What Is A Dividend?

I was asked recently by a co-worker, "what is a dividend?" after having a brief discussion on investing and the like. I had never really thought that this was unknown knowledge to certain people. I take for granted, in my studios nature of observing investments, that the term "dividend" is well known and generally fairly obvious. I was proven today that my thinking was incorrect and naive. I would like to try to explain today what exactly a dividend is.

What Are Your Dividends For?

Anyone who has been reading this blog knows that the reason I'm living frugally and investing in dividend growth stocks is to hopefully retire young. My target is to "retire" by 40 years old. The reason I put quotations around the word retire is because I'm not quite positive I'll retire by standard definitions. I think the better phrase to use might be "I want to be financially independent by 40 years old". I largely want a choice in how I spend the majority of my time. I currently spend most of my time (55 hours a week) working in an environment that isn't particularly appealing to me, as I have been the last five years. Would I do that if I had a choice? No. So, my dividends are going to provide me a choice...a choice in how I spend my time. I'll still probably engage in some time of active and paid employment, but it will be something I choose to do and hopefully something I enjoy a great deal more than what I do now. It will also likely be something part-time or seasonal, allowing me freedom to travel cheaply and see family or friends.

Weekend Reading - June 25, 2011

Well, the month of June is almost over. It's a beautiful Saturday afternoon here in Florida. I don't know where the time goes. As another week closes and the summer is in full swing I feel great! I hope all of you do as well.

Here are some excellent articles from fellow dividend growth investors, frugalists and personal finance bloggers from the past week.

Saving A Mint By Budgeting

I'm a fan of budgeting, in case you couldn't tell by my monthly posting of my personal budgets. I think that budgeting is the only true way of actually seeing how much money is coming in and how much money is going out. Until you actually track your budgets for a few months, it's all guesswork as to how much you actually spend on items. Loose change in the pockets can disappear pretty quickly on trivial purchases that add up over time.

Defense Stocks On Sale?

I've been taking a long, hard look at some defense stocks lately and wondering if they have a spot in my dividend portfolio. There are pros and cons to every business in this universe, but I think some of those of pros/cons are amplified when you are looking at defense stocks.

Let's take a look at a couple I have my eye on.

Lockheed Martin Corporation (LMT)

Per Morningstar:

Lockheed Martin is the world's largest defense contractor with 2010 sales of $46 billion. The firm operates in four reporting segments--aeronautics, electronic systems, space systems, and information and global services. Bethesda, Md.-based Lockheed employs 132,000 people.

Weekend Reading - June 19, 2011

I'm posting my weekend reading a little late due to my vacation. I haven't had an internet connection for the past few days and I just landed back in Florida a couple hours ago. It was great to see the family and it was also great to have the vacation paid for.

Here are some excellent articles from fellow dividend growth investors, frugalists and personal finance bloggers from the past week.

Recent Buy

Well, I've decided to make a recent purchase. As I've said a few times before, I like to "walk the walk" when I "talk the talk". I believe in making purchases through high and low markets, and I believe in dollar-cost-averaging into positions on a monthly basis. The market has been extremely volatile lately, but that hasn't kept me away. I like to look past all the chaos and peer into what I think are good values, no matter the market conditions.

I have only made one purchase so far this month. I don't know if I'll have enough capital to make any more moves this month. Paying off my car has left my capital reserves a little parched, and for now I'm excited about what I have decided to do.

I purchased 72 shares of INTC at $21.44 share on 6/10/11. I am an avid fan of Warren Buffett. I believe, as he espouses, that you should only invest in companies that you totally understand, in industries that you can easily become familiar with. It is because of this investment thesis that Warren Buffett does not invest in tech based companies. He believes in investing in his "circle of competence". I am somewhat inclined to agree with him on this. I have not invested in a tech company before this purchase, and have been generally shy about initiating any positions or committing any money to any tech stocks.

