Weekend Reading – October 12, 2013

I’m going to use this article to make a small announcement. For any readers unaware, I will no longer be a part of the Chasing Financial Freedom Podcast. It was a joint-project with my pal Kraig over at Young Cheap Living, and it was something I really enjoyed being a part of. However, I lack the necessary time that a project like this really requires. It was a concern I shared with Kraig early on, but we decided to go forth with the podcast and see how it went. Unfortunately, my fears turned into a reality and I found it nigh impossible to keep up with the podcast on top of everything else on my plate. This is a microcosm of my life, and a good example of why I’m chasing financial independence with such voracity. I simply desire, no I need more time.

For any parties interested in the podcast going forward, I would highly encourage you all to visit Kraig at his site because he’ll be continuing the podcast without me. It was a lot of fun being a part of such a wonderful project, and I wish Kraig the best with it. I’m quite sure he’ll do a great job with the CFF Podcast from here! You can listen to Episode #6 here.

Looking forward, I’m excited to still bring quality content to the table here at Dividend Mantra. I’m always interested in feedback on articles you’d like me to write, or topics of interest. I have probably 20-30 working titles with general outlines already sketched out in my head, but I’ve gotten some great feedback via email lately from you readers and it’s all greatly appreciated. I think what I enjoy most about this blog is the interaction with you guys. Sometimes I’ll get a question or a suggestion via a comment or email and I think about all the ways I could turn that small discussion into a great post. So, this blog is really an extension of everyone who visits and shapes it.

Anyways, I always appreciate you guys for supporting my journey and I just hope that I can repay that through my writing. I look forward to continue sharing our aspirations as we mutually inspire each other to greatness!

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

Aflac: Still Undervalued, Still With Risk
Dividend Monk analyzed Aflac Incorporated (AFL) and highlighted the value inherent within the shares, but also cautioned investors of potential risk with the company’s exposure to Japan. I’m personally long AFL, and it’s one of my biggest positions. Although I don’t know if I’d load up here at today’s prices, I did buy as much as I could when it was in the mid-$30’s.

Should Dividend Investors Ever Break Their Rules?
Dividend Growth Investor wrote a great post on the need for an investor to have rules, but also remain flexible. I’m learning as I go, as we all do. And one thing I’ve learned for myself, is that I prefer strong guidelines over hard and fast rules. Valuing stocks is just as much art as it is science, and investing is psychological to a great degree. I’m doing better as I go in not overly complicating investing by setting up rigid rules. Companies change over time, and so will we as investors. Limiting yourself to strict entry yields or P/E ratios might actually do as much harm as good, as you may end up missing out on great opportunities.

Supporting David Van Knapp’s Views On Popular Dividend Growth Stocks That Are Always Undervalued
As an extension to the discussion above, Chuck Carnevale recently wrote a couple of great articles that actually followed up on a discussion put forth via a set of articles by David Van Knapp over at Seeking Alpha. There are a subset of popular dividend growth stocks (namely Big Oil and defense contractors) that appear to be chronically undervalued. Conversely, there also appears to be a subset of stocks (namely high quality consumer stocks) that appear to be chronically overvalued, as Chuck highlighted here. This is an interesting phenomenon, and not something to ignore. Recognizing that the market regularly places discounts or premiums on certain stocks helps an individual investor know when it’s a great time to purchase an equity position in a certain company, because while at first glance a stock may appear cheap or expensive it could be quite the opposite based on historical valuations. Everything is relative, and again it’s important to recognize that. I’m getting better at this as I go as well.

What Is Due Diligence? Here’s How I Do It
Chuck has been on a roll lately. Here’s another great article that defines due diligence from a long-term investor’s perspective, and what Chuck does on a regular basis to research companies for potential investment. Great stuff here. After reading this article I’m quite surprised I’ve never written an article on this subject matter myself, so I’ll have to rectify that soon.

