Dividend Growth Stocks I Purchased in July

One of my favorite quotes from Warren Buffett deals with an issue that many dividend investors face from time to time. The quote is” If you like a stock at $50, you would love it at $30”

As usual this quote is jam-packed with a lot of insight. It makes perfect sense that a long-term investor should be excited to purchase ownership stakes in real businesses at cheaper valuations. If you have analyzed a company, and you like the business, and the economics of the business are not materially impaired, the investor should be excited that prices are lower. For us dividend growth investors, it is always better when we can obtain dividend income at a discount. Who doesn’t like getting more bang (dividend income) for their buck?

In the month of July, I managed to add to my stakes in the following companies listed below. I didn’t get to buy all companies I was eyeing at the beginning of the month, since unfortunately I only have a limited amount of capital to deploy each month. I also decided to take advantage of the declines in two transportation companies, which have been exhibiting weakness recently.

Dividend Growth Stocks Protect Investors from Inflation

One of the biggest risks that investors in retirement face is inflation. There is a general trend of rising prices over time, which decreases the purchasing power of cash today, as prices on many items slowly increase. A dollar today is going to have a higher purchasing power than a dollar received in 2025.

Dividend growth stocks are the ideal venue for investors in retirement. This is because the dividend income usually rises faster than the rate of inflation, in diversified portfolios of dividend paying securities. For example, historically prices have risen by an average of 3.90% per year between 1960 and 2014. However, annual dividends on the S&P 500 index have increased by 5.60%/year between 1960 and 2014. I have taken the S&P 500 as a proxy for overall dividend growth that could be expected from a diversified portfolio of US stocks.

How I manage my dividend portfolio

I have received quite a few emails recently, asking me how I manage my dividend portfolio. In general, I focus on several things that I believe are important in managing a dividend portfolio.

1) Researching and analyzing companies

I try to make sure I have analyzed each company I own at least once every 12 – 18 months. This includes the analysis I post on this site. I do not post each stock analysis, since many of the companies I own are not attractive for a purchase. Hence I don’t post as many stock analyses as I actually do.

I obtain my information from multiple sources, including annual reports, financial websites, press releases, company presentations etc. I also have a spreadsheet, where I basically update the annual numbers I find helpful once per year for each company I am monitoring.

ACE Limited (ACE) Dividend Stock Analysis

ACE Limited (ACE), through its subsidiaries, provides a range of property and casualty insurance and reinsurance products worldwide. It operates through five segments: North American P&C, North American Agriculture, Insurance, Overseas General, Global Reinsurance and Life Insurance. ACE Limited is a dividend achiever, which has raised dividends for 23 years in a row.

The most recent dividend increase was in May 2015, when the Board of Directors approved a 3.10% increase in the quarterly dividend to 67 cents/share. After reviewing the past history of dividend increases however, I wouldn’t be surprised if there isn’t another dividend increase this year.

The company’s largest competitors include American International Group (AIG), Travelers (TRV), and Berkshire Hathaway (BRK.B)

Sector Allocations for Dividend Growth Investors

I am a fan of diversification as a tool to reduce risk. I diversify by buying at least 30 – 40 securities, representative of as many sectors as possible. As I mentioned in an article from last year on diversification, there are 10 11 sectors:

There are ten major sectors as identified by Standard and Poor’s. Those include:

Information Technology
Financials (used to include REITs, now they are their own sector)
Health Care
Consumer Discretionary
Energy
Industrials
Consumer Staples
Materials
Utilities
Telecommunication Services
Real Estate Investment Trusts (REITs)

Am I a successful dividend investor?

How do you define success? To me, success is the freedom to do my own thing, and the ability to reach my goals. Given the fact that I am a few years away from potentially reaching out my dividend goals, I would consider myself a successful dividend investor in progress. So how did I get there? The answers are simple – I developed my own approach, stuck to it through thick and thin, kept learning more about investing and kept my emotions at bay. At the same time I ignored the random noise that comes from individuals who do not know what they are talking about, yet scream the loudest.

I kept buying dividend growth stocks in 2008 and 2009, when everyone else tried to make me scared about investing. The economy was supposed to go in the tank, and the Great Depression was coming. Based on my studies of history, the Great Depression was tone of the best times to buy equities. Hence, I continued putting my hard earned cash into dividend paying stocks.

