Dividend Income Update - May 2011

Another month has come and gone and it's time to report on dividend income. As my dividend income grows, I get more and more excited about what the future holds for me. Every time I see the month-end statement on dividends received I just smile and think "THIS IS WORKING".

May 2011 Dividends Received

• ABT - $34.08
• PG - $26.78
• TEF - $34.38

Total dividends received for the month of May: $95.24.

Another solid month, and the figures are growing with each publication. The dividend I received from Telefonica could have been double, but I did not make my second investment with the company in time. You win some, you lose some. I think I got a good value on both purchases. The dividend published here also takes into account the taxes taken out from the Spanish government. That will be reclaimed when I do my taxes next spring. The total dividend received from Telefonica was actually $42.44, but I'm not including the remainder due to the fact that I can't reinvest it right now. Different investors will track this differently. I like being conservative. If I would have included the full amount I would have finally cracked the triple-digit dividend mark, but that's ok.

I'm still behind my goal of producing $1,200 in total dividends for the year of 2011. I have produced a total of $318.65 in dividends for the year so far. Every month is a chance to gain ground. I'm excited.

I have updated my dividend income page to reflect May's dividends.

Thanks for reading.

Weekend Reading - May 29, 2011

Here are some excellent articles from the past week from fellow dividend growth investors.

The Best Website for Your Financial Plan
Dividend Partisan discusses Mint.com and why he's a fan of the budgeting website. I also use Mint, and will probably discuss this at some point in the future. I recommend it fully.

How to live off dividends in retirement
Dividend Growth Investor shows how he plans to live off dividends in retirement and also discusses how he plans to introduce some fixed-income before retirement. Right now, I'm 100% equities, but may also introduce fixed-income into my portfolio at some point in the future.

15 Dividend Stocks Building Wealth With Dividend Increases
D4L presents a list of 15 dividend stocks that have recently increased their dividends. A fine list, and I wish I would have bought some FLO before their recent run-up. Too expensive for my tastes now.

Staples Inc. Value in Office Supplies?
Dividend Ninja asks the question is Staples a value play or value trap? Interesting information on Staples, and I didn't know they had such a leg-up on their competition. They actually seem to be dominating the office supplies industry, and it's something to keep an eye on.

Dividend Yield: Cincinnati Financial Corp. (CINF)
The Passive Income Earner analyzes Cincinnati Financial Corp. It's a regional insurer, and while the yield is strong, the growth has been lacking over the last few years. I currently invest in another regional insurer (HGIC), but may give CINF a look in the future if things start to turn around for them.

April 2011 Dividend Income Update
My Own Advisor gives us an update on his dividend income. The numbers are getting bigger for him, and it's always inspiring to see financial progress.

6 Significant Dividend Yields in the Health Care Industry
Dividend Monk lists some pretty hefty dividend yields in the health care industry. Even with the recent run-up of some health care stocks, there are still some decent buys in the mix. He previously analyzed Novartis, and this one seems like a pretty safe pick for some international flavor.

Thanks for reading.

Goals Page Updated

May is ending and we are fast approaching the half-way mark through 2011. Where has the time gone?! The year is flying by and I thought this would be a good time to review the goals I set forth for myself at the beginning of 2011. I think when you are setting goals, it's important to make the goals attainable, but challenging enough to push yourself. I think my goals meet that criteria.

I have updated my goals page to reflect the recent change in my lifestyle. I sold my car earlier this week and am now using a steady dose of public transportation to get around town. So far, so good. One of my goals was to sell and/or get rid of my car by the end of the year. I have reached that goal, and reached it much faster than I had assumed I would. I enjoy pushing myself.

My other goal was to reduce expenses by $150 per month. I have effectively reached that goal by getting rid of the car. As I mentioned before, my monthly costs on the vehicle were over $450 on average, not including repairs, possible speeding tickets, yearly registration and other non-recurring costs.

Although I didn't mention it in my previous article, I would need $180,000 in equities invested at a 3% entry yield to afford my monthly auto costs at the current rate.

That is an amazing figure, when you look at it that way. By sacrificing personal transportation and taking the bus I have allowed myself the ability to become financially independent on a much smaller portfolio. This just goes to show you why living frugally can be just as important as saving massive amounts of money and achieving spectacular returns on investments. I could work an extra ten years to save that $180,000, or I could simply decide to use the bus. I chose the latter.

My mantra is to build a portfolio of dividend growth stocks to retire young, live frugally and with purpose. I believe that shedding the auto costs and therefore needing much less money to retire on is aligned well with my beliefs.

Looking forward, I still have a goal to achieve a 50% savings rate of net income and a goal to receive $1,200 in total dividends for the year of 2011. I'm on pace for the savings rate, but May's numbers are going to put a dent in my progress due to paying off my car. I'm pretty far off the goal of receiving $1,200 in total dividends for the year, but I have time to catch up. If I fail to make this goal, then so be it. I'll be happy to attain three of the four goals, especially considering how challenging they were!

Overall, I'm having fun with these goals. They are pushing me to heights I never thought I'd go. I encourage everyone out there to write down your goals, review them quarterly or monthly, and attack them with gusto. Make them challenging. Make them fun! Most of all, make them attainable with effort. If you fail to plan, you plan to fail. Remember to have a road map of where you're going, and a plan to execute the trip.

