Consolidating assets into my 401 (k)

Many of you are aware that I have been a big fan of tax-deferred investing over the past three – four years. After my awakening moment in late 2012/early 2013, I have been maxing out any tax-deferred account I could get my hands on. This includes my 401k, Roth IRA, SEP IRA and Health Savings Account (H S A). These moves have allowed me to:

1) Obtain substantial tax benefits upfront, allowing me to essentially purchase more stock for the same amount of money I would have invested through taxable accounts
2) The ability to compound capital tax-free for decades into the future
3) The ability to manage taxes in a way where tax expense is minimized when I do access that money
4) Obtain an employer match on funds contributed to a 401 (k) plan.

I have bought funds in my 401 (k) and HSA plans, and individual dividend stocks in my IRA, SEP IRA, Roth IRA accounts. As I max out those tax-deferred vehicles, I end up saving my whole salary, and essentially live off my dividend income and side income I generate. As a result, my tax deferred savings as a percentage of investable assets are increasing, and will be increasing over time.

Medtronic: High Dividend Growth Stock

Medtronic plc manufactures and sells device-based medical therapies worldwide.
Over the past week, dividend champion Medtronic raised its quarterly dividend by 13.10% to 43 cents/share.

This increase marked the 39th consecutive year of an increase in the dividend payment for Medtronic. Medtronic`s dividend per share has nearly quadrupled over the past decade and has grown at an 18 percent compounded annual growth rate over the past 39 years. The company has managed to boost dividends by 14.30%/year over the past decade.

Omar Ishrak, Medtronic chairman and chief executive officer had this to say about the most recent dividend increase:

"Today`s double-digit increase in our dividend reflects the confidence the board and our management team has in Medtronic`s ability to deliver consistent and sustainable growth, as well as to generate significant and increasingly accessible free cash flow. We are deploying considerable amounts of capital strategically, consistently, and with discipline to provide attractive returns for our shareholders. This includes our focus on delivering dependable, long-term growth in our dividend."

Time in the Market Trumps Timing the Market

Good morning,

As you are probably aware by now, British voters have decided to leave the EU. The stock markets around the world are falling; currencies are going all over the place. Everyone is scared.

As an individual investor however, I have realized that the world is uncertain. I cannot do much about the fact that things change over time. I cannot do much about what other people feel, or do. I can only control what I do, or how I approach a situation.

The fact remains that we need to save for retirement. Therefore, as an investor, I can continue do follow my plan and focus on things within my control. Those things include:

1.Saving money every month, because I live below my means
2.Investing that money in dividend stocks and my 401 (k)
3.Reinvesting dividends strategically
4.Allowing my investments to compound over long periods of time

I personally believe that time in the market beats timing the market. This is because I am letting the companies do the heavy lifting for me over time, and thus allowing the maximum amount of time to let the power of compounding do its magic.

You may like the following articles I had written before:

Time in the market is more important than timing the market

Time in the market is your greatest ally in investing

If I were already retired, I would continue sticking to my plan, and living off those dividends, interest and pension income I am generating.

On a side note, I posted an analysis of Diageo (DEO) last week.

Diageo (DEO) Dividend Stock Analysis

I would be interested in nibbling more if this stock goes below $100/share. It is also possible that today you may be able to see some bargains from companies which may be temporarily beaten down. Again, it is important to avoid extreme fear or extreme greed. Doing nothing today is perfectly fine. Nibbling and adding to some positions is probably fine. But if an investor panics and sells, chances are that they will regret this decision down the road.

I will continue following my plan. It is possible that the next several weeks will be volatile. But as a long-term accumulator of equities I welcome the opportunity to purchase future dividend income at a discount.



Thank you for reading!

Dividend Growth Investor

My personal journey with dividend stocks

This is a guest post by Financially Integrated who writes about dividend investing, wealth creation and escaping the rat race.

I have been attracted to dividend stocks for the better part of a decade. Over that time, my approach to investing in dividend stocks has changed somewhat, but the central theme remains high quality wide moat businesses that return a regular, growing stream of income.

I stumbled onto dividend stocks as a result of personal investment failures. My initial investing experiments in my early 20's were focused on chasing internet stocks with unsustainable business models. I had wrongly reasoned that they were a solid way to build quick wealth.