How Big Is Your Circle Of Control
MMM reminded us all that we need to waste less energy and time worrying about things we can’t control, and instead use those valuable resources focusing on the things we can control. This is exactly what I’m talking about all the time in regards to investing. People like to read into political situations like the recent government shutdown and pending debt ceiling issues, or watch CNBC all day for macroeconomic news. This is all just a big waste of time, and I’ve recommended since the beginning to ignore all the noise. I rarely discuss macroeconomic news here (like QE, politics, China, etc.) because, in the end, there is nothing you or I can really do about any of this. I instead choose to focus on what I can control: limiting my expenses, maximizing my income and investing in high quality companies at opportune valuations. Focusing on the decisions you can make will limit a lot of heartache and stress that could otherwise be avoided.

Should You Buy Twitter?
Dividend Ninja recently discussed the IPO (Initial Public Offering) of Twitter, and why he’s not interested at this time. I concur with Ninja here. Twitter doesn’t generate a profit, and having a cool platform and lots of users doesn’t equate to being a great investment. Not to mention that there is obviously no dividend here. I’ll stick to my tried-and-true high quality companies with sound economic moats that have a history of paying ever higher dividends. Twitter is popular now, but there was a time not long ago when there was no such thing as a ‘tweet’ and, all the same, there could be an even better service down the road that hasn’t even been invented yet that could disrupt Twitter heavily. Uncertainty creates risk, and I prefer to avoid both as much as possible.

You don’t need to be Financially Independent to Retire Early
Joe highlighted that it’s possible to quit your full-time job before you’re actually financially independent and ‘coast’ to FI. Part-time jobs are an easy way to bridge the gap between the passive income you have already been able to generate and the likely lowered expenses you have on a recurring basis. In addition, one can easily concentrate more of their available free time (now that you’re not working full-time any more) into hobbies and parlay that into a possible side income as well. The possibilities are endless, and the more I think about it the more I like this idea!

10 Years and A Day
Jeremy summed up how 10 years of relative sacrifice allowed him a lifetime of opportunity via travel and freedom. He figured out early on that the lower he could get his expenses, the more he could save and therefore the earlier he could quit his job and focus on his passions. That sounds like someone else I know…

A Real Dividend Growth Machine: Q3 2013 Review
DGM reviews his portfolio over the third quarter of 2013 and it looks like he had another very successful run. He’s built a robust machine and it’s spitting out ever greater output over time. Fantastic stuff!

Semi Recent Buys
Passive Income Pursuit reviews some of his recent stock purchases. He added to his positions in The Procter & Gamble Company (PG) and Baxter International Inc. (BAX), a company I recently invested in. Some fine purchases here, and I hope to also add to my positions with both of these companies sooner rather than later.

21 Dividend Champions Poised to Boost Payouts
David Fish highlighted a great list of 21 Dividend Champions (25 or more straight years of dividend growth) that are poised to raise their payouts soon. As always, David Fish’s work is most appreciated!

Full Disclosure: Long AFL, PG, BAX

Thanks for reading.

Photo Credit: Benoit Mahe

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28 Comments

  1. I like your articles and starting listening to the podcasts. Keep up the good work. I recently started reading your website and trying to get out of debt first before I venture into dividend investing. My only position is 10 share of a utility company. Being a family man its hard to keep up the cheap living and I spend too much money on nonsense but I have been able to hopeful start with 1K a month to play around with the stock market now that I am not using that to pay off my debts. Just never sure what stocks to purchase. Do you have any advice on what to buy?

  2. John NYC,

    While this is Jason’s website and you asked him for his input, I hope you don’t mind if I toss in my $0.02’s worth. I don’t profess to be an expert but using time and patience, our portfolio now spins off north of $37K/year in dividends (all of which gets reinvested in the companies that throw off the dividends). If we can do this….ANYBODY can do this.

    For starters on what to buy….look at the “portfolio” tab on this website to get some ideas on companies in which to invest. In addition, keep your eyes open when you go shopping or happen to be out and about. I like going into WalMart (for example) and looking at who makes the stuff on the shelves. It is amazing how often the same company names will come up.

    For starters, stocks can be classified in many different ways, but there are really only five categories that make sense for investors:

    Manufacturing and industry
    Resources and commodities
    Utilities
    Finance
    Consumer goods and services

    These sectors have their own characteristics. Over the years, their performance is predictable.