I feel pretty comfortable, however, getting my feet wet with Intel. I recently opined about my interest in Intel during my recent watch list article. When I wrote that article I was all but certain to initiate a position with Intel. I feel it is one of the better values on the market, with a relatively high yield, low P/E ratio and generally positive growth prospects. I feel that once they start to really grasp the mobile/tablet market the sky is the limit for this company. If they falter in that market, I really feel that bad news is already priced into this stock. The downside is limited, in my opinion, while the upside could be quite dramatic. We will see. At any rate, I don't want to make this position a core holding, or a cornerstone of my portfolio, but I feel comfortable with the size of the position and would actually feel comfortable with doubling it if weakness continues. Beyond that, I would monitor and add as allocation would allow. We all know that the tech industry can change overnight, so one has to be careful about how much capital is allocated toward tech stocks. The entry yield on my investment is 3.92%.

What are you buying?

Thanks for reading.

Income/Expenses for May 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 May 2011:

$3,756--Regular Paycheck
$95--Dividends
$50--Bonus and Spiffs

Total Income: $3,901

Expenses from May 2011:

$633--Rent
$915--Car Payment
$180--Student Loan
$29--Restaraunts
$78--Auto Insurance
$99--Fuel
$60--Groceries
$67--Pharmacy
$58--Fast Food and Pizza
$35--Internet
$82--Mobile Phone
$7--Public Transportation
$251--Everything Else*

Total Expenses: $2,498

*-The Everything Else category includes things I don't have a regular budget for. In this case it was a ($139) trip to Target to buy a bicycle to ride to and from bus stops, a ($53) trip to Wal-Mart to buy a backpack, umbrella and other associated items to make it easier to ride a bike and a bus and a ($58) expense to renew my registration on my vehicle since I couldn't sell it with an expired tag apparently.

As always, in the interest of full disclosure I like to display my income and expenses from every month for public view. This will catalogue my journey to financial independence and prove that it is possible to achieve early retirement on relatively modest means.

This month was certainly nothing to write home about. As you can clearly see, my expenses were much higher than normal due to paying off my car. A typical car payment for me was less than $290, but this month it was north of $900. That was due to my selling of my vehicle and paying off the difference between the offer and what my balance was. It feels good to have that albatross not hanging over my neck any longer. My expenses before this month were typically in the $1,600 range, but now that the car is gone I feel confident I can get them down to the $1,200 level reliably every month. That would be an incredible feat for me as my monthly budgets were more than twice that before I started this venture into frugal living.

One expense that should be noted is the mobile phone bill. I wrote an article a while back about how I use a VOIP cell phone over wifi connections. I have not had a regular cell phone in quite a while. I decided to sign up for a Mobile PCS unlimited talk, text and web plan for $40 per month which includes a flat fee with no monthly contract. That $40 monthly fee includes taxes and all regulatory fees. I consider it a pretty good deal. I may write an article in the near future about this, but basically I decided that having a regular and reliable cell phone was in my best interest now that I'm using public transportation. Emergencies or other circumstances can arise and I need to have a line of communication in case something happens. I canceled the VOIP service that was $9 per month. My mobile phone expense was high this month because I had to pay a month in advance, buy a phone ($30) and also pay the VOIP monthly service. Next month, and going forward, it's going to be $40 for this expense.

I managed to save 35.9% of my net income this month, which was actually a huge victory considering I paid off my car and had high expenses in almost every category. Going forward, I expect this number to be closer to 65%. I think June's numbers will be wonderful.

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
35.9%-May

I am now at an average of 48.9% for the year. This is slightly behind my goal, but I am more than confident that I will meet and exceed a 50% average.





Thanks for reading.

Photo Credit: RambergMediaImages

Weekend Reading - June 10, 2011

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

Playing With Ex-Dividend Date
The Dividend Guy discusses whether trying to time investments based around ex-dividend dates could be a sound strategy. Obviously, I agree with him here that this is not a sound investment strategy. Is it possible to make money doing this? Perhaps. I believe that investing in quality companies and holding on for a high return on capital is a much more sound strategy.

How To Get Rich Off $30,000 Per Year
Buy Like Buffett proposes ways on how it's possible to get rich off of a small income by saving your money and investing wisely. Saving more than half your net income and investing in quality companies is my mantra, so this article really sums up what I'm all about. The only thing I don't espouse is investing agressively. You could certainly do that and far outpace what I will do, but I'm just a more conservative person. Stick with what you know.

Monthly Progress Review: May
Dividend Partisan reviews May's dividends received and some generalizations about where he is in relation to his goals. His dividend income is increasing every month, and although he's cautious on reaching some of his goals he is still doing a great job.

