Tuesday, October 23, 2018

Why Today Is The Day You Need To Pursue Your Dreams

What do you believe is the single greatest reason that most people decide to never pursue their dreams? I personally believe that failure is the single greatest fear that most people have. For whatever reason, people are embarrassed of failure. It leaves them in paralysis with fear. They defer their dreams because maybe other people don't support their dreams, and they need that support. Perhaps you have a dieting goal, a fitness goal, a goal to start a blog, or to achieve financial independence. Whatever it may be, there's no logical reason to keep deferring your dream. There will never be a better time to start pursuing your dreams than today. If you keep waiting for the "perfect time," you'll never take action. I'm going to provide you with 3 reasons to pursue your dreams, regardless of if they are FIRE related.


First Reason: Avoiding Regret

It's understandable that people are afraid of failure. It's difficult to put yourself out there, giving everything you have only to come up short. What you have to remember about failure is that it doesn't have to be the end. Failure is just the beginning. As Thomas Edison said to a reporter of his 1,000 failures to invent the light bulb, "I didn't fail 1,000 times. The light bulb was an invention with 1,000 steps." When you reframe your failure as Thomas Edison did, you continue to keep trying until you eventually find success in whatever goal it is you are pursuing. Another inspirational story is the story of Abraham Lincoln. Born into poverty, Lincoln endured a life of failure. He lost 8 elections, failed twice in business, suffered a nervous breakdown...oh yeah, and then became arguably the single greatest president in American history. The incredible thing about dreams is that you never really know what could happen until you take massive action towards fulfilling them. Imagine if Thomas Edison gave up on the light bulb. How much longer would it have taken to illuminate the world? What if Abraham Lincoln gave up before he lost 8 elections, failed twice in business, and before he suffered a nervous breakdown? Would the United States have survived the Civil War to achieve its place in history among greatest countries had it not been for Lincoln? Thankfully, we'll never know because Lincoln pushed through the adversity in his life to cement his legacy as an all time great president. It's not the failure that defines you, unless you quit. It's the success that comes despite all of your failures that defines you. The definition of a winner is a loser that never quits. Many never even knew that Lincoln failed as much as he did. We all remember him for his success.

Second Reason: You Are The Author Of Your Life

You are the director, producer, writer, and main protagonist in your life. Before you can achieve great things, you need to let this fact of life soak in. Because you are the author of your life, you must decide the life that you want to live. Do NOT let anyone else tell you how you are supposed to live your life. If you surrender your life to the whims of society, you will lead a life unfulfilled. Societal norms are not a one size fits all solution to life. Perhaps some people are apt to work at jobs they dislike for the best decades of their lives, to purchase items they don't need with money they don't have to impress people they don't even like. If you're reading this blog, I'm very willing to bet that you are not one of those people. If you want to break away from the mindset that the majority of people have, you need to develop the "minority mindset" as Jaspreet Singh puts it on his Youtube channel. If you don't want to live like the majority live, you need to stop thinking similar to how the majority thinks.

Third Reason: You Can Be An Inspiration to Others

Dreams come in many different shapes and sizes. Jason Fieber is one such person that is an inspiration to me and many others in the FIRE community. His story of going from a 27 year old below broke college dropout to financially independent at 33 is so empowering because Jason proves that just about anyone can achieve financial independence at a relatively young age with discipline and determination. There are also more well known figures that have endured quite a bit of adversity on the arduous journey to success. JK Rowling is one such figure that comes to mind. After she suffered a miscarriage in Portugal and gave birth to her daughter, Jessica, Rowling moved back to England as a divorced and destitute single parent living off welfare benefits. As we all know, JK Rowling went on to publish Harry Potter, subsequently becoming a billionaire. She is an inspiration to aspiring writers around the world. No matter the size or scope of your dreams, you can be an inspiration to others just as Jason Fieber and JK Rowling are.

Takeaways: 

If you never take action towards your dreams, you'll never really know what you could have been. The feeling of regret is not a feeling you want to experience. I'd rather fail than never try. Ultimately, you are the author of your life. Do not conform to societal norms as they are not a one size fits all approach to life. Live your life the way you design it, rather than how society thinks you should live it. Lastly, you can be an inspiration to others. Chasing your dreams takes courage. You'll probably be ridiculed along the way, but just remember that when you succeed, you will pave the way for countless others to forge their own path.

Discussion:

Because I've only provided 3 reasons to chase your dreams, I'm certain that I've missed several great reasons to pursue your dreams. Are you able to think of any additional compelling reasons to chase your dreams?

Tuesday, October 16, 2018

Recent Stock Purchase - Iron Mountain Inc (IRM)

It was about 3 weeks ago that I last added another share of AT&T (T) to my portfolio. If anyone has checked my Portfolio page recently, they would have possibly noticed that I recently initiated a position into Iron Mountain Inc (IRM). IRM has been quite a popular stock in the DGI community as of late with Dividend Diplomats and Dividend Sensei of SeekingAlpha recently mentioning them. With that said, I'll discuss a few reasons into my decision to initiate a position in this REIT.



Iron Mountain Company Overview

Iron Mountain is the largest physical records storage provider in the world. The core business of physical records management accounts for 63% of revenue. IRM serves over 225,000 customers in 53 countries on all 6 of the inhabited continents through its 1400 storage facilities.

Reason #1: Strong Customer Base

I was delighted to learn that IRM's clientele includes 95% of global Fortune 1000 companies. It is this kind of positioning among many of the largest and most powerful corporations on the planet that gives IRM a strong competitive advantage over its competitors. 