    Finance and utilities are the most stable and offer some of the highest yields.
    Manufacturing and resource stocks are the most volatile and cyclical.
    Consumer stocks fall somewhere in between.

    As a general principle, you should have stocks in all 5 sectors. How you distribute those stocks will depend on the amount of risk you’re willing to accept and how much current income you need.

    Look for good solid companies (eg. WMT, MCD, JNJ, CHD, MMM, DOV, KMB, PEP, V, TOT, DEO, CLX…yes, there are many more). These are the types of companies which will have their “up and downs” but they are solid enough that they can weather the “downs”. Don’t do stupid stuff like chasing yield. It is amazing how many people focus primarily, if not exclusively, on dividend yield. If you see companies with ridiculously high dividend yields, there is a good reason why they are high (hint: high yield generally means high RISK).

    Based on your Oct 12th comments (family man just starting off with equity investing), I wouldn’t want you to have “that conversation” with your significant other that your “investment” didn’t pan out as you had hoped. The couch is not as comfortable as a bed. 🙂

    I strongly suggest you learn how to analyze financial statements. I am certain Jason can provide you with various “titles” which would be well worth reading before you go too far down the road with investing. One of the books he will likely recommend is Benjamin Graham’s “The Intelligent Investor”.

    Follow Jason’s blog and check out some of the blogs listed under “blogroll”. Some are good and some are…well, I’ll let you decide.

    Treat this as a marathon and not a sprint. Read, read, read, and then read some more. Make this fun. Don’t treat it as a chore. Get your family members involved. It is a lot more fun when when everyone is pulling in the same direction.

    I wish you considerable success as you start your marathon.

    Cheers.

    Chuck in Ontario, Canada.

  3. Thanks for the mention and I hope you have a great weekend! I love the blogging community, specifically the DGI subset, because if there’s anything that I have a question on or want more clarification on I know that I can ask and usually get a prompt response. I’ve gotten ideas for stock analyses and posts just from reading comments or interaction between my own readers and I love it!

  4. Hi John NYC,

    To follow up on Chuck’s comment, if you want to learn more about analyzing financial statements, you may want to check out my website at http://www.wallstreetbeermoney.com. It is centered around using the financial statements to make sound investment decisions. It also links to some of my articles on Seeking Alpha, where I explore the balance sheets of numerous publicly-traded companies.

    The best of luck to you, and I hope Jason doesn’t get mad for my self-promoting on his site :).

    Dave

  5. It’s too bad that you had to stop. I enjoyed listening to you talk about your goals and plans. You can tell how passion you are about it. best wishes.

  6. Thanks for sharing Jason. One really cool thing is that once you start down the path of relative sacrifice (no car, smaller apartment, eating well at home), it doesn’t feel like sacrifice, but freedom

  7. John NYC,

    Congrats to you for starting out on a path that is sure to bring you greater wealth down the road. I wish you the best of luck as you take control of your future!

    There were some excellent suggestions below, and I concur completely. I wrote an article a while back for those that are just starting out:

    https://www.dividendmantra.com/2013/04/dividend-investing-for-beginners.html

    As far as what to buy now, I’ve put recent capital to work with Exxon Mobil (XOM) and Baxter International (BAX), so I obviously have some conviction there. I would say some of the best value right now can probably be found in the energy sector, but remember not to concentrate on just one area of the market. Building out a portfolio takes a lot of time and patience. It’s one brick at a time, but before you know it you’ll have a palace.

    Best of luck to you!

    Take care.

  8. Hey DM,
    I’m sorry you don’t have time for CFF with Kraig anymore, but you still put out a lot of great content. I for one would like to see a weekly compilation of interesting articles like this every week. I also want to agree with Chuck from Ontario and Shop Teacher above. Reading has given me so many good concepts and ideas that I find indispensable now. In addition to the books Shop Teacher listed above I would add: The Little Book of Common Sense Investing, The Little Book That Beats the Street, and A Gift to My Children (by Jim Rogers). I would also highly recommend Money and Marriage (by Matt Bell) for anyone who is recently married or about to take the plunge. It was a great conversation starter for the wife and me.
    -Bryan

  9. Pursuit,

    I agree! Some of my best ideas have also come through interaction with other investors. It is wonderful to be a part of such a wonderful community. I’m really grateful to be a part of all of this.

