quarter with some anticipated purchases in the near future, which I will discuss in more detail soon. While my first month of the quarter income will never equal the other months, it would be ideal to come close to evening out my dividend income with the middle and end month of the quarters just for a steadier, less lumpy dividend income.


Did you reach any significant milestones in April? Did you add any new dividend payers like I did? As always, thanks for reading and I look forward to reading and replying to your comments.