Reason #2: Resilient, Recession Resistant Business

Because of the necessity of record management in today's information driven business environment, IRM has an incredibly stable cash flow with annual customer retention rates of 98%. According to Eric Compton of Morningstar, monthly storage prices are roughly 19 times cheaper than storage retrieval prices. This gives the 225,000 customers of IRM strong incentive to continue to store their records rather than remove them from storage, and explains the strong customer retention rates.

Reason #3: Exciting Future Growth Plans

IRM is expanding its presence into data centers, which supports the incredible growth in cloud computing. IRM's data centers are situated in some of the top tech hotspots in the world such as Singapore, London, and New York City, with 90% occupancy and average remaining leases of nearly 3.5 years. Management expects that by 2020, its rapidly growing data center business will account for 10% of operating cash flows. 

Reason #4: Strong, Safe Yield

With my entry yield into IRM being 7.4%, IRM doesn't even have to grow very much to be an attractive long-term investment. My entry yield of 7.4% compares very favorably to the 5 year average yield of 5.9%. Of course, a dividend yield can't solely be the basis of an investment decision unless one believes that the dividend is safe. IRM's adjusted funds from operations payout ratio currently sits at a reasonable 81%, with expected AFFO/share growth of 5% through 2019 and nearly quadruple that growth in 2020, that will reduce the AFFO payout ratio to around 73% as the company's multitude of growth projects are completed. This growth in the AFFO/share should lead to 4% dividend growth over the next couple years. The concern in the near term with IRM is its junk bond rating. With an interest coverage ratio of 3.6 and debt to EBITDA of 5.6, the company's IC ratio is slightly better than the sector average of 3.5 while the company's debt to EBITDA ratio is slightly better than the sector average of 6.0. With management planning to reduce its long term leverage ratio to only 4.75, it is reasonable to assume that IRM will receive a credit upgrade in the next few years though. 

Closing Thoughts:

The initiation of a position of 2 share in IRM has increased my forward annual dividends by $4.70, with a very strong starting yield that is expected to at least keep pace with inflation. The primary risk of buying IRM currently lies in the concerns that investors have over long-term interest rates spiking higher. Rather than delve into this into further detail, I'll leave the link to Dividend Sensei's recent article on IRM as he does a fantastic job of providing an in-depth analysis of IRM that served as part of my motivation to initiate this position in IRM. 

Discussion: 

What recent purchases have you made? Do you have a position in IRM? If not, do you expect to initiate a position in IRM at some point?




Tuesday, October 9, 2018

September 2018 Dividend Income

The beginning of the month is my favorite time. It's a time to look ahead at increasing your dividends, and a time to reflect on the previous month. Another month has gone by, which means it's time to examine what the dividend portfolio provided for me in dividends for the month of September.

Overall, I collected $44.26 in dividends for the month of September from 13 different companies and 1 mutual fund. $31.73 of the dividends originated from the 13 companies in my Robinhood account that paid dividends this month and $0.04 came from my recently opened M1 Finance brokerage account. The remaining $12.49 came from CAIBX in my Simple IRA through my employer.





Analysis

When examining my dividends, I noticed that I received two dividend increases that accounted for the $0.22 increase in Robinhood account dividend income from June to September. BP announced a 3.4% raise from a quarterly dividend of $0.595 to $0.615 at the end of July that increased the quarterly income I collected from my 4 shares by $0.08. Also, JM Smucker announced a near 9% raise from a quarterly dividend of $0.78 to $0.85 that increased my quarterly dividend income by $0.14.

Of course, the real growth in my dividend income came in my Simple IRA account as CAIBX paid dividends of $7.13 in June compared to the $12.49 it paid me in September. This came as a result of my continued contributions to my retirement account over the past few months.

Overall, my dividend income increased from $38.64 in June to $44.26 in September. This is a quarter over quarter (QOQ) growth rate of 14.5%. I consider this to be satisfactory given that I didn't initiate any new positions or add to positions in my Robinhood account that paid me in September. Of the $5.62 increase in dividend income from June to September, $0.22 or 3.9% of it was derived from dividend increases, $0.04 or 0.7% of it came from the newly opened M1 Finance account, and the remaining 95.4% came from continued contributions into my retirement account.

Discussion:

How was your September? Did you set a personal best in September? Did you have any new dividend payers for the month?

Tuesday, October 2, 2018

Expected Dividend Increases for October 2018

Another month has passed us by, which means it is time for another installment of the expected dividend increases series. Prior to delving into the dividend increases that I anticipate for the DGI portfolio for the month of October, I'll start by recapping the dividend increase(s) from September, and their impact on my dividend income.


As expected, there were two raises for the month of September. This isn't surprising as I've found that most of my dividend raises are concentrated in the last couple months of the year and the first couple months of the year.

Dividend Increase #1: 

Realty Income (O) announced a 0.2% dividend increase from $0.2195/month per share to $0.22/month per share. This dividend increase was about in line with what I expected. This raise in the annual payout from $2.64/share to $2.646 increased dividend income across my 4 shares by $0.024. Not the most impressive raise, but I'm most excited for O's raise that will be announced early next year as O's first raise of the year is historically the largest (at around 4%).