Unfortunately, what soon became apparent to me was that these were often businesses with poor economics and no sustainable competitive advantages. It cost me valuable time and money to ultimately figure this out, as my losses in these positions mounted.

I soon embraced Warren Buffet's Rule No 1, which is to never lose money. I realized that the best way to do this was to invest in businesses that have sound defensive positions and which generate significant cash flow. I also noticed that many of these high quality businesses happen to return significant cash flow back to shareholders in the form of dividends.

How to get dividend investment ideas

The daily life of dividend growth investor

Successful investors buy stock in companies which are within their circle of competence. This concept has been ingrained in the minds of value investors by Ben Graham and his most famous student Warren Buffett. Investors should buy only stocks they are intimately familiar with, either because they have extensive work experience with the company in some capacity, or because they use its products and services. "Buy what you know" is also a concept that legendary fund manager Peter Lynch has discussed in his book "One Up On Wall Street"

Some of the dividend paying companies in my portfolio are corporations, whose products I and millions of other consumers worldwide use on a daily basis. Here is a summary of how my daily routine provides me with dividend stock ideas for further research. The narrative is rather simplistic, but the point is that we are surrounded by investment ideas everywhere. Only after training ourselves to spot these opportunities, will investors be able to capitalize on them.

Diageo (DEO) Dividend Stock Analysis

Diageo plc (DEO) produces, distills, brews, bottles, packages, and distributes spirits, beer, wine, and ready to drink beverages. This international dividend company has increased dividends for 18 years in a row.

The company’s latest dividend increase was announced in January 2016 when the Board of Directors approved an 5.10% increase in the interim dividend to 22.60 pence /share. The company’s peer group includes Brown-Forman (BF.B), Beam (BEAM), and Constellation Brands (STZ).

Over the past decade this dividend growth stock has delivered an annualized total return of 7.70% to its US ADR shareholders.

The company has managed to deliver an 7.60% average increase in annual EPS in British Pounds since 2006. Diageo is expected to earn 88.71p per share in 2016 and 95.74p per share in 2017. In comparison, the company earned the equivalent of 94.60p/share in 2015. Each American Depository Receipt (ADR) that you can purchase on the NYSE is equivalent to four shares that are traded on the London Stock Exchange. If we convert the numbers to US Dollars using the exchange rate on 06/17/2016, we have expected earnings of $5.10 for 2016 and $5.50/share in 2017. The earnings for 2015 are equivalent to $5.94/share, using the exchange rate on June 30, 2015. The British Pound has depreciated by 9.40% since June 30, 2015. Using today’s rate, those same earnings are worth $5.43.

Key lessons I learned from my investment in Pfizer

This is a guest post written by Todd Wenning, CFA, who is an equity research analyst. Todd is the author of Keeping Your Dividend  Edge: Strategies for Growing & Protecting Your Dividends. The opinions expressed here and in the book are those of the author and not those of his employer.

In July 2008, just as the financial crisis was picking up steam, I bought some shares of the pharmaceutical giant, Pfizer. At the time, Pfizer had a trailing dividend yield of 6.9%. I thought this was a slam dunk investment. After all, Pfizer had increased its dividend for over 40 consecutive years, had recently boosted its payout by 10%, had a AAA-rated balance sheet, and was in a defensive industry that should, it seemed, hold up relatively well in a poor economy.[i] Even with Pfizer facing generic competition and slowing sales, declining dividend coverage, and a well-above average dividend yield, it seemed Pfizer was well-positioned to withstand some short term turbulence.

	2008	2007	2006	2005
Revenue (million)	$48,296	$48,418	$48,371	$51,298
Dividends per Share	$1.28	$1.16	$0.96	$0.76
Free cash flow cover	2.04	1.41	0.80	1.56
Earnings cover	0.94	1.01	2.77	1.43

Source: Company filings, Author calculations.

A few months later in January 2009, I was having lunch with a colleague and we began discussing the sweeping dividend cuts that were occurring at the time. “I’m shocked at the types of companies that are cutting their payouts,” I remember him saying, “General Electric, Dow Chemical…and today was Pfizer.”

How to select winning retail stocks

While I am a buy and hold passive investor, I also try to regularly monitor the companies I own. I usually review the investments I have made once every 12 – 18 months. In addition to that, I often review past decisions I have made, in an effort to improve my investing over time. I also monitor my shareholdings, when they announce a dividend raise.