Thanks for reading.

My New Ride!

Well, the time has come. I've always been the type to "walk the walk" once I talk the talk. I've written a number of times that I'd like to eventually live car-free. Well, that eventuality has come sooner than later. My old ride was this:

That's a 2006 base model Pontiac G6. Not the most glamorous chariot in the world, but it got me from point A to point B for the last three years fairly reliably. But the expenses have been mounting, and the monthly costs have become too much to bear in my new found frugal living doctrine. Check out my new ride:

I purchased this bike over the weekend. I have been cruising craigslist for the last couple weeks, but came up empty, which is surprising considering the efficiency of craigslist. I paid $109 for the new bike, which I consider a good value if it lasts me just a few years. I think it'll last longer, however. Overall, it's a relatively cheap price to pay to rid myself of the $450+ monthly burden of my vehicle. It's a nice little beach cruiser bicycle. It's not a road bike, or a durable mountain bike but my ride will be relatively short and I value comfort over speed.

This is a big step in my life, and I'm happy to share my journey with all my readers. I hope that this blog is inspiring, and although not everyone will follow in my footsteps due to my "extreme" ways, I hope it opens your mind up, nonetheless.

I was offered to sell my vehicle to Carmax, which has a car-buying store just north of me. The appraisal on my vehicle was about $600 short of my pay-off on the loan. That will take just over one month to make up and break even. After that, it's all profit. I'm extremely excited. The car selling process went extremely easy. The appraisal took about half an hour. The actual process of them buying my car took about 45 minutes. I did try selling my car on the private market, but got no bites. I suppose the economy and the fact that Pontiac is no longer made may have had something to do with it. All in all, I think I got a fair price for my car. It had 80,000 miles and it had some repairs coming up. I received $5,500 for it. One article that put my decision to sell over the top was this recent article describing the recent run-up in used car values. When I seen the same sentiment expressed on ABC news, I figured now was the time to pull the trigger.

I have a seven mile journey to work. I'll have to wake up a little earlier now, as I'll ride my bike to the bus stop, chain my bike there and ride the bus in to work. The bus stop is approximately 1.6 miles away from my apartment. The rest of the journey to work will be completed by bus. A one-way bus ticket is 75 cents. This is going to save me a lot of money. I've calculated a savings of approximately $11,000 over the next two years, which is how long I had left on my car loan. With that savings I'll contribute most of it to my dividend growth stock portfolio through monthly cost-averaging.

Overall, I don't think this is going to be much of a sacrifice. Obviously, in many of the big cities here in the U.S. many people live car-free every day. In New York City and Chicago for instance, it's actually a disadvantage to own a vehicle a lot of the time considering traffic, costs and parking inefficiencies. I live in a very car-centric southwestern Florida city, so I'll obviously be a little against the grain here, but I don't mind being a contrarian. In order to reach my goal of being financially independent by the time I turn 40, I'm going to have to take extreme measures. This is one of them.

Only time will tell how this works out for me. Maybe this works out wonderfully and I'll never own a car again. Perhaps this fails epically and miserably. I'm anxious and excited to find out.

Wish me luck!

Thanks for reading.

Weekend Reading - May 22, 2011

Here are some excellent articles from the past week from fellow dividend growth investors.

Chevron Analysis - Low p/e, Should You Buy?
The Dividend Pig analyzes Chevron and puts forth a case of diluted interest in energy companies as whole. I am inclined to agree mostly. Energy is getting harder and more expensive to find, while national governments want to keep a tight lid on their supplies. Understandable. Is this a sunset industry? Only time will tell.

New Page! "Portfolio Progress"
Dividend Partisan adds a page to the blog titled "Portfolio Progress". It will track his dividend income over time, and this provides inspiration and a nice tracking tool.

Are dividend stocks a separate asset class?
Dividend Growth Investor provides reasons why dividend stocks should not be considered a separate asset class. I completely concur with his opinion here.

Derek Foster Interview - Part 2
Dividend Ninja interviews Derek Foster in 2 parts. You can find the first part here. It's a fascinating read, and although many American investors may not know of Derek Foster, he is one of the first people I read about and thought "if he can do it, so can I". I can truly say that Derek Foster has been an inspiration for me. I am basically trying to copy his success, but I'm starting later and looking to end later (40 vs 34 years old).

Abbott Laboratories (ABT) Dividend Stock Analysis
D4L analyzes Abbott Laboratories, one of my favorite companies and one of my largest holdings as of right now. I concur with his fair value price, and think it's still a fantastic buy, even with the run-up it's had. That just shows how fantastic it was at the mid-$40's. His analysis is wonderful, and he obviously takes a great deal of time with the charts. Take a look.

Why your financial resolutions might have failed
My Own Advisor lays out reasons that any new year resolution goals you may have had failed. It's always important with any goal to make sure it's realistic and reasonable, stay positive and share with the world. I have followed his advice with my goals.

Novartis (NVS) Dividend Stock Analysis
Dividend Monk provides a crystal clear and extremely thorough analysis, as always. This particular stock seems like a nice value right now, but be aware of the tax consequences.

The three biggest challenges following extreme early retirement
Jacob discusses how to work around usual problems with people's perception of an early retiree. Great read, and this blog follows the life of a guy (Jacob) who retired after working only five years. Great stuff!