Dividend Increase #2:

WP Carey (WPC) announced a 0.5% dividend increase from $1.02/quarter per share to $1.025/quarter per share. This dividend increase was also in line with what I expected as WPC has raised its quarterly dividend by $0.005 every quarter for the past 2 years. This raise in the annual payout from $4.08 to $4.10/share increased dividend income across my 3 shares by $0.06. Again, a small raise but when considering that my yield on cost (YOC) is 6.8%, I'm not expecting gang buster raises from WPC. There are other companies in my portfolio that will augment my dividend increases, such as Abbvie (ABBV), Lowe's (LOW), and Home Depot (HD) to name a few.

Expected Dividend Increases for October

#1: Enterprise Products Partners (EPD) will likely be announcing a dividend increase some time this month. If EPD continues to follow the pattern that they have been for the past 3 quarters, they should be raising their dividend by 0.6% yet again from $0.43/quarter per share to $0.4325 per share. If this is the case, my annual dividend income will increase $0.09 across my 9 shares.

#2: EQT Midstream Partners (EQM) will likely be announcing a dividend increase some time during this month. I believe that EQM will announce a raise similar to the last one. That would mean that the dividend will be increased 2.3% from $1.09/quarter per share to $1.115/quarter per share. If this does happen, my annual dividend income would increase $1.60 across my 4 shares.

#3: Dominion Energy (D) is the wild card of this group as they did announce a small dividend increase around this time last year, but they historically announce their largest dividend increases in January. If D does announce a raise this month, I'd expect it to be in the low single digit range like 2% or so, from $0.835/quarter per share to $0.85/quarter per share. If this happens, my annual dividend income would increase $0.18 across my 3 shares.

Conclusion:

September was a fairly light month in terms of dividend increases, but for this time of year, that is to be expected. Although the total impact on my annual dividend income was only $0.084 in dividend raises, the important point is that my income is continuing to grow through dividend raises, reinvestment, and the fresh capital being contributed to my retirement account with each paycheck. 

Discussion:

How many dividend raises are you expecting for the month of October? Are you expecting any large raises (i.e. double digits)? What will be the total dollar impact of the raises that you are expecting?





Tuesday, September 25, 2018

How I Reached $10,000 in Investments At Age 21

I've recently crossed what I believe to be quite a milestone for anyone that is pursuing financial independence. After over a year of saving and investing my excess capital into my portfolio of mostly dividend growth companies, I have reached $10,000 in investments with no debt. Why is there an emphasis on the investment aspect of net worth? Well, that's because a $10,000 car or $10,000 of furniture doesn't have the same effect as $10,000 in investments. A $10,000 car will get you to work quite reliably, but a $10,000 portfolio will generate hundreds of dollars of growing income on an annual basis. My money is starting to work for me! Whether you're 21 years old or 41 years old, I believe my story could give you a few key takeaways on how I reached this milestone, and how you can too. Or if you've already passed this milestone months or years ago, this could serve simply as a reinforcement of your beliefs. Without further ado, let's dive straight into the reasons I was able to achieve this milestone.



The First Reason: Supportive Parents

As I alluded to in (How I've Avoided Student Loan Debt), I've been incredibly fortunate to have supportive parents. If it wasn't for my parents, I would be at least $10,000 in debt rather than worth $10,000. I want this site to be completely transparent, and I think it would be a terrible act of omission for me to not mention that my parents have let me live with them rent free. To act as though I have achieved this entirely on my own would be intellectually dishonest. It's this support from my parents that will allow me to graduate debt free with my undergrad degree in accounting next summer. As I've said before, graduating college with little to no debt is virtually the first step on the path to becoming financially independent at an early age. The basic lesson from this is that if you're able to, live with your parents while you are still in college. This will set you up very favorably once you graduate college, and you'll be leaps and bounds ahead of your peers on your path to financial freedom. When you don't have any debt upon graduating college, that leads us into the second component of turbocharging your wealth building.

The Second Reason: Keeping Expenses Under Control

Although my parents have been incredibly generous in letting me continue to live with them, this didn't actually guarantee that I would reach $10,000 in investments at the age of 21. There are only two "levers" to pull to increase your net worth and build wealth. The first of which is to keep your expenses under control. Life is full of choices, and when you're in your 20s like I am, there are often many terrible choices readily available for you to make. The absolute worst choice you could make that has led to the metaphorical and literal demise of many promising young lives includes drugs and alcohol. Fortunately, I've never been the sort of person that is naturally inclined to go out "clubbing" or partying. Not only is it not healthy for the wallet, it's terrible for your health. Society tries to make you believe that these acts of going out and getting intoxicated are really "living," but I believe that to be absolutely false and marketing propaganda used by nightclubs/bars and alcohol companies. The crux of the matter is that when you avoid doing stupid things like seeking to impress people or engaging in "vices," it generally isn't very difficult to save money and get started on the path to financial independence. By doing the above, and by keeping the "Big 3" expenses (i.e. housing, food, and transportation) under control, saving money is very doable.

The Third Reason: Increasing My Income

While I talked about one of the two "levers" you can pull to build wealth, I didn't want to leave out the second which is increasing income. Building wealth can really be this simple. Just before I graduated college in August 2017, I accepted my first "real" job and current job working in the legal field. Before this, I was working part-time as a cashier making barely above minimum wage. Since starting my current job, my pay has increased with 3 raises from $10/hr with no benefits to about $12.75/hr including benefits. Obviously, this has been quite an increase from the roughly $300/month I was making while still attending my 2 year college. This has more than offset the increase in expenses I have experienced since obtaining my 2 year degree, and subsequently starting my current job, as my current expenses with tuition/textbooks/living expenses have increased about $1,400/month while net income has increased $1,550/month.

