Tag: dividends

Never forget these two axioms:

Money frees us, but its pursuit may enslave us.

It’s not how much you have at the end; it’s how much you could have made.

Let’s show the math behind dividend growth investing in real terms.

As stated before, the key to dividend growth investing is not only a steady growth of income, but the increase in shares generating more and more dividend income each quarter. The other variable in dividend growth investing is the price of the stock which can increase or decrease thus accordingly altering the number of shares purchased each time a dividend is generated (usually quarterly). Thus, the interrelationship between all of these three variables (dividend amount, increase in dividend, and stock price) is complex and virtually impossible to predict in terms of total value in the stock, the amount of dividend generated, and the number of shares owned at any given point in time.

The outcomes even in a positive sense (ie, increased value after investing your money) are myriad depending on what any of these variables do at any given time, especially with a fluctuating stock price.

However, we have to start somewhere and to give you an idea of how this mechanism of dividend growth investing would look...behold!

For those of you who like to see the math dividend payment by dividend payment…

Sarcastic Reader: Who are these freaks!?!  

…here you go.

To see the total returns dividend paying stocks have generated over the years, there are calculators that do all the heavy lifting for you and can give your total return for said stock derived from the exact date of initial purchase, amount initially purchased, and accounting for ongoing regular investments if that was ever done after the initial purchase.

People will argue that you cannot 100% predict that companies will continue increasing dividends until the day you retire…which is true….though this is as predictable as the market gets if you’re putting money into a company that has increased dividends for over half a century consecutively. Even with ongoing dividend growth with some companies which have not yet reached Dividend Champion status, the total returns can be staggering as noted here.

Of note, there is a psychological aspect to dividend growth investing that I use to help me keep the faith during the fallow times.

Perhaps, this is self rationalization amongst dividend growth investors, but the way to look at it to steady the course once you’ve moved forward and put your hard earned money at risk (and—don’t fool yourself—that is exactly what you’re doing any time you invest) is the following:

When your stock price is down, you’re buying shares of a great company at an even better price.

Who doesn’t like a sale?

When your stock price is up, you’re worth more.

Who doesn’t like to be richer?   

Who indeed…?

I’d love to hear from any and all of you about your thoughts, so we can all learn from one another.

Please spread the word about this blog to your friends (real and virtual), family, and colleagues. Talk to you soon.

Until next time…

Never forget these two axioms:

Money frees us, but its pursuit may enslave us.

It’s not how much you have at the end; it’s how much you could have made.

A good friend of mine (and a very savvy investor) pointed out that SDY is not the only Dividend Aristocrat fund available which is both true and false simultaneously.

Sarcastic Reader: Uh…what now?

PWT: It’s the Schrodinger’s Cat of the financial world.

Realize again what the Dividend Aristocrats are (companies who have increased their dividends for 25-49 consecutive years, but are only in the S&P 500 as opposed to Dividend Champions who have the same dividend history as Dividend Aristocrats, but are not necessarily in the S&P 500—so there are 50 Dividend Aristocrats and 115 DIvidend Champions for 2018) and then let’s take account of what funds are out there to help mimic their earnings potential.

1. The first one is actually the only true Dividend aristocrat fund ProShares TR/S&P 500 Aristocrats ETF (NOBL) because it is the most strict in what it allows as an investment—only tur Dividend Aristocrats. The upsides are that these are equally weighted with each company making up 2% of the fund and the expense ratio is quite cheap at 0.35%. However, there are a few problems here—the fund has been around for 5 years (since late 2013), the dividend yield is only 1.6%, and thusly (it’s axiomatically true that you cannot sound stupid and win any argument when using the word ‘thusly’) has underperformed the market at times and certainly the Dividend Aristocrats themselves.  Of note, earlier this year, all of the stocks in the portfolio have an average PE ratio of approximately 21.
2. The SPDR ETF (SDY) invests in any company that increases its dividend yearly for at least 20 consecutive years therefore it’s not quite Dividend Aristocrats only, but mostly. The dividend yield is 2.5% with a an expense ratio of 0.35%. It is the only Dividend Aristocrat fund that has been around for over a decade. And the returns over the last ten years has been over 10%.
3. The Vanguard Dividend Appreciation ETF (VIG) has invested in a total of 182 stocks, but is comprised of only dividend Achievers (companies that increase their dividends yearly for 10-24 years). The expense ratio is only 0.08%, but the dividend yield is only 1.94%. This combination leads to a radically different rate of total return of 3.12% this year  which is below the average rate of inflation (3.3% remember?) (and that’s before you even subtract out the expense ratio).
4. The iShares Select Dividend ETF (DVY) has 98 stocks in it, all of which are Dividend Challengers (ie, companies that increase their dividends yearly for 5-9 years consecutively). It has a dividend yield of 2.81% with an expense ratio of 0.39%. The 10 year total return (before fees/taxes) was 10.28% and was 8.43% since inception of the fund (2003).
5. There are many other funds that are comprised of dividend payers, but realize virtually none of these are actually comprised of true Dividend Aristocrats as detailed above therefore your returns can be quite different than that of the Dividend Aristocrats. So do your research (even preliminary stuff  as above).