Why I'm Buying Wal-Mart

I recently purchased additional shares with Wal-Mart, almost doubling my relatively small position. I wanted to talk a little today about why I made that decision, and why I think now is a great time to continue to accumulate Wal-Mart shares.

A little about the company, per Morningstar:

Wal-Mart Stores, with its $400 billion-plus in annual revenue, dominates the U.S. retail landscape and is growing quickly internationally. Unmatched scale relative to most vendors leads to favorable terms on everything from the products on its shelves to store leases and distribution agreements. These competitive advantages generate positive economic returns and a wide economic moat, a rarity in retail. While Wal-Mart has benefited more than most peers from consumers trading down, we see continued opportunity as the economic recovery is poised to be mild, in our opinion, and international growth remains in its early stages.

I think there are a few key terms in this effective synopsis of Wal-Mart. First, the word "dominates". Any time I look at a company and analysts use the word "dominate", I like that. "Wide economic moat" is the other key term here. That's extremely important in a core position. I think that smaller positions, or riskier plays don't need an economic moat, and certainly not a wide one. However, if you want a company to be a foundation of your portfolio, this is very important. A wide economic moat usually  means a company is seperating itself from the rest of the pack through pricing power, effective supply chain, wonderful products and service, and a brand name that is global. 

One of the things that detractors of Wal-Mart look to criticize is the flat share price over the last 10 years. On  May 18, 2001 Wal-Mart closed at $52.04. Today, the share price closed at $55.48. That's a gain of 6.61% over 10 years. Not very encouraging, and when you factor in inflation you would have actually lost money. This lack of gain is due to the fact that Wal-Mart was extremely overvalued back in 2001. Rolling EPS was at $1.40 per share back in May of 2001. That's a P/E ratio of 37.17! Obviously, valuation is extremely important when purchasing dividend growth stocks, and this cannot be understated. Wal-Mart's P/E ratio is currently at a very comfortable 12.90. That's almost 1/3 the price, on a P/E valuation ratio. That's an incredible difference. Wal-Mart was not a good investment in 2001. I would argue that Wal-Mart is a very conservative and attractive investment today.

Wal-Mart's fiscal year ends in January, so the numbers below are actually from the preceding year. Let's take a look at some numbers:

Earnings per share have grown at a rate of 9.3%, compounded annually over the last five years. Pretty impressive, and the pace of growth has been pretty evenly spread, even through the recession.

Earnings Per Share ($)
1Q 2Q 3Q 4Q Year
2011 0.88 0.97 0.95 1.41 4.18
2010 0.77 0.88 0.84 1.23 3.72
2009 0.76 0.86 0.77 0.96 3.35
2008 0.68 0.86 0.70 1.03 3.16
2007 0.64 0.72 0.62 0.95 2.92
2006 0.58 0.67 0.57 0.86 2.68

Let's take a look at revenue. Revenue over the past five years has grown by just over 6% per year, compounded annually. Good numbers here, and again it's pretty even spread on the pace of growth through the years.

Revenue (Million $)
1Q 2Q 3Q 4Q Year
2011 99,097 103,016 101,239 115,600 421,849
2010 94,242 100,910 99,411 113,651 408,214
2009 94,070 101,544 97,634 107,996 405,607
2008 85,387 91,990 90,880 106,269 378,799
2007 79,613 85,430 84,467 99,078 348,650
2006 71,680 76,811 75,436 89,273 312,427

Dividend growth is, of course, my favorite metric to look at. Dividends have grown just over 15% over the past five years, compounded annually. That's an extremely healthy rate, and if you go back further, the growth rate holds pretty true. Phenomenal growth rate. The payout ratio is currently at 34%, so there is plenty of room for further growth which is very exciting. The current entry yield is low at 2.63%, compared to most other dividend stocks, but this is historically high for this company. Overall, I'm satisfied with that entry yield, coupled with the high growth.

Dividends Per Year($ Per Share)
2010 1.21
2009 1.09
2008 .95
2007 .88
2006 .67
2005 .60

S&P currently has WMT at a 5-star STRONG BUY. I generally agree with that.

Overall, I'm excited about Wal-Mart's future growth. The international growth of Wal-Mart is especially appealing at a time when Target and Family Dollar appear to be eating away at some of Wal-Mart's domestic market share. Wal-Mart's international division seen net sales grow by 12.1% over the last year. They grew their international footprint by 458 new stores, which is encouraging. I think that the international division is going to fuel growth with this retail giant. Margins are generally low with retailers, and with other stores eating away at their domestic market share, it's important to have growth in terms of overall square footage overseas. The more stores, the more products and more sales. Wal-Mart has been dominating in their ability to crush the competition through effective supply chains, and offering the lowest prices possible. One key development with domestic stores is the new "Low Prices. Every Day" campaign, which includes bringing back thousands of products that were previously removed from stores and price-matching on competitors' ads.

I like this company at its current valuation. It's trading at a very favorable P/E ratio and a high historical yield. It has a lot of opportunity for future growth, especially in the international and emerging markets. The growth in China could be explosive, as Wal-Mart currently operates 189 units in China, which is extremely paltry for a country the size and scope of China. I'm a buyer at current prices.

What about you?

Thanks for reading.