Takeaways:

When you're in the early stages of building wealth like me, having supportive parents is very helpful. I have been very blessed to have parents that allow me to live with them (and that put up with me lol). If you don't have this support system, it isn't impossible to build wealth, but it's certainly much more difficult! Moreover, the easiest way to begin building wealth is by avoiding debt. I'll be graduating next year with no debt. The final takeaway is pulling the two levers to build wealth. You can either decrease expenses, increase income, or do a bit of both. You can decrease your expenses and keep them under control by refraining from nonsense like drugs/alcohol/gambling or trying to impress others, and by focusing on minimizing your "Big 3" expenses. Lastly, you can increase your income through developing additional skills or taking up a side hustle. As my friends over at DividendDiplomats say, every dollar counts on the journey to whatever dollar amount you are aiming for.

Discussion:

Have you saved your first $10,000 in investments? If so, how long did it take for you to reach your first $10,000 in investments? How much easier was it to accumulate the next $10,000 once you had your wealth building on autopilot? Do you have any other advice to those seeking their first $10,000?


Tuesday, September 18, 2018

Navigating The Insanity of Transportation Expenses

As readers of this blog or really any personal finance blog are aware, there are 3 particularly large expenses (housing, food, and transportation) that account for over 60% of household spending. We're focusing today on the madness occurring in the transportation category of the budget for many Americans.


For those of you that follow my Twitter account, you may or may not remember a tweet from several weeks back about how the average new vehicle loan is $31,099, while the average used vehicle loan is $19,589. Furthermore, Americans on average spend 16% of their income on transportation. Although I do realize the necessity of a car in many areas of America (try getting to work in a small Midwestern town in the middle of January without a car), I also don't believe it's necessary to take on this kind of debt when purchasing a vehicle or to spend this much on transportation. Maybe I'm a bit biased as my father is quite handy with cars, and we have always purchased cars that were in collisions, and then restored them back to road condition. This has allowed us to use our cars for over 10 years at a relatively low cost in comparison to many Americans. I realize that this isn't something that is an option for everyone, but many Americans without a doubt would benefit from carefully considering their options when it comes to the transportation category of spending.

Option #1: Try To Live Close To Work

I am fairly lucky to live 7 miles/10 minutes each way to/from work. The average American has a commute of 16 miles each way to/from work. With gasoline prices at an average of $2.85/gallon at the time of writing this, I spend $356/year on gasoline assuming working 50 weeks/year and 5 days/week, while averaging 28 miles per gallon. The average American would spend $814/year on gasoline with the same assumptions. Of course, the amazing part is this doesn't even factor in the other expenses that are magnified when one lives further from work. For instance, you'll need to replace your tires sooner, change your oil more frequently, and your car will depreciate at a much more rapid rate the further you need to commute to work. The other not so obvious cost is the added commute time that results from living further away from work. This cuts into your time to relax or pursue side hustles.

Option #2: Purchase A Practical Vehicle

Remember how I assumed that other Americans were also driving vehicles that averaged 28 mpg? It actually turns out that the average fuel economy in the United States is somewhat lower than that at 24.7 mpg according to Reuters. You're probably thinking "Kody, that's only a difference of roughly 13% in terms of fuel efficiency." However, when you drive as much as the typical American drives, it's that extra 13% in fuel efficiency that I'm getting out of my 2012 Chevy Impala that really adds up (I drove mostly highway miles, which is how I arrive at an average of 28 mpg for my commute). Of course, the average fuel economy of SUVs and trucks are still noticeably lower than that of subcompact and compact cars. With the strengthening US economy, stable gasoline prices, and improved design, the uptick in demand for SUVs and trucks has been drastic. Since 2008, the share of SUVs/trucks sold has increased from 49% of sales to 65% in 2017. Before purchasing a vehicle, be sure to evaluate your needs. Nothing is more illogical than to buy a spacier vehicle than you really need. It senselessly drains your wallet and leads to more carbon emissions in the process.

Option #3: Incorporate Opportunity Costs Into Your Spending Decisions

One of the most useful things that I learned from both the online personal finance community, and my economics class is to incorporate opportunity cost into any decision you make. This will help you make an informed decision, and you'll ultimately feel confident in whatever decision you make after analyzing your options. For instance, let's say that you stumble across two barely used cars that are in nearly identical condition in terms of miles, model year, etc. The only difference is that one car is less desirable and perceived as "uncool" by society, whereas the other is viewed as a "status symbol" by society. The "uncool" and undesirable car costs $14,000, whereas the "status symbol" car costs $20,000. When determining which car to pick, it essentially comes down to how much you value validation from your peers. The $6,000 difference when invested for 15 years at a 5% inflation adjusted return turns into nearly $12,500. So at the end of the possible lifetime of both cars, we can see that one choice leads to you having $12,500 in extra wealth, and the other leads to $0.

Takeaways:

Live as close to work as you can provided it doesn't materially impact other spending categories like housing. This will save you time, and money provided you don't spend more on housing (living closer to work) than the reduction in your transportation expenses. If you are really lucky, you may even be able to work from home part of the week depending upon your job. Secondly, be sure to be mindful of your needs when evaluating what vehicle to purchase. How much space do you need from the vehicle you're looking to purchase? What is the fuel efficiency of the vehicle as measured by mpg? What are the safety ratings of the vehicle? All these factors should be taken into account prior to pulling the trigger on purchasing a vehicle. Lastly, be sure to weigh the opportunity costs of one vehicle against the other. Is a prestigious or unnecessarily spacious vehicle that is priced higher than a reliable, workhorse vehicle worth amassing substantially less wealth 10 or 15 years from now?