Six Dividend Growth Stocks That Keep Delivering For Their Shareholders

Dividend growth stocks are the gift that keeps on giving. I like the fact that most of the work in selecting good dividend growth stocks is upfront in analyzing those investments. What follows next is a lifetime of dividend payments, distributed every quarter, which grow over time. My goal is to assemble enough dividend growth stocks in my portfolio, in order to start generating income to pay for my retirement. My dividend portfolio is a silent worker in my household, who works 24/7 for me, and who dutifully shares all of their income with me. This income is completely passive in nature, and it does not require me to wake up at 6 am every day, shuffle TPS reports all day long, and make sure I do not forget to put a coversheet on those same reports.

I like watching dividend growth investing at work – this is when the companies I own keep rewarding me with a higher dividend check for a decision I made years ago. There were several notable companies which raised their dividends to shareholders. The list includes:

McDonald's (MCD) Dividend Stock Analysis 2015

McDonald's Corporation (NYSE:MCD) franchises and operates McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. As of December 31, 2014, it operated 36,258 restaurants, including 29,544 franchised and 6,714 company-operated restaurants. McDonald's is a dividend champion that has increased distributions for 39 years in a row. McDonald's is one of the 60 companies which could be purchased commission-free using Loyal3, with as little as $10.

The most recent dividend increase was in September 2014, when the Board of Directors approved a 4.90% increase in the quarterly dividend to 85 cents/share. The largest competitors for McDonald's include Restaurant Brands International (QSR), YUM! Brands (NYSE:YUM) and Starbucks (NASDAQ:SBUX).

The biggest investing sin exposed - part II

In part one, I started talking about the biggest investing sin exposed. This is part two of the series.

My sample of three is not representative at all. These are individuals I have found through my browsing of the internet. If these individuals stick to their new found strategy for the next 20 - 30 years, I believe they will have high odds of succeeding. If they switch strategies however, I would be worried for them.

JLCollins – After reading his investment history, it looks like he jumped from strategy to strategy, selling everything in 1987, getting back in 1989, chasing hot funds like CGM Focus, then admits to chasing dividend stocks. I was surprised how much turnover he had in a single year, when he essentially sold 25% of his portfolio that was in REITs and bought a stock index fund with the proceeds. He is mostly in US stocks, with approximately 20% in fixed income. I think he invested without a clear strategy between 1974 and 2011, before embracing indexing. Since he has only used indexing during a bull market, I wonder whether he will make a switch in strategies again.

The Biggest Investing Sin Exposed

One of the biggest sins in investing, is investing money without a clear plan or strategy to accomplish specific goals. This investing sin causes investors to chase unrealistic returns, and to abandon one strategy for the next when things get tough. A common trait of successful investors is identifying their investment objectives, and then devising a plan to accomplish those. The important part after that is patiently sticking to your plan even when things get tough. It is unrealistic to assume that any real strategy can deliver results that are always better than everyone elses, and can also generate consistent profits all the time. Investors who fail to understand this, end up abandoning strategies at their temporarily weak point, and then wasting precious years that could have caused the capital to compound and accomplish their goals.

I believe that in order to be successful in investing, one needs to select a strategy, and stick to it for decades. This allows the power of compounding to do its magic. If you switch investing methods/styles every few years, because you chase what is hot, you are not going to let compounding do the heavy lifting for you. In addition, if you have high portfolio turnover, your compounding will be negatively affected, because you will be paying more in commissions, taxes and fees.

Six Confident Dividend Stocks Giving Shareholders a Raise

I love it when the stock market goes on sale, like it has been so far in the past two - three weeks. For aspiring dividend growth investors, this means that we are purchasing future income at discounted prices. When I acquire ownership stakes at discounted prices in quality companies like the ones I discussed last week, I get closer and closer to my goal of reaching my dividend crossover point sooner.

I also like it when companies I purchased long time ago keep rewarding me with a higher dividend payment, year after year. It is amazing that just because I have had the foresight to identify and purchase a quality dividend growth stock, I end up receiving a passive income stream, which grows above the rate of inflation.

In the past week, there were several companies that hiked dividends to their loyal shareholders. I isolated several of those which had raised distributions for at least five years in a row to present here:

Do I need an emergency fund?

Conventional wisdom states that individuals should have an emergency fund covering six to twelve times monthly expenses. This means that if your monthly expenses are $2000/month, you need to have $12,000 to $24,000 available in your checking/savings account. If you have a sudden one-time expense, you can use the funds from that emergency fund. After that, you can replenish it with monthly income. If you get fired from your job, you know that you will have some 6 – 12 month breathing room, before you land your next job.