Recent Buy

Well, I've made two recent purchases and I'd like to share those purchases and the reasons behind them. The market has been a little choppy lately. Commodities have been pulled back and forth, mostly on the volatility of oil. Every time oil gets expensive you have non-stop news on the subject and political backlash. It is inevitable. While I think that oil is naturally only going to head higher due to shrinking resources, the volatility in the short-term needs to be navigated carefully. I don't believe in timing the market. I've stated many times that my main desire with dividend growth investing is to purchase shares in 1 or 2 companies that are undervalued or fairly valued every month. However, with that said, paying attention to the market and where things are likely going is always important. Because of that, I did not purchase or make any other moves with oil holdings. I was thinking of initiating a position in Conoco Phillips or extending my holdings with Chevron, but I am not savvy enough to know where oil is going in the short term. I am savvy enough to know that it's ok to say that I am not savvy enough. Sometimes knowing your limitations is your greatest advantage.

I made two recent moves. My first move involved purchasing 18 shares of WMT at $55.22 a share on 5/9/2011. This almost doubles my position in Wal-Mart. I believe in Wal-Mart as a retail brand going forward. I think they have an enviable economy of scale with their breadth and size. The expansion potential into emerging markets is almost unlimited. I am probably going to write about Wal-Mart in an upcoming article. The non-believers would quickly point to the fact that Wal-Mart has basically been dead money for the past 10 years. While that is true, a lot of that could be due to the fact that they were vastly overvalued back in 2000. Although dividend growth investing can be a fantastic and disciplined approach to investing and passive income, it still requires that a person invest in quality companies at an attractive price. You can't blindly invest in a brand name at any price. Valuations are always important, even with a giant and powerful brand like Wal-Mart. At a P/E ratio of 13.14, I think this is an undervalued company with a lot of growth potential in international markets.The entry yield on my investment is 2.68%

My second move involved purchasing 40 shares of TEF at $24.21 a share on 5/11/11. This doubled my position with Telefonica. This will probably be my last investment with TEF for a while, as I don't believe this should be a core holding for me. This telecommunications giant is based in Madrid, Spain and the shares are ADR's (American Depository Receipts). Because of that, they are subject to Spanish withholding taxes, but I receive the tax credit from our government. The yield is absolutely huge with Telefonica, at over 9% at current levels. The strength of the Euro and weakness of the dollar will obviously help my yield, and I like the international exposure and currency exposure. Telefonica has increased dividends for nine years now, and I think this company is undervalued with a P/E ratio of 7.61 at time of investment. Obviously, I wish I would have waited a little longer, as it has dipped since my investment. But, I feel I paid a fair price and received a good value on my money. So if it dips, so be it. The only thing that concerns me with Telefonica is the debt load with a 2.4 debt/equity ratio. Based on the proposed dividend distribution of 1.60 Euro per share, this is an effective dividend of $2.25 dollars per share based on current exchange rates. That's an entry yield of 9.29% on my investment.

Overall, I'm excited about my purchases. Nobody knows where the market is going to go tomorrow or the next day. Some fellow investors expect a market pullback this summer, possibly coinciding with the ending of QE2. We'll see. I'm not that concerned about the loss of market value on my investments. As long as the companies I invest in keep paying and raising dividends, that is all I care about. A pullback this summer will only give me better entry prices for further investments. I will update my portfolio at the beginning of June to reflect these new purchases. I will probably not make any more moves until June.

What do you think about my recent purchases?

Thanks for reading.

I Have Been Added To The Div-Net

I wanted to make a proud announcement that as of today I have been added to the Div-Net, a network of investors focused on dividend investing and a long-term buy and hold philosophy. This is a great day for this blog, and I am really proud to be part of such a prestigious group of fellow like-minded investors. For any readers that are not already familiar with the Div-Net, you can read all about it here.

There are many members of this network that I've been following for some time, and many of these fellow bloggers have been integral in me starting my path to financial independence. Many of these members are already on my blogroll page and I'm really excited to be a part of this group.

To commemorate this occasion I'm completely revamping the look of my blog as of today. I feel that a lighter look will be easier on the eyes and hopefully be easier to read and follow. I was reviewing the way things are going with this blog, and I'm extremely happy with the progress so far and I hope that my readers have enjoyed my articles. I believe in being completely transparent in showing how a dividend growth portfolio is built from the ground-up, because frankly, I'm building one from the ground-up!

I hope you like the new look and I hope you review the Div-Net, if you haven't already.

Thank you to the Div-Net for including me, and thank you to all my readers for your support!

Thanks for reading.

Weekend Reading - May 15, 2011

Here are some excellent articles from the past week from fellow dividend growth investors.

Best High Yield Dividend Growth Stocks
Dividend Growth Investor highlights a list of eight high yield dividend growth stocks. Some people assume that by investing in dividend growth stocks you automatically have to accept low yield. This list proves otherwise. A stock I would include would be Telefonica. It's one in my portfolio and produces a huge and growing dividend.

You Are Not A Contrarian Investor, and You Don't Know Squat
The Dividend Pig wrote a fascinating article about how the average investor probably looks through rose colored glasses in terms of their investing abilities. The disadvantage that John Doe has from his home computer when running up against large institutional investors cannot be understated enough. Great read.