Discussion:

What are your thoughts on the transportation expenses of the average American household? Do you have any tips that you can think of to reduce transportation expenses?

Saturday, September 15, 2018

Lessons After One Year of Investing

For those that are new to the blog, I began dividend growth investing at the beginning of September 2017. As such, I have been investing for just over one year at the time I'm writing this post. Along the way, I have applied much of what I already learned over the years. Although I already knew these lessons, I think it's a bit different to apply these lessons from a practical standpoint versus the theoretical standpoint I had before I began investing. With that being said, let's delve into 3 lessons I've applied after one year of investing.



Lesson 1: Ignore The Noise

When you're first starting out investing, it can be tempting to watch the financial media like CNBC. However, what I've realized about the financial media since investing is that it seems as though they are interested in driving ratings. They do this by playing on the two most detrimental emotions an investor can fall back on in lieu of cold, hard analysis. Those emotions are fear and euphoria. It's these strong emotions that bring back viewers time and time again. It's also these strong emotions that lead to irrational behavior, and disappointing results. For instance, the average investor has substantially under-performed the S&P 500 index over the past twenty years. This is primarily because investors let their emotions get the better of them. When you tune out the noise and focus solely on the fundamentals of your investments, that is when you are able to perform in line with the market or even beat the market. Even recently, investors had to endure a market correction this past February that saw the S&P 500 enter into correction territory, only to battle back and end the month down 3.9%. I'm sure during this time the financial media was selling fear, prompting some investors to exit the market. Unfortunately, for investors that did exit the market at the low on February 8th, the S&P 500 has since rallied 11.3% (as of September 9, 2018). This just proves that nobody can accurately predict the market, and that you shouldn't try to either.

Lesson 2: Capitalize on Market Inefficiencies

No matter what the stock market does, there will always be intelligent investments available to you. We have been in a bull market now for nearly 10 years. As a result of this, it is becoming more difficult to find intelligent investments worth considering. But make no mistake about it, there will always be intelligent investments available for your consideration. For instance, one of those investments at the present is Abbvie. According to the Nasdaq, Abbvie is projected to grow its earnings by 14% a year over the next 5 years on top of the current 4.1% dividend yield. Assuming the valuation multiple remains the same, investors are looking at 18% annual returns over the next 5 years. Even if those growth estimates prove to be inaccurate with the risks of an investment in Abbvie materializing, and the company achieves only 8% growth in earnings during the next 5 years, an investor at today's prices is looking at a roughly 12% annual total return over the next 5 years. Abbvie is one of several companies out there that I believe is trading at a compelling valuation despite the overvaluation in some sectors of the market at present valuations.

Lesson 3: Utilize Diversification

One such reason I advocate for diversification among sectors can be seen in the oil market of 2016. Massive energy companies like Chevron reported a quarterly loss for the first time since 2002, with many MLPs cutting or suspending their dividends altogether. I think it goes without saying that if you derived a large chunk of your income from MLPs during this time, you were absolutely horrified during the most recent bear market in oil. It is for this reason alone that one should be well diversified across all sectors of the US economy. When the economy enters a recession, consumer staples and utilities should hold up well as the anchor of your portfolio, whereas the consumer discretionary and financial stocks in your portfolio will likely be trounced in comparison, possibly resulting in a few dividend cuts, from a combination of generous dividend payouts and a decline in profits that is common during recessionary periods.

Takeaways: The financial media can do a great job in reporting key economic indicators that can give you insight into the state of the economy, but it often tries to sell fear and euphoria. For the most desirable results in investing, tune into the fundamentals of the market, while tuning out the emotions in the market. Secondly, the market will always present attractive opportunities. Although they are scarce in an extended bull market like we're currently experience, they are still out there. As I said before, the market may be up or it may be down, but there will always be intelligent investments available for your consideration. Lastly, owning 30 companies isn't enough if all those companies you own are in one sector of the economy. You must be diversified across all sectors of the economy for adequate diversification. This way a setback in one sector of the economy doesn't jeopardize the entirety of your dividends, but only a small portion.

Discussion: How long have you been investing? What lessons have you put into practice since you began investing?

Tuesday, September 11, 2018

Money Can't Buy Happiness...But Here's What It Can Buy

How many times have we heard the phrase "money can't buy happiness." It's a platitude that has been embedded into societies across history. As overused as I believe the phrase is, I do believe that there is a grain of truth in it. There's no doubt that money is useful, but as we've seen time and time again, vast amounts of money actually just bring headaches. I believe one of the primary reasons that ultra wealthy celebrities endure divorces as often as they do is because they don't really know who genuinely likes them versus who likes them because of their fame and fortune (ulterior or hidden motives). As Jason over at MrFreeAt33 said in a recent article (and has proven for years now), beyond the basics in life like food, housing, electricity, etc., money really doesn't buy happiness.



What Does Money Not Buy?

Before we delve into what money does buy, I just wanted to briefly discuss what it doesn't buy so we aren't under any illusions. Money isn't some sort of possession that can fix the underlying issues that we may have, such as addiction or insecurities. In other words, it doesn't fix our faults. Those will remain regardless of your net worth until you first admit you have a problem, and seriously work to mend that problem. Moreover, and most importantly, money doesn't buy love. Think of those in your life that are closest and dearest to you. Would they do anything for you because they love you? Yes, of course they would. What separates love from every other emotion is that true love is unconditional. It doesn't matter what your net worth is or what you have to offer in return; true love gives and asks for nothing in return. Conversely, if you have to give somebody money or items of value to do things for you, this doesn't equate to love. It is merely a business transaction.