I used to subscribe to the idea of the emergency fund. In my article on margin of safety in financial independence I discussed that I keep 3 – 6 months of living expenses. However, I am no longer keeping massive amounts of cash. I would say that I probably have cash covering one or two months expenses at most. Of course, there are a few reasons for that.

The first reason is the fact that I have a decent nest egg saved up over the past 8 years.

Dividend Growth Investing – a great strategy for long term investors

I have been a dividend growth investor for over 7-8 years now. The reason why I have somewhere between 85% - 90% of my networth in dividend growth stocks is because of several factors. I have listed those factors below.

1) Dividend growth investing is a simple strategy that is easy to understand by almost everyone.

Essentially I allocate my capital into businesses that send me a portion of their growing profits every quarter. I can then use those dividend checks any way I want to, and they cannot be taken away from me. My investments are working for me around the globe, 24 hours a day, 7 days a week, 365 days an year, finding new ways to increase revenues, profits and dividends. In the case of a company like PepsiCo (PEP), it literally means selling hundreds of snacks and beverage products around the world to hungry and thirsty consumers. I view the dividends I receive from those companies as purely passive income, for which I did not have to work an insane amount of time each week for. The cash is stable and growing, and makes budgeting in retirement a breeze, since I won’t have to rely on complicated mathematical formulas that traditional asset depletion strategies require. The investments are those large blue chip companies whose products I use on a repeated basis, and whose business I understand. As these companies earn more over time, they reward me with dividend raises, which have always been in excess of my salary raises. It is as if my household has an extra worker, silently earning income for me, and sharing all of it with me.

Dividend Companies I am Considering this Month

The goal of every dividend investor is to generate dividend income that is larger than their annual expenses. This coveted goal is called the dividend crossover point. Regular readers know that my goal is to reach the dividend crossover point somewhere around 2018. I am on track to achieve that, because I put money to work every month, and have been doing that after starting from scratch more than 8 years ago. When you have a goal, and a plan to achieve that goal, the important thing is to keep working towards that goal. I do this by constantly searching for attractively valued companies, which also have good prospects to grow dividend income in the future.

In the article below, I have highlighted a few companies, which I am considering adding to. I had included Chubb (CB) when I originally started thinking about what purchases I am considering for July. However, insurer ACE Limited (ACE) decided to acquire Chubb last week, which derailed those plans. That being said, I will add ACE to my list for further review, and will post an analysis shortly. As I have said before, quality dividend growth stocks are more likely to be acquired by larger competitors.

Happy Financial Independence Day

Before I begin my message, I wanted to wish all my readers a Happy 4th of July. And I wanted to thank all of those military members for keeping us safe and able to enjoy our independence and freedom.

For the past seven and a half years, myself and my readers have been on a quest to achieve financial freedom with dividend growth stocks. So I wanted to take some time and reflect the accomplishments that we have all achieved in the past 7 – 8 years.

Financial independence is the point at which the passive income exceeds expenses. People who achieve financial independence have the freedom to live their lives true to themselves. Most importantly, financially independent people have options in life. These options could include:

1) Working in a field they are passionate about, but which doesn’t pay much
2) Caring for a child or a relative
3) Engaging in non-profit work, volunteering or charity
4) Writing a book
5) Traveling the world
6) Fill in the blanks (this is your passion so you have to decide what you want to do)

The most important rule about dividend investing

As a dividend investor, my main goal is to attain financial independence when dividend income exceeds expenses by an adequate margin of safety. I am going to achieve that by creating a diversified portfolio of attractive dividend paying businesses that are purchased at attractive valuations, reinvest dividends and new capital, and then one day live off these dividends.

Unfortunately, it takes time to accumulate a sufficient stream of dividends, that would allow you to be financially independent. In my case, it would be about 10 years of meticulous saving and investing, through thick and thin when I achieve my target dividend income around the end of 2018. However, the preceding five to ten years were equally important, because I was able to avoid debt whatsoever, which many of my peers were burdening themselves with. It takes and will take a lot of dedication and persistence to eventually reach my dividend crossover point.

Because the fruits of dividend investing take time to grow to a meaningful amount, it can be difficult to stay motivated throughout your dividend investing journey. The human mind can play tricks on you, and you think about shortcuts on how to get there faster. This is a dangerous behavior, which can detract you from your goals. In other words, dividend investing is a great strategy for those who stick to it. But for those who don’t, it is quite possible that you won’t be able to reach your goals. Therefore, I believe that if you avoid big losses, your odds of success increase exponentially.