    Cheers!

  10. FFDividend,

    I’m disappointed as well. I wish there was more time in the day, or I was less busy. I hope to maybe pop by once in a while and maybe chat with Kraig and see what kind of tool discussions we can come up with. I definitely have a lot of passion for all of this, so I’m really glad that some of that passion shines through!

    Best regards.

  11. Shop Teacher,

    Great list of books there. YMOYL was the first book I sat down and read when I decided to make a change. I highly recommend that one. I’ve never read RDPD, but hear good things about it. The Richest Man in Babylon is also a classic! I think The Intelligent Investor is a fantastic book, but perhaps a bit advanced.

    Thanks for the great info!

    Best wishes.

  12. Jeremy,

    I completely agree. Hedonic adaptation cuts both ways, and once you slow that treadmill way down you start to see that “sacrifice” is actually just a more enjoyable pace. 🙂

    Best regards!

  13. Bryan,

    Thanks! I do take pride in this blog, and I spend a lot of time writing and trying to put out high quality content that I’d enjoy reading. If I don’t think it’s worth reading I won’t publish it.

    I’ve actually never heard of a couple of those books, so thanks for the suggestions. I may have to take a look myself. I’ve heard good things about The Little Book, however. I just haven’t read it yet.

    Hope you’re enjoying your weekend.

    Take care.

  14. Thank you so much for putting these together Jason. I always enjoy reading your selections. They are very educational.
    I agree with Chuck from Ontario. Lots of reading Will get you there. I will give big shout outs to books such as The Millionaire Next Door, Financial Peace, Rich Dad Poor Dad, Richest Man in Babylon, The Four Pillars of Investing, Your Money or Your Life.

    Blogs such as Dividend Mantra, young Cheap living, Financial Samurai, JLCollins, Lacking Ambition, Early Retirement Extreme, Dividend Ninja, and Mr Money Mustache will give you a great foundation.

  15. Hi DM,

    I’m a young investor who’s been following your blog for some time, and I just started my own at [email protected]. I was just wondering if you’ve ever considered investing in the couple of Chinese dividend growth stocks listed in the U.S., such as China Mobile (CHL) and Sinopec (SNP). If you haven’t, is it because they aren’t fundamentally attractive to you?

    Cheers

  16. Young Dividends,

    Congratulations on starting your own blog. I wish you the best of luck with it. 🙂

    I’ve specifically been avoiding Chinese stocks because, as far as I’m aware, there are questions regarding the accounting practices of most of the corporations that are based in the country. I remember reading about how John Paulson got burned a couple of years ago. If a big hedge fund manager with an army of accountants and analysts can get burned, where does that leave me? Due diligence is only as effective as the numbers you’re looking at, and if those numbers are falsified then your research becomes quite ineffective.

    However, this does not mean I don’t have exposure to China. Many of the companies I invest with have some exposure to the country, and surely over the next decade or so that exposure will increase exponentially.

    Best regards!

  17. Avrom,

    I’m with you. I’ll be avoiding the Twitter IPO, just like I did with the Facebook IPO. 🙂

    My ride is working out great so far. It is nice to leave home a little later in the morning and get home earlier at night. I’m already seeing the benefits of that. I’m trying not to feel too guilty about the purchase, because I guess I can afford a $2,000 ride at this stage.

    Take care.

  18. Dividend Mantra,

    Thank you so much for the mention. Hope you had a nice weekend, and don’t have to work on Saturdays any more. Even if you do, the number of Saturdays you have to work is rapidly decreasing.

    Keep it up!

    Dividend Growth Investor

  19. DGI,

    No problem at all!

    I certainly hope you’re right about my future. Working on Saturday’s is not fun!

    Keep up the great work on your end, too.

    Best wishes!

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