If Money Doesn't Buy Happiness, What Does It Buy?

When you have enough money working for you (generating passive income in excess of expenses), it is said that you are financially independent. This means that you have the autonomy or the freedom to pursue whatever in life fulfills you, which interestingly enough often brings happiness and meaning to your life.

But How Could This Be? It Seems Paradoxical.

You're probably wondering how we've just said that money can't buy happiness, yet at the same time we've said that it actually indirectly can. I don't actually intend to communicate that money alone is the key to happiness, but I'm trying to convey that once your basic expenses are met, it's that freedom and autonomy that are you afforded that allows you to live the life that you want rather than "job" for a living. Instead, you can "work" on whatever you find delivers value to others without the expectation of making money from it (although eventually you probably will), and as a result, you often find a sense of worth and fulfillment in these pursuits. True happiness originates from a sense of purpose and a feeling of meaning that you attach to your life. 

This is a particularly complex subject, and every person is somewhat different in regards to what makes them happy. With that being said, I believe that most can find happiness in improving themselves, in turn unlocking their full potential, and using that potential to help others learn how they can improve their lives. Quite simply, when you feel content with yourself, you are more pleasant to be around. When you are more pleasant to be around, you indirectly improve the lives of others, and serve as a template for others pursuing happiness because basically everyone wants to be happy. As a result of others seeking happiness, they may ask how you are almost always content with your life. Although no two people want the exact same things out of life, you could be the catalyst that drives others to actually examine in detail what they want out of their life. When you are financially independent, you don't have to be your inauthentic self anymore. That alone should bring you some measure of joy. You don't have to report to a boss or deal with difficult coworkers anymore. You're free to be whoever you'd like to be, or what I like to call your authentic self!

Takeaways

Extraordinary amounts of money to the point that you can't really hide your wealth are actually detrimental, and in these cases, money basically buys "misery." Practicing stealth wealth is ideal and to your benefit if you are able to pull it off (which you should be able to do unless you are on the Forbes list of billionaires). It is difficult to distinguish between hidden motives and those that actually like you for who you are when you are obscenely wealthy, which often leads to trust issues (and further relationship issues). The perfect amount of money is an amount that is enough to allow you to pursue your passions, while also being discrete about your wealth to not attract unnecessary attention. Ultimately, it's up to you to decide what brings you happiness and joy. But just know that money isn't necessarily good or evil, it's just a tool to allow you to pursue what brings you fulfillment when you have enough of it to meet your basic needs. This is the precise reason that I blog about unlocking financial independence through dividend growth investing. 

Discussion

What are your thoughts? Do you believe money can indirectly buy happiness by allowing us to pursue our passions and fill our lives with meaning and purpose?

Saturday, September 8, 2018

How I Have Avoided Student Loan Debt

Before we begin this article, I'd like to ask a quick question. What is the second leading source of debt in the United States? I'm sure that you probably guessed it was student loans. Behind mortgage loan debt, student loan debt is the second leading source of debt in the United States. The average student loan debt for Class of 2017 graduates was $39,400. Not surprisingly, as time goes by, these figures will continue to steadily increase. For more information on the extent of the student loan crisis, StudentLoanHero is an excellent source of information.



Fortunately, when I graduate next summer in 2019, I will not be among those graduating with student loan debt. I say this not to boast, but to possibly help those that are younger consider their options. Because when you decide to embark upon the path to financial independence, avoiding debt whenever possible is critical to achieving financial independence at a young age. Admittedly, my story does involve one of privilege because although my parents are normal middle class folks, they have helped tremendously as we'll come to find out. Without further delay, let's examine the actions I took (and the fortunate events that transpired) that allowed me to graduate with no student loan debt.

My First Step: Attending My Local 2 Year College

For those that didn't know, I attended my local technical college (Mid-State Technical College) to obtain my Associate's degree in Accounting in 2017. Shortly thereafter, I utilized a transfer agreement between MSTC and Lakeland University so that I could transfer ALL 72 of my credits at MSTC to Lakeland. Even better, Lakeland has a Blended option that allows me to choose whether I will attend class on any one of their several campus locations besides their main campus location or if I will attend online. This allows me to actually take advantage of the next step.

My Second Step: Supportive Parents

Since graduating high school 3 years ago, I've continued to live with my parents. With rent around this area realistically costing around $550 a month were I to live on my own, I have saved 3 years of rent which would total around (36 months * $550 a month) $19,800. Given that I currently have a net worth of nearly $10,000, I would currently be in debt to the tune of $10,000 if not for my living arrangement with my parents. That's why living with your parents and attending your local community college or state university is often pivotal to graduating with no debt, provided your parents aren't providing much financial support if you are attending university half way across the country. Secondly, my parents have also allowed me to use one of their cars without having to purchase it. The only requirement is that I pay all expenses associated with it, which is more than fair. Although I have received about $3,000 of the total $40,000 from my parents/grandparents that I will spend on books/tuition to attain my undergrad degree in accounting, my parents have saved me an insane amount of money by allowing me to continue living with them (plus they're not that bad either haha).