Step 5: Research
Dividend Monk highlights step 5 in his 9-step process to build and manage a dividend portfolio. Great stuff here, and research is where an investor gets his/her hands dirty in trying to analyze whether a company fits in the portfolio.

5 Utility Stocks I'm Considering
Dividend Partisan lists five utility stocks that are currently on his watchlist. I think every dividend investor should have at least one utility in their portfolio. I'm currently waiting for a pullback in this sector before pulling the trigger on any utilities.

April 2011 Pocket Change Portfolio Performance Update
D4L has a couple different portfolios, and this one he runs with the income provided from various online endeavors. I can only say that I'll be happy the day my only portfolio is producing this kind of income. He obviously made a great move in picking up Intel. That was next on my list and I picked up some more Wal-Mart instead. I'll write about that in the week.

When To Take Profits? or Losses?
The Passive Income Earner highlights when it's appropriate to take profits or losses. As a long-term buy and hold investor it is always refreshing to read about profits and losses. I'm a little guilty of falling in love with stocks, but it's always a good idea to be completely unbiased and review your portfolio monthly in a completely objective manner. Don't hold just to hold. Hold because you are benefiting.

My Top Stress Busters
My Own Advisor discusses ways to reduce stress in order to live a happier existence. I added one way in my comment, and that was to nap. Cat naps always reduce stress for me.

Thanks for reading.

My Birthday...And One Year In

Well, my birthday has come and gone...and I'm now 29 years old. Although I have grown a year older chronologically, I have grown many years cognitively. I have been enlightened. I have seen the light, and am no longer in Plato's cave. I have found budgeting, saving, dividend growth investing, living frugally..and I believe I have found the path to financial independence. I have been on this journey for a year now, as I started the dividend growth portfolio one year ago with a little over $7,000. Let's review the year.

I started with $7,000 as I've mentioned a few times, and as I talk about in my About Me page. I have now grown my Freedom Fund to just over $32,000, which I feel is a big accomplishment after my first  year of full-time investing. I started with early investments into Coca-Cola and Johnson & Johnson. I now have investments in 15 different companies. I started with receiving $10 monthly dividend checks and am now on the cusp of monthly triple-digit dividends. I'm on a path that I'm going to see to the end. I'm glad that my readers are going to follow along and hopefully be inspired to walk their own journey.

As I look forward to the next year, I feel nothing but excitement. I would love to see my portfolio double by this time next year. I'm anxious to stay true to my budget and hopefully slash expenses further. I'm hopeful to cut my rent down to an acceptable level. I'm going to challenge myself on thinking outside the box in order to live happily and still cheaply. I want to see if living car-free is possible. The world is full of opportunities. I'm ready to take advantage of as many as I can.

Everyday is a new dawn. The sun rises and opportunity knocks. I'm always ready to answer that door.

Are you?

Oh, and by the way. I did celebrate my birthday in a budget-conscious way. I went to Firehouse Subs, where I received my free birthday sub. Excellent!

Thanks for reading.

Why Dividends?

I'm a pretty open person, and I tend to get pretty excited about things. I get especially excited when something I'm doing is going to radically change my life. Ever since I've discovered budgeting and investing I feel like I've really revolutionized my outlook on life. I'm not saying that saving most of your money and investing that savings in dividend growth stocks is the best way to go in life, but I feel it's best for ME, and because of that I'm very excited about the future.

Sometimes, being a proud and outspoken person gets me talking to people that are sometimes interested in the things I have to say, and sometimes they are uninterested. I've had conversations lately with people I work with about my outlook on life, investing and savings. Most people I talk to generally agree that saving and living frugally is probably a good way to approach your finances and life in general. They would also agree that investing said savings into something that is going to generate wealth and income is also a good idea. But I get a question a lot of the time: Why Dividends?

People ask why not save money and open a business? "Hey, why not open a hot dog stand?". Well, although I enjoy eating hot dogs, I don't know if I'd like standing in one spot for seven hours at a time serving them up. Although opening a hot dog stand is a very simplified version of the question, it is valid. Why not open a business instead of investing in dividend growth stocks? Let's examine that question.

Success Rate

Although the figures are contested, it's generally accepted that 2/3 of first-time businesses either break even or never turn a profit. That leaves a ~33% chance that you will eventually make money on your business start-up. There are pretty serious start-up costs associated with starting a business. And, let's not forget the fact that usually starting up your own business means you are your own most valuable employee. It usually requires a lot of know-how, hard work and determination. With dividend growth stocks there is still a chance of losing money. Obviously investing in an overvalued business, or a business that makes products that people don't really need or want would be just a couple different ways you could lose money. A company could cut dividends for one reason or another. I think the odds are good that I'll make money on my investments, however. Companies that I invest in are publicly traded, which means I can look at their balance sheets and see if they are making money. If the business is good, they are making a product that people want or need, and they have a history of rewarding shareholders then I feel the odds are good that I will make money on that investment.

Start-Up Costs

With dividend growth stocks, it's passive income. That term is very important. By passive, that means generally little or no work is needed to receive the income. I don't have any start-up costs. You can open a brokerage account with most online brokerages with as little as $500. Even a hot dog stand requires pretty hefty start up costs, as this stand costs $7,099. I also believe that major blue chip companies are better at making money than I am. Although having confidence in one self is an excellent tribute to have, I would absolutely admit that Coca-Cola has a better ability to make money than I do. I would bet that McDonald's has a better chance of having a high return on investment than I do. I'll stick to buying my hot dogs at the local grocery store.