The Safety of Short Term Bonds
Dividend Ninja discusses short-term bond funds and why he believes now is a great time to invest in them. Are you a buyer in bond funds or individual bonds? They certainly swing opposite equities in most cases, but interest rates are rising. This could be a good play if you know what you're doing.

Exxon Mobil (XOM) Dividend Stock Analysis
Dividend Growth Investor recently analyzed Exxon Mobil, one of my holdings. Great analysis as always, and I agree with his assertions on valuation.

7 Undervalued, Big-Name Stocks To Consider For Your Dividend Portfolio
D4L has an outstanding article here listing seven great dividend stocks that are undervalued by his standards. I agree with his valuations and opinions, and I especially like Intel, as evidenced by my recent article highlighting my interest. Good stuff here.

SumZero is the Best Way To See Your Competition
The Dividend Pig highlights SumZero and why he thinks this may give you a leg-up on your competition. He gives an example of a recent analysis this service provides. This may be something I look into.

Coca Cola (KO) Dividend Stock Analysis
Dividend Monk analyzes Coca-Cola. This is an excellent and in-depth analysis. I agree wholeheartedly with his conclusions and valuations. This is a wonderful company to own, but it is trading at a premium. Whether it is worth that premium or not is up to you, but you are getting one of the widest moats in business. I think Coca-Cola is almost always a wonderful investment, and although it is trading at a slight premium right now it is not extremely overpriced.

Short List of Stocks for June 2011
The Passive Income Earner lists a few stocks that are currently catching his eye. I like his picks on Coke and J&J, both solid picks in almost any environment. What do you think he'll pick? It sounds like he's trending toward Power Financial and Johnson & Johnson. Seem like solid picks to me.

Thanks for reading.

Two Stocks On My Watchlist

The Dow Jones Industrial Average is down almost 4.5% over the past month, and while not a correction by conventional definitions (10% or more drop), the market has still experienced a healthy retraction. I'm excited when I see moves like this in the market. I generally make purchases every month, because I believe that I don't have any inside track on where the market is going. I realize I'm a very average stock trader, and just a regular Joe. Will the Dow be at 14,000 in 1 year? Will it be at 10,000? Nobody knows, and anyone who claims to know this is fooling himself. I definitely do not know, so I try to invest small amounts monthly, in a dollar-cost averaging strategy. I believe that is what will serve my needs best over the long haul.

Although I generally invest once a month, obviously my favorite times to invest are in times of market pullbacks or other general commotion. With chaos and confusion comes opportunity. My overall capital allocation will be a little light this month after paying off my car, but I'm very excited to make a purchase very soon.

I wanted to talk a little about two stocks I currently have my eye on.

Aflac (AFL)

Per Morningstar:

Aflac offers supplemental health insurance and life insurance in the two largest insurance markets in the world, the U.S. and Japan. In addition to its cancer policies, the company has broadened its product offerings to include accident, disability, and long-term care insurance. It markets its products through independent distributors, selling most of its policies directly to consumers at their places of work. 

Aflac has experienced phenomenal growth over just about any time period you can look at. Revenue in 2001 was $9.60 billion dollars. In 2010, revenue was $20.73 billion dollars. Dividends have been solid, and growing at a very nice clip. The dividend was $0.19 in 2001, and increased to a full $1.14 in 2010. Obviously solid growth across the board here. They have been raising the dividend for 28 consecutive years. I like the business model and they have been a strong player in the health/life insurance arenas. The devastating earthquake and tsunami that hit Japan is obviously a human tragedy and will no doubt affect Aflac's bottom line. Because of this, there is some risk entering a position with Aflac at this time. You can read the Q1 Earnings Call Transcript here. I take away that the company is optimistic about future growth, but also a little hesitant about how Japan is going to affect the company in the short-term. Although there is some short-term risk and volatility here, I think this is a solid long-term play. It is definitely on my watch list. It has fallen 17.44% over the last month, which presents a nice entry point. It currently trades at a 10.23 P/E ratio, and has an entry yield of 2.64%.

Intel (INTC)

Per Morningstar:

Intel is the largest chipmaker in the world. It develops and manufactures microprocessors and platform solutions for the global personal computer market. Intel pioneered the x86 architecture for microprocessors.