My Third Step: Earning As Much As You Can Before & During College

Because college will probably cost you at least in the mid 5 figures, it is incredibly important that you earn as much as you can before and during college. In my own story, I didn't earn very much before I started college, as I didn't get a part-time job cashiering until my senior year in high school that I held until I graduated college in 2017. In this regard, I could have done much better as many kids get jobs at the age of 15 or 16. I believe that the benefits of the first step also can be utilized in this step because after you obtain your two year degree from your local community college, you become more marketable to employers. I used my degree to obtain a job that pays over $12.00/hr with benefits (which isn't bad for the small mid-western town that I live in). It is this substantial increase in earnings that is also helping to pay for the substantial increase in expenses associated with attending Lakeland University (it is a private non-profit with tuition nearly triple that of the two year college I attended). With my current earnings against my current expenses (tuition, books, living expenses i.e. food, transportation), I am roughly treading water after accounting for the 7% that I contribute to my retirement account through my employer, and their 3% match. So, through all of this, I am still building wealth at a clip of about $2,000 a year.

Conclusion:

I recognize that I am incredibly privileged and if my story made you a bit nauseous, I can understand that. Obviously, not everyone will be able to take advantage of my second step. I even know of some parents that basically kick their kids out of the "nest" once they graduate high school. I can sort of understand the reasoning, in that it does force your kids to learn to fend for themselves and develop independence. Unfortunately, it is probably one of the primary reasons that kids go into so much student loan debt these days, combined with the fact that it's difficult to even comprehend how much debt $30k or $40k is when you're in your late teens or early twenties, and the consequences of borrowing that kind of money. I've saved almost $20,000 by being able to live with my parents which has made all the difference in being able to graduate with no debt and a roughly $12,000 net worth next summer.

Discussion:

How was your experience with college? Were you able to avoid student loan debt? Did you enjoy privileges similar to mine? Or did you have to really grind it out to graduate with no debt?








Tuesday, September 4, 2018

August 2018 Dividend Income

The beginning of the month is my favorite time. It's a time to look ahead at increasing your dividends, and a time to reflect on the previous month. Another month has gone by, which means it's time to examine what the dividend portfolio provided for me in dividends for the month of August.




Overall, August was yet another record month for me in terms of dividend income. I collected $41.19 in dividends from 12 different companies. When compared to my dividend income for the middle month of the prior quarter in May, my dividend income grew 21.6% from $33.86 to $41.19! This sort of growth is primarily because I am starting from such a small capital base that even a small investment, along with dividend increases and dividend reinvestment have a measurable impact on my dividend income.

Let's delve into how my income grew from $33.86 in May to $41.19 in August, shall we?

This $7.33 growth in income from May to August can be explained by 3 things. Over the past few months, I've initiated a new position of 4 shares in EQT Midstream Partners LP (EQM) (by selling 3 shares or half my stake in CVS), a new position in Abbvie of 2 shares (ABBV), and a new position in General Mills (GIS) of 4 shares. The addition of ABBV increased dividend income by $1.92, the addition of GIS added another $1.96 in dividends, and lastly the substitution of CVS for EQM added $2.86 in dividend income ($4.36 in income from EQM versus the $1.50 of income from CVS that I gave up when I sold my 3 shares). In total, these transactions alone added $6.74 in dividend income.  Another $0.43 came from the purchase of 1 more share of Enterprise Products Partners (EPD). The final $0.16 in additional income was a result of the dividend raise from Lowe's (LOW) from $0.41/share quarterly to $0.49/share manifesting itself as I own 2 shares.

The great thing about this is that my dividend income in November will be even higher without any additional effort on my part. I recently added to my stake in Abbvie, so that will add another $0.96 in quarterly dividends alone. This doesn't take into consideration any possible dividend increases that will occur among my holdings by November. For instance, EQM has a trend of raising its distributions on a quarterly basis, and I expect this to be no different for the next distribution. Although I won't be able to contribute any new capital to the account that could possibly increase my dividend income for the middle month of the quarter, I will continue to pool my dividends and selectively reinvest into an existing holding. I'm not sure whether it will be a holding that has paid me dividends during this month, or a holding from a different month because I don't know what opportunities Mr. Market will present to me in a couple months. I will, however, continue to contribute to my retirement plan through my employer which will be a nice boost to my end of quarter month income.

How was your August? Did you get any dividends from new names in your portfolio or is your portfolio pretty well established already? What was your quarter over quarter dividend growth from May to August?






Saturday, September 1, 2018

Expected Dividend Increases for September 2018

Another month has passed us by, which means it is time for another installment of the expected dividend increases series. Prior to delving into the dividend increases that I anticipate for the DGI portfolio for the month of September, I'll start by recapping the dividend increase(s) from August, and their impact on my dividend income.



For the month of August, I only received one dividend increase. Although it's nice to get multiple raises in a month, a raise is a raise and I'll take it. Especially when the only raise you receive is a double digit increase! Altria Group (MO) raised its quarterly dividend from $0.70/share to $0.80/share, amounting to a 14.3% raise for shareholders. This raise added $1.20 to my forward annual dividend income. As I alluded to in last month's expected dividend increases article, Altria is a company that absolutely creates value by returning its gobs of cash to shareholders. They recognize that their investors are dependent upon them as a source of their income, and they don't disappoint. This company has raised its dividend every year, without fail for the past 49 years. For perspective, Altria (and its predecessor, Philip Morris Companies) raised its dividend through the highly uncertain and litigious 1990s for tobacco companies, through the Great Recession, the Vietnam War, the tech bubble, and despite the smoking prevalence in the US declining from 42% of adults in the early 1960s to 14% currently, the company has been able to achieve this due to the highly addictive and inelastic nature of cigarettes. Fortunately, the company is diversifying into the smokeless segment to combat this shift from cigarettes to e-cigarettes. The company also owns a wine business, Ste. Michelle Wine Estates, and a roughly 9.6% stake in AB Inbev (BUD). Management has been very diligent with managing its dividend over the years as it maintains a target payout ratio of roughly 80%, while using the other 20% of adjusted diluted earnings per share to pay down debt, engage in share buybacks, and to fund its transition away from traditional cigarettes. This attitude of returning cash to shareholders was on display again as the company's annual dividend amounts was raised to $3.20/share against latest 2018 earnings guidance of $3.94 to $4.03/share.