A couple of weeks ago, Lowe’s (LOW) raised its quarterly dividend for 55th consecutive year in a row. The company raised its quarterly dividend by 25%, to 35 cents/share. Lowe’s Companies, Inc. (LOW) operates as a home improvement retailer. It offers products for home maintenance, repair, remodeling, and decorating.

The latest increase extends the company’s dividend streak to 55 consecutive years. There are only 18 companies in the world, which have managed to raise dividends for over 50 years in a row. I coined the term "Dividend King" in 2010 to describe companies which have managed to grow dividends for at least 50 years in a row. This is an impressive track record, which is something that smart investors study.

Somehow, I have managed to make a lot of money on Lowe’s – the stock has almost quadrupled from my purchases at the beginning of the decade. I have had a lot of success in other retail stocks, such as Family Dollar (FDO), Casey’s (CASY), Walgreens (WBA). Other winning retail investments for dividend investors in the past have been Wal-Mart (WMT) and Target (TGT) and Home Depot (HD). I would discuss a few retail investments I believe could do well over time.

It is possible that I have been lucky beneficiary of the long bull market we have had since the Global Financial Crisis. But I am surprised that I have been making money off retails stocks, despite the common consensus that retailing is a difficult business. After researching winning retail investments I had made I uncovered a few common traits behind success. I believe that those lessons could be helpful to readers, which is the reason I am sharing them with you.

Five Dividend Growth Stocks Showering Shareholders With Cash

One way to monitor dividend growth investments is by checking the weekly list of dividend increases. I also find helpful to monitor the annual raises for dividend growth stocks that are on my list for further research. It is great to see companies I have bought reward me with rising dividend income many years after I had made the decision to invest in the first place. With dividend growth investing, you do all the work in stock selection upfront. After that, a well-diversified portfolio should shower its owner with a growing stream of dividend income for decades.

Over the past week, several companies raised their quarterly dividends. The companies include:

Target Corporation (TGT) operates as a general merchandise retailer. The company boosted its quarterly dividend by 7.10% to 60 cents/share. This dividend champion has raised dividends for 49 years in a row. The ten year dividend growth rate is 19.60%/year. Target trades at 13.20 times forward earnings and yields 3.50%. Check my analysis of Target for more details.

UnitedHealth Group Incorporated (UNH) operates as a diversified health and well-being company in the United States. The company boosted its quarterly dividend by 25% to 60 cents/share. This dividend stock has raised dividends for 7 years in a row. The ten year dividend growth rate is 62.10%/year. Such a high rate of dividend growth is normal for companies in the first phase. UnitedHealth Group trades at 17.60 times forward earnings and yields 1.80%. Check my analysis of UnitedHealth for more details. This company has a lot of promise for patient long-term investors.

Financial independence by collecting underpants? Are you serious?

This is a guest post from Tawcan, who writes about dividend investing and financial independence on his blog at tawcan.com

When it comes to the concept of early retirement, it is not a strange or unfamiliar idea for me. My dad semi-retired in his mid-40’s and fully retired in his early 50’s; my cousin retired before he turned 40. Having family members that retired early meant I knew early retirement is indeed possible; I just need to have a plan and put my mind to it.

Growing up, my parents have always taught me to be frugal, save money, so I can eventually retire early one day.

But like the underpants gnomes in South Park, I had an incomplete plan. You see, the gnomes had the following business plan:

1. Collect Underpants
2. ???
3. Profit
My early retirement plan was like below:
1. Save money
2. ???
3. Early retirement

I had no idea what it takes to go from step 1 to step 3. Step 2 was a complete mystery to me. Although my dad and cousin have gone through the three steps, I was too ignorant to ask them for advice. I wanted to figure this out for myself.

It wasn’t until I was in my late 20’s that I began to figure it out with my wife (whom I’ll call Mrs. T from now on). In late 2011 we had our financial epiphany in which we determined what we needed to do in step 2 to achieve early retirement.

The magic in step 2 is of course creating passive income… or in our case, dividend income! This is why I provide dividend income updates on my blog every month.

Before we get into more details about our dividend income, let’s step back a bit.

PepsiCo (PEP) is a dividend machine to hold forever

PepsiCo, Inc. (NYSE:PEP) manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. The company operates in four divisions: PepsiCo Americas Foods (PAF), PepsiCo Americas Beverages (PAB), PepsiCo Europe, and PepsiCo Asia, Middle East and Africa (AMEA). The company is a dividend champion, which has increased distributions for 44 years in a row.