I’d love to hear from any and all of you about your thoughts, so we can all learn from one another.

Please spread the word about this blog to your friends (real and virtual), family, and colleagues. Talk to you soon.

Until next time…

Never forget these two axioms:

Money frees us, but its pursuit may enslave us.

It’s not how much you have at the end; it’s how much you could have made.

Happy Thanksgiving to you and your family!!!

I’m thankful for many things, but as far as this blog…I’m thankful for all the subscribers, viewers, and support I’ve received over the past year. I’m truly blessed, honored, and incredibly grateful.

I’m no blind follower of popular will, but I do pay attention when multiple people ask the same question and others are critical of my investing strategy (which has certainly done well for me, but is always worth re-examining).

The question…uh…er…in question is the following:

Why is individual stock investing as desirable/more desirable as index fund investing?

Related to that question is if individual stock investing is worth the extra work (if you want to call it that) and even risk compared to index funds.

To answer that question, I need to clarify essentially what my investing strategy has been in a chronological sense.

1. Index Funds
2. Mutual Funds
3. Dividend Growth Investing
4. Growth Stocks Buttressed By Secular Trends
5. Alternative Investments (eg, real estate, franchises, businesses, etc.)

I started investing early and often thanks to my parents (Thanks Mom and Dad!! Love you guys and can never thank you enough for the amazing life you’ve given me) and once I built up a critical mass (a subjective measure to be sure) of index funds and mutual funds, I then moved down that list one by one—only moving to the next one after reaching what I believed to be critical mass in terms of the amount of money invested in the current category. As you can see, each category carries with it more work and more risk as well. We can and will get into these categories one by one over the coming weeks and months.

So…after that brief interlude and window into my investing life, let’s get into individual stock investing. As you can see from above, the first grouping of individual stocks, I seek stocks with dividends where the company consistently increases the dividends year after year. This selects out many stocks—non-dividend payers, companies paying out dividends just recently (for me, that’s 25 years or less), companies with longer term dividends, but are ones that have neither increased the dividends or even worse dropped their dividends over time, etc.

So, in other words, the companies I am seeking are large companies with a good easily understood business model and a long history of strong profits with consistent dividends that are steadily increased year after year regardless of the broader economy or gyrations of the stock market.

These types of companies are relatively rare when considering that there are over 17,000 publicly traded companies and there are less than a few hundred companies that fit the bill. The good thing is that there are far more companies like this than any average Joe and Jill Investor would ever put their money into.

These are so valued, desired, and tracked enough that they have acquired names for themselves.

Dividend Challengers: companies who have increased their dividends for 5-9 consecutive years

Dividend Achievers: companies in the S&P 500 who have increased their dividends for 10-24   consecutive years

Dividend Contenders: Same as the above, but not only in the S&P 500

Dividend Champions: companies who have increased their dividends for 25-49 consecutive years

Dividend Aristocrats: Same as above, but all the companies are only in the S&P 500

Dividend Kings: companies who have increased their dividends for at least 50 consecutive years

Most people stick to one or other (S&P 500 or S&P 500+ all other stocks of any kind) classification system. Of note, the “dividend kings” is not a category that is universally accepted and only used by some (though everyone should recognize what its definition is when everyone it is thrown around).

So, these lists are not static obviously. The best companies move from one list up towards another once they have achieved ten, 25, or even 50 consecutive years of dividend increases. The less fortunate companies fall off the list after one year of not increasing their dividend. REMEMBER THIS: It’s not missing a dividend payout that gets you scratched off the list; it’s simply not increasing the dividend from the prior year that gets your company bumped off the list.

Take the example of Johnson Controls which paid out higher and higher dividends for 31 consecutive years from 1985-2016 until they could no longer increase it. They never stopped paying the dividend and even increased its dividend in subsequent years. However, just for missing one year out of the past 33 years, Johnson Controls went from being a Dividend Champion and eventually on its way to becoming a Dividend King to not even being a Dividend Achiever currently.

One missed dividend payment increase (even if you still pay out a dividend that year in question)…no matter for whatever reason…and you’re out.

Brutally unforgiving system…which is good for us as investors.

There are 25 Dividend Kings, 50 Dividend Aristocrats, 115 Dividend Champions, 220 Dividend Contenders, and 265 Dividend Achievers. Dividend Challengers are harder to nail down as there are approximately 150 companies, but more are being added before the end of this year assuming the dividend increase(s) occur.

Now that we have categorized the different dividend growth stocks, let’s delve into the whys of dividend growth investing versus index fund investing alone…next time.

I’d love to hear from any and all of you about your thoughts, so we can all learn from one another.

Please spread the word about this blog to your friends (real and virtual), family, and colleagues. Talk to you soon.

Eat heartily and have a great holiday!

Until next time…