This is a pretty short synopsis. This company is the dominant force in chipmaking and has an enviable place in the world of technology. I'm no guru when it comes to tech, but I feel comfortable getting my feet a little wet with a position in Intel. Intel's growth has been very strong. Revenue in 2001 was $26.54 billion dollars. For 2010, they finished with revenue of $43.62 billion dollars. Pretty solid numbers from a sales standpoint. Dividends have been extremely strong over the last 8 years, which is how long they've been raising the dividend. They have raised the dividend twice this year, which is obviously a bullish flag from management. They currently pay a $.84 yearly dividend based on the current payout, which is very strong. I am hoping to get into Intel closer to the $20 mark, but I'm not sure if it will drop that low again this summer. I may bite at current prices, as I feel it's a fair price to pay. The current P/E ratio is 10.28, which is a very solid valuation in my opinion. The current yield is 3.81%.

These are just two stocks on my watchlist, but I feel both are strong candidates at current valuations. I'm more inclined to take on a position with Intel, as there is less current risk, a higher current yield, similar valuation and perhaps stronger growth potential. I'd like both, but I don't have a lot of dry powder this month and will only be able to take on one. I may purchase a position as early as late this week. We'll see.

What's on your watchlist?

Thanks for reading.

Free Vacation!

Well it's time again to show the world how frugal I am, and how dedicated I am toward the path of financial independence. I wanted to talk a little today about taking a vacation, and how I maximized my opportunities to earn myself a completely 100% FREE VACATION.

My family lives in Michigan, and I currently live in Florida. My particular job field requires yearly training to keep skills sharp. It just so happens that I wanted to take a vacation to Michigan this summer and it just so happens that a training class in my field is hosting an event in Michigan in early June. I badly wanted to see my family, and I'm extremely close to them. Whether I had to pay money for a flight, rental car and other associated costs or not, I was going to see them this summer. It did not revolve around finances. But, I figured if I could combine my training and my vacation time...why not?

So, I had a discussion with my boss about flying me to Michigan for the training class. He did some research and found no available classes in Florida. He figured if he had to fly me somewhere, it may as well be Michigan. After it was decided I had to fly for training, I filled out a vacation form asking for a week off following the training. That wish was granted. I made this request a little easier for my boss to accept. First, I told him my family lives 45 minutes away from the training site and I could stay at their house and drive to the training class, therefore saving the company a hotel room. I also told him I could borrow a car from my family, therefore saving the company rental car fees. This not only saved the company money, but allows me more time with my family. Would I rather be cooped up in a hotel room from 4:30 pm until I drift off to sleep or would I rather be at home with my family, spending time with them during training days? The answer is obvious. This option saves the company money and allows me a couple extra half-days of vacation time for nothing.

My training is June 9-10. I fly out this Wednesday, June 8th from Tampa International Airport and will arrive in Detroit Wednesday afternoon. I will fly back to Tampa on Sunday, June19th. After my training wraps up this Friday, the rest of the time will be mine. The flight costs me nothing since my work had to fly me for training. I will receive a rental car from my work to TIA, since that is also something that would have been given to me no matter what. So, travel from work to the airport and from Tampa to Detroit and back is all free. I am also able to piggyback vacation time on training time which allows me a little extra free time with my family. A win-win any way you look at it.

Because of this trip my posts in the upcoming two weeks may be affected. I plan on bringing my laptop, so I hope there is no interruption in service.

The other part of this vacation that is important to note is that I'm not flying to St. Thomas or Hawaii, or anywhere else exotic to "unwind". I already live in a pretty tropical/exotic location and I don't think that spending a thousand dollars on a mid-year vacation will help me relax. I'm using my vacation time to see family, and a best friend that also lives in Michigan. I think it's important to keep in touch with the people who you love most, and my small family is something I cherish.

I have figured that I saved approximately $1,500 by maneuvering my vacation and training together, and staying with family for free. This is comparing my vacation with an average vacation to a continental location (Chicago, New York, Las Vegas). That is no small sum, and actually exceeds the amount of money I'm hoping to earn in dividends for 2011.

Where are you going for summer vacation?

Thanks for reading.