The most recent dividend increase was in February 2016, when the Board of Directors approved a 7.10% increase in the quarterly dividend to 75.25 cents/share. PepsiCo's largest competitors include Coca Cola (NYSE:KO) and Dr Pepper Snapple Group (NYSE:DPS).

Over the past decade, this dividend growth stock has delivered an annualized total return of 8.70% to its shareholders.

The worst mutual fund in history

Successful investing is simple. You live within your means, save money regularly and invest it. You buy a collection of quality businesses and hold for decades. You know that time in the market trumps timing the market. You ensure a slow and steady accumulation of net worth and income to live off in retirement, by focusing on things you can control such as:

- The amount you save
- The type of investments you make
- The time period you hold onto them
- The investment costs you pay ( taxes, commissions, advisory fees)

In my review of the Corporate Leaders Trust, we saw how a fairly static portfolio of blue chip companies performed miracles to shareholders over the long run ( even beating the S&P 500 over a period of 80 years).  I am personally mirroring my investment strategy to include a static portfolio o blue chip stocks, with limited turnover.

In order to prove my point that investment turnover, high costs are dangerous to your wealth building, I am going to profile an investment that did terribly over the long run.

In my reviews of investment strategies, I stumbled upon the worst mutual fund in history. It was called Ameritor Security Trust. The fund was started in 1961, and was closed down in 2011. A $10,000 investment in the fund at the end of 1961, with dividends reinvested, turned into $1,325 by the time the fund was liquidated in the end of 2011. A regular investment compounds assets and dividends over time. This investment seemed to have compounded error, after error, over a period of 50 years.

Source: Morningstar

Stress Testing Your Dividend Portfolio

As I explained in my article on my dividend retirement plan, I invest in blue chip dividend stocks which can afford increase dividends for decades. Once the dividend income from my portfolio exceeds my expenses I would consider myself financially independent. However, I realize that there are many risks I need to minimize, in order to be able to enjoy the continued stream of rising dividend payments.

The types of stocks I purchase tend to be companies with wide moats or strong competitive advantages which have pricing power and customer loyalty. These companies have been able to expand sales and profits and managed to pay a higher dividend in the process every year. These companies are attractively priced at the time of purchase and have sustainable dividend payments. The fact that these companies have paid rising distributions for years if not decades and the fact that they offer above average yields is just icing on the cake. The types of companies I invest in include Johnson & Johnson (JNJ), Wal Mart Stores (WMT), Exxon Mobil (XOM). There are several risks however, which would be dividend retirees need to consider.

One risk which is seldom addressed by most financial advisors is broker failure. Most clients at SIPC insured brokers will be able to get back up to $500,000 in assets or $250,000 in cash in case their broker fails. If this broker had no internal controls to keep customer funds segregated, investors which hold more than the SIPC insured level risk receiving pennies on the dollar in assets that were rightfully theirs. As a dividend investor, I would hate to lose even a portion of my income stream just because my broker fails. As a result, my dividend growth plan made certain that I spread my assets across several brokerages and that I do not commit more than $100,000 per brokerage. I plan on putting a smaller amount in comparison to the SIPC limit because I expect my stocks to deliver solid capital appreciation over the next few decades. In addition, it is much easier to spread my funds across brokerages $100,000 at a time, than $500,000 at a time.

Johnson & Johnson: My Favorite Dividend King for reliable dividend growth and income

Johnson & Johnson (NYSE:JNJ), together with its subsidiaries, is engaged in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices & Diagnostics. This dividend king has paid dividends since 1944 and has managed to increase them for 54 years in a row. Dividend increases have been like clockwork every year for decades.

The company's latest dividend increase was announced in April 2016 when the Board of Directors approved a 6.70% increase in the quarterly dividend to 80 cents /share. The company's peer group includes Novartis (NYSE:NVS), Pfizer (NYSE:PFE) and Roche Holdings (RHHBY).

Over the past decade this dividend growth stock has delivered an annualized total return of 9.70% to its shareholders.

The company has managed to deliver 4.70% average increase in annual EPS over the past decade, which was slower than the rate of dividend growth. Johnson & Johnson is expected to earn $6.59 per share in 2016 and $7 per share in 2017. In comparison, the company earned $5.48/share in 2015.