Pricing Power

Dividend growth stocks also usually outpace inflation because companies that are able to grow their earnings and grow their dividends usually have a great brand, a wonderful product and some type of economic moat. Because of these qualities, these companies have some type of pricing power. Coca-Cola can raise their prices worldwide by just pennies and it can have a large impact on margins because their products are sold almost everywhere. An increase of just 1 penny on the price of a 12-pack of Coca-Cola would have a larger impact on my investment than trying to increase prices on products my small business sells by 25% or more. It's simply an economy of scale that a small business doesn't have right away.

Time

The great thing about dividend growth stocks is that it's passive income. I mentioned this again, because it's important. I don't have to work for my money. When I invest my money with McDonald's or Wal-Mart, I am basically allowing them to make money for me. Once I have a portfolio large enough and my dividends are exceeding my expenses, I can basically kick back and cash the checks being sent to me. I don't have to clock in anywhere, I don't have to answer to anyone, I don't have to worry about payroll, business expenses, accounting or anything else that a person running a business would likely have to be concerned with. That leaves me with time, which is something I value a great deal over money. Once my expenses are being met, I can volunteer, spend more time with friends and family, travel, relax or do anything my heart desires. I could even continue to work if that's what I want to do. The key is that my time is mine at that point. And time is not something you can earn, buy or steal. Money can be made and lost and made back again. But once time is gone you'll never have it back again.

Thanks for reading.

Income/Expenses for April 2011

Each month I will post my income/expenses for the previous month. I track every dollar in and out, so what you see is exactly what I earned and spent (rounded to the nearest dollar).

Income from April 2011:

$4,084--Regular Paycheck
$66--Dividends
$95--Bonus and Spiffs

Total Income: $4,245

Expenses from April 2011:

$638--Rent
$287--Car Payment
$180--Student Loan
$105--Restaraunts
$79--Auto Insurance
$60--Groceries
$52--Fuel
$66--Pharmacy
$54--Fast Food and Pizza
$35--Internet
$19--Entertainment
$9--Mobile Phone
$34--Everything Else*

Total Expenses: $1,623


*-The Everything Else category includes things I don't have a regular budget for. In this case it was ($34) spent on gifts, as my girlfriend and her child both had birthdays in April. The Entertainment category this month comprised of a ($19) visit to the movie theater as my girlfriend wanted to see "Fast Five" for her birthday.


I managed to save 61.8% of my net income this month, which was a huge victory after last month's dip. This is my highest percentage of net income saved since I've started tracking this figure. I am really proud to have hit this kind of savings for the month. I don't really have a lot I would have changed for the month. My overall food costs ($219) were high, but mostly because I splurged a little after last month's lack of spending in this category. It was also my girlfriend's birthday in late April, and we went to a really nice dinner at a waterfront restaurant. We had a great time and it was worth every penny. One expense I did a great job of keeping down was fuel ($52). I watched my gas pedal at every green light and really took it easy on the car.


My expenses were slightly high, but the greatest thing about this month was that I broke another record in net income. This was the highest amount of monthly net income I've ever posted in my life. I had a few pretty big sales at work, which was great. This amount of money is pretty unusual for me to earn in one month, and I suspect my net income will downtrend the rest of the summer as our "busy season" here in Southwest Florida has wound down. Things will ramp back up in the Fall.


Overall, I'm very happy with this budget. If I could post numbers like this every month my finances would be on auto-pilot. Unfortunately, life makes me work a little for it.


My goal is to average a 50% savings rate of my net income, monthly. So far I've hit rates of:


52.5%-January
54.4%-February
39.9%-March
61.8%-April


I am now at an average of 52.2% for the year and on track for my goal. Wish me luck.


Thanks for reading.

Weekend Reading - May 7, 2011

Here are some excellent articles from the past week from fellow dividend growth investors.

Reasons for Investing in DRIP Programs
The Passive Income Earner has a guest post on why it's important to invest in a DRIP program. I personally collect the dividends in my brokerage and reinvest them selectively in whatever business I feel is best at that time. One of the best themes of this article are avoiding common pitfalls of investing, and save regularly to invest in blue chip companies that minimize risk.

Six Dividend Stocks to Hold Forever
Dividend Growth Investor discusses six dividend stocks to hold forever, until proven otherwise. The premise behind this article is to invest in companies that have strong brands, economic moats, economies of scale and have a proven track record behind them. Wise advice. I own five of the six and am always looking to increase the positions.

Monthly Progress Review: April
Dividend Partisan reviews April's dividends received and new purchases. He just broke a new record in terms of dividends received and some of his purchases are really great. He grabbed PG and WMT at great prices.

7 Exceptional Dividend Growth Stocks With Quality Financials
D4L lays forth seven great dividend growth stocks. All of these are quality companies and a few of them might be buys for me in May. Some have very low yields, including Aflac, but that doesn't mean they aren't a great buy right now. As always, a quality article and it shows just how well some of these companies are managed.

20 Quick Ways to Check a Company
Dividend Monk gives a list of 20 different ways to check a company. This list is phenomenal and should probably be printed out and referenced often. I'm not sure if I go as in-depth as he does when I'm looking at a company, but I probably should. I think it's especially important to go through this entire list if it's a company you are looking at for the first time. Really great article.