Weekend Reading - June 5, 2011

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

Chevron Corporation (CVX) Dividend Stock Analysis
Dividend Growth Investor analyzed Chevron, one of my holdings. I'm bullish, but tentative at the same time about oil going forward. It's an energy source that isn't going away anytime soon, but national governments are using muscle to gain contracts and reserves. Chevron is one of my favorite oil companies, however, and I wish I would have purchased more last year before the run-up.

Walmart International - A True Growth Story
The Dividend Pig talks a little about the international side of Walmart, something I touched on recently with my analysis on the company. I'm bullish about Walmart going forward, and the international division is going to fuel that fire.

Digging Into the Payout Ratio
The Dividend Guy discusses payout ratio, an extremely important but sometimes overlooked statistic. I like to keep payout ratios under 50% when possible. 

Dividend Investing With a 10/10 Rule
The Passive Income Earner screens for stocks that have paid dividends for the past 10 years and have raised the dividends by at least 10% annually over those 10 years. A pretty good list pops up, and I'm a fan of McDonald's (one of my holdings), Novartis and TEVA. The rest of the list is also very interesting. Good stuff.

5 Dividend Stocks In Need Of A Market Correction
D4L presents a list of 5 dividend stocks that need a correction of 10% or more to become a "buy". I agree with this list, and while they are all very strong companies and stocks, they also are a little expensive right now as they have all trended up with the general market over the last couple years. Coca-Cola is probably my favorite on this list, and I only hold a small position because it's rarely on sale. That's the price of safety and quality.

Brookfield Infrastructure Partners (BIP) Analysis 2011
Dividend Monk analyzes BIP, an MLP which holds infrastructure assets. I have not yet gotten around to investing in any MLP's, as I am still building my core portfolio. MLP's are something I will probably invest in once I fully understand the risks and implications. Of the MLP's I've looked at, BIP seems very strong and DM's analysis definitely makes me feel good about this partnership.

I'll Maximize my TFSA first, thanks
My Own Advisor compares the TFSA to the RRSP, which are Canadian versions of the IRA and ROTH IRA here in the States. It's a great article for any Canadian readers.

Two International Mobile Dividend Plays
DSO discusses a couple of plays in the international mobile phone market: Vodafone and China Mobile LTD. Interesting article, and VOD could become a valuable play if they start receiving dividends from their Verizon Wireless venture.

Thanks for reading.

Freedom Fund Update - June 2011

Well, the time has come to update the Freedom Fund once again as we start another month. The Freedom Fund is my portfolio, and I think it's aptly named. My portfolio is my way to freedom; freedom from working at a job I don't enjoy to purchase goods I don't need to impress neighbors I don't care about.

If I would have published this yesterday my portfolio would be a lot more impressive. I lost $425.00 in today's market slide. But, that's ok. Market value of my holdings is not what really concerns me. The passive income I receive from part ownership in the businesses I invest in is what matters to me. Has that passive income changed at all? No.

The recent downtrend in the general market does provide some buying opportunities. As they say, buy on the dips. Unfortunately, I'm tapped out in terms of available capital due to the fact that I recently paid off and sold my car. I will be receiving a commission check in a couple weeks with which I'll probably make a purchase.

The current market value of the Freedom Fund currently stands at $33,613.91 as of market close today. That is, of course, a nice increase since my last published value of $32,107.73. The increase was due to a couple of recent purchases I made, and the increase in value of my fund does not fully represent the money I invested due to the general weakness of the market over the last month, especially in oil. Most investors would probably be disappointed in this, but I look at the current weakness as a buying opportunity. If the market stayed flat for the next ten years, that wouldn't bug me at all as I am a net buyer in stocks and lower prices means I can purchase more shares for the same amount of money in businesses I'm interested in.

Overall, I'm happy with the portfolio. I talked a little last month about my concerns with Sysco. I'm glad I decided to hold, as it's up 9.82% over the past 30 days and the dividend appears safe. A lot of investors were concerned about the dividend with rising food inflation, as was I. I feel it's a strong player in the food services industry and would only stand to gain market share during these troubled times. I felt holding was the prudent move. I'm glad I did. My next purchases may be to increase a current holding or may be to initiate a position in a new company. I'm not sure yet, but I'm sure I'll be discussing this a little more in the upcoming week or so once I receive a little capital.

Thanks for reading.