Exxon Mobil Analysis - Making Money Since Rockefeller
The Dividend Pig analyzes Exxon Mobil, a company I'm bullish on going forward. This is a high quality analysis. Exxon Mobil has indeed been making money since Rockefeller, as it was a major part of Standard Oil. I'm bullish about this company and other energy companies as our thirst for oil is not abating anytime soon. The key will be which of these companies implements alternative energy the best and fastest to overcome the natural loss in oil reserves as our planet only has so much of it to go around. Great stuff.

Why become a DIY Investor?
My Own Advisor has moved to his new site, and it looks great! Here, he asks why should one become a DIY (Do-It-Yourself) investor? Many reasons, which are laid out in the article. Nobody has more interest in your money than you do. That should be something you think about if you ever look to have your assets professionally managed.

Thanks for reading.

My Entry Criteria

I haven't previously discussed my entry criteria before on this blog. I wanted to put "pen to paper" on this one and officially publish what I look for before I enter in to a position. Every investor has a certain set of criteria that a stock must meet before he or she will enter in to a position. I'm no different in that respect, but my overall entry requirements aren't really set in stone. Investing isn't a science as much as it is an art form. Stock prices aren't set by any kind of scientific measure and I don't engage in buying stocks in such a manner either.

Basically, I have seven entry requirements.

P/E Ratio

I look for a stock to have a current P/E ratio below 20. I define current price-earnings ratios by the ttm (trailing twelve months) figures. Forward P/E ratios are also helpful, but of course future EPS figures can only be analyzed and guessed, as nobody can tell the future. This is one criteria that I'm pretty firm on. A P/E ratio higher than 20 likely means the stock is overpriced for some reason.

5-year growth of dividend

I am a little more lax than other investors when it comes to dividend growth. A lot of dividend growth investors require 10 years or more of dividend growth. I'm not that strict, as that would preclude a lot of great companies that have less than 10 years of growth, but have clearly shown shareholders a commitment to dividend growth. When I look at companies that have less than 10 years of dividend growth I'm a little stricter in other departments and I will research a little further to feel confident that continued growth of EPS and dividends can be sustained.

A wonderful product

This goes without saying. Any company I invest in must have a wonderful product that people either need, or want so badly that they are not willing to go without it. It should be a product that people loathe to go without. Once people drink a can of Coke and fall in love, it's very hard to switch to store-brand cola products. Once you taste a Big Mac and love it, you are unlikely to stop buying Big Macs in the future. If you're addicted to Marlboro's, it's likely that you are going to keep buying them...even if the price goes up. We all know of our dependence on oil. And this leads me to my next piece of criteria...

Pricing Power

Any company that produces a wonderful product naturally has a degree of pricing power. They have the ability to raise prices with inflation to keep margins healthy. If McDonald's raises the price of a #1 meal tomorrow by five cents, that is probably going to have no effect on my decision to purchase that meal. I would think that most of the population would agree with me on that. Yet, that five cent increase means a big boost to margins for McDonald's when you consider how many customers they serve worldwide on a daily basis.

Entry Yield

I am pretty strict with this one. I'm more strict with this one than other criteria. I will rarely invest in a company with an entry yield below 2.5%. I actually prefer an entry yield of 3% or higher, but there are many great companies that I'm interested in that currently have an entry yield below 3%, and I'm still interested in them. However, 2.5% entry yield is generally my absolute limit when I'm considering entering a position with a company. Any lower than that, and the price is either too high or the dividend growth must be lacking.There has to be an outstanding and exceptional reason for me to invest in a company with an entry yield below 2.5%, as it will take a long time to reach an acceptable YOC (yield-on-cost).

Payout Ratio

I generally like a company to have a payout ratio of 50% or less. I'm not super strict on this, and a lot of high-quality companies can ebb up and down and this number can vary quite a bit over a number of years. If a company continually pays out close to 80% or more of earnings, then that would probably be a signal for me to either stay away or look elsewhere for opportunities. In my personal portfolio, the exception for this is my investments in tobacco companies, which are well known to pay out a high amount of earnings due to a lack of need to reinvest capital. If a high payout ratio is continually sustained that could be a signal that the company is looking to cut the dividend or at least stop raising it to get it under control. A high payout ratio could also indicate that a company is having a hard time raising earnings. Either way, it tells me to look elsewhere.

Dividend Growth %

I generally like to see a 10-year dividend growth of at least 6% (annualized) before I'll commit money to a position. I'm not extremely strict with this one and I will consider companies with slightly less growth, but not much. I prefer growth in the double digits when I can get it. For companies with less than 10 years of growth I shoot for a higher growth rate to compensate for the lack of record.


This is basically a list that I like to refer to, as I like to continually remind myself why I want to invest in a company. For my current portfolio, I like to review my holdings occasionally to make sure that these companies are staying true to the requirements I held when I first purchased.

What is your entry criteria?

Thanks for reading.

Dividend Income Update - April 2011

My favorite articles always involve updating dividend income, and this month is no different. My dividend income dipped a little bit from last month, and this is no surprise. As I've stated before, until my portfolio grows substantially I'll have ups and downs in the dividend income. I'm still in the building phase, and the journey is always more exciting than the destination.

April 2011 Dividends Received

• KO - $9.40
• WMT - $7.30
• MO - $19.76
• PM - $22.40
• SYY - $7.54

Total dividends received for the month of April: $66.40.

Another solid month, in my opinion. I've been investing in dividend growth stocks for just about 1 year now, and I feel like I've made tremendous progress. I believe it won't be long before my dividends regularly eclipse the $100 mark monthly.

I'm still behind my goal of producing $1,200 in total dividends for the year of 2011. I have produced a total of $223.41 for the first four months of the year. I am still a long way off from my goal, but I'm excited about gaining some ground in the second half of the year!

I have updated my dividend income page to reflect April's dividends.

Thanks for reading.

Freedom Fund Update - May 2011

May has arrived and I have updated my Freedom Fund in the portfolio page. I have made several important and helpful changes to the way my portfolio is laid out. One of my main goals with this blog is to provide as much transparency and as much information as I can give in this journey to financial independence that I'm sharing with the world.

I have added several columns, including one for "Shares" which shows exactly how many shares of each listed company I own. This makes it very easy for you to see how much of each individual company I have a vested interest in. I can't be any more transparent than that!

Another column I have added is for "Market Value". This shows the market value of each holding, as of the date I posted the update, which for this month is the morning of May 1, 2011. This is before market open, so these numbers will change by the day and throughout the course of the month. Market Value is mainly for illustrative purposes and gives you a rough idea of the amount of money each individual investment is worth.

The final column I have added is "Yield" which corresponds to the current yield of the company listed in the appropriate and matching column. This, again, is for illustrative purposes and this amount will fluctuate throughout the course of the month as share prices go up and go down. Checking a company's current information on any number of fiance sites, including Google Finance or Yahoo! Finance will give you the current yield as of that moment.

I think that these changes will be helpful, overall. I have also added a little color to the spreadsheet to make it easier on the eyes. I'm very happy with the changes and additions, and I hope you enjoy the work I put into it.

As for changes to the Freedom Fund's value and holdings, I did make a couple of recent buys, reflecting additions to current holdings in Procter and Gamble and Harleysville Group. These recent buys are now reflected in the current holdings of the Freedom Fund.

The current value of the Freedom Fund now stands at $32,107.73, which is a nice improvement from the last published value of $28.845.28. The added value reflects my recent purchases, dividends received and increases in market value of current holdings. I still own shares of 15 companies, which reflects no change from the last update.

Overall, the portfolio is right about where I want it. I'm happy with my selected holdings and I'm very excited about where things are going. I have no immediate plans to sell any positions as I am a long-term buy-and-hold investor. Some of my holdings reflect cyclical commodities (namely oil), but as long as the dividends continue to be raised I like staying put. Of all positions, I'm watching TOT and SYY the most. I've stated before that TOT is not a dividend-grower and SYY has some investors concerned about future growth.

I hope you enjoy the additions to the Portfolio page and enjoy reading my progress with the Freedom Fund. As always, I wish all my readers the best with their individual and respective portfolios!

Thanks for reading.

Weekend Reading - May 1, 2011

Here are some excellent articles from the past week from fellow dividend growth investors.

Step 4: Socially Responsible Investing
Dividend Monk continues his series on building and managing a dividend portfolio. This article is really interesting and basically advises that you, the individual investor, should always due diligence on any company you plan on investing in and make sure it lines up with your moral and ethical value system. 

Highest Yielding Dividend Stocks of the S&P 500
Dividend Growth Investor highlights the ten highest yielding stocks in the S&P 500. I like MO and T the best out of the bunch, but I know many dividend investors that are keen on CTL.

Wal-Mart Stores, Inc. (WMT) Dividend Stock Analysis
Dividends 4 Life puts forth an excellent analysis on Wal-Mart, a company I'm bullish on. This is a fantastic analysis D4L is rating WMT as a 5-star strong buy currently. I'm inclined to agree with that.

Dividend Companies in the News 4.24.2011
The Dividend Pig gives a snapshot of important news on dividend companies over the past week. A few good dividend increases and some interesting information on Wal-Mart.

The Three Levers to Reach $1 Million
Dividend Partisan wrote a fantastic article on three important levers you must pull in order to achieve a portfolio worth $1 million. I personally feel the first two levers are more important than the third, as investing home runs aren't necessary if one saves enough and invests long enough.

Part-2: The Yield on Cost Illusion
Dividend Ninja continues his series on "Can You Live Off Your Dividends". An excellent article that illustrates how using YOC metrics can mislead an investor into thinking they are achieving better returns than they actually are. I agree with that. However, I think it's important to track this number to see if you are getting the kind of compound and dividend growth you think you should be.

Dividend Yield: Telus Corporation (T)
The Passive Income Earner analyzes Telus, a Canadian telecom. Of all the telecoms, I'm bullish on TEF, which I own, and I also like the American (T)-AT&T.

Dividend Stocks Giving Bigger Increases
Buy Like Buffett highlights some of the recent dividend increases by a few renowned companies. I own three companies he lists and I'm actually a little disappointed with some of the dividend increases. I like raises somewhere closer to 8% or higher, and actually prefer double digits. The increases for CVX, XOM and JNJ were all a little disappointing for me. What do you think?

Thanks for reading.