As we get further into the year, dividend increases are clearly becoming sparse. I've found that the vast majority of dividend increases come in the last month of the year, as well as the first couple months of the following year. With that said, I don't expect many dividend increases in September.

Predicted Dividend Increase #1

Realty Income (O) last announced a 0.2% dividend increase this past June. If O follows its trend of raising its dividend every quarter, we should be set for a dividend raise sometime in September. Given that O raises its dividend every quarter, the increase will be smaller than what investors receive from companies that raise their dividend once a year. Having said that, I believe that the raise will be somewhere in the ballpark of 0.3%, increasing the annual dividend from $2.64 to $2.648. The total impact of this dividend raise on my 4 shares of the company would amount to just over $.03 a year. While these dividend increases seem minuscule, one has to keep in mind that the largest dividend increases from O generally come at the beginning of the year to the tune of around 3-4%.

Predicted Dividend Increase #2

Like O, WP Carey (WPC) typically increases its dividend every quarter by a small amount. For the past two years, they have increase their dividend by 0.5% each quarter. I expect this trend to continue into this September. The quarterly dividend should be increased from $1.02/share to $1.025/share. This would increase the annual dividend income that my 3 shares produce from $12.24 to $12.30, for an increase in annual dividend income of $0.06.

Conclusion

Although I am only expecting two small dividend increases this month that will increase annual dividend income by $0.09, the alternate situation of never starting dividend growth investing is much worse. Who could say no to getting raises simply for acquiring shares in a company and holding them as long as the fundamentals of the company remain intact or improve? It's absolutely, without a doubt the most passive source of income out there, and the dividend raises are the gift that keeps on giving.

Discussion

How many dividend raises are you expecting for September? What impact will the projected increase have on your dividend income going forward?




Tuesday, August 28, 2018

Why Not Start Investing Today?

If you're anything like me, you probably enjoy the idea of your money working for you. After all, it takes money to live. If your money isn't working for you, you must work for your money. But you may be wondering what I mean when I talk about making your money work for you. That serves as the basis of what we'll be outlining today.



What Do I Mean?

When I refer to making your money work for you, I am referring to the keyword in this post being "investing." Quite simply, investing is the act of expending money with the expectation of that money you expended growing in purchasing power over time. In other words, investing is the act of delayed gratification. When you adopt the mindset of delayed gratification, you are adopting the mindset that by not spending this dollar I have today, I can grow this dollar to 2 dollars 10 years from now. This capital that you earned through time and patience can be used to fund your lifestyle, and in turn, it can be used to provide you the freedom that many workers yearn for.

As I mentioned not long ago, the path to becoming an equity investor has never been easier. As such, it deeply saddens me that 46% of Americans don't own stocks. I liken the US stock market as equivalent to the "Wal-Mart Supercenter" of investing. The US stock market has exposure to every industry in the US economy to diversify your portfolio, from utilities, to energy companies, to pharma companies, to media companies, to railroad companies, financial services companies, and so much more. Now, there are many ways to invest, including real estate, and I don't want to dissuade anyone from pursuing those investment options, but my personal philosophy is why go through the hassle of being a landlord when real estate investment trusts (REITs) like Realty Income (O) can handle all the headaches that go along with being a landlord on your behalf as an investor in their business.

My Preferred Method of Investing

As anyone that has followed this blog a bit can guess, I am a dyed in the wool dividend growth investor. This short piece about dividends by Morgan Stanley concisely illustrates precisely why I am a dividend growth investor. Companies have different ways to manipulate earnings through accounting, which means that dividend growth investing is a way for companies to "show me" the success of their business, and not just tell you about it. Secondly, dividend paying stocks tend to be less volatile in bear markets, meaning that their stock price is less likely to be as negatively impacted by a downturn in the stock market. And when done right, investors in these dividend paying companies continue to be paid growing dividends through these tough times. This is very helpful to many investors psychologically as I certainly wouldn't want to part with a company that continues to pay me a growing dividend even through a recessionary period. Moreover, because management generally takes paying sustainable dividends seriously, it forces them to be more discerning about how they reinvest their profits back into the business with the intent of increasing profits. Lastly, management can't screw up what it doesn't control. If a company sends half of its profits to an investor, the investor now has the responsibility to decide how they should allocate their capital. They can use it to pay bills, save it, or reinvest it into another dividend paying company.

But What About The Market Near All-Time Highs?

As everyone is probably aware, the market has been constantly hitting or testing new highs. With that said, investors and wannabe investors would be wise to remember the adage that "time in the market beats timing the market." There have been countless times since this bull market began in 2009 when the investor community believed that we would enter another recession and stocks would soon plummet. One such instance that I remember was when major credit rating agencies downgraded the debt of the US government. However, as we know, the market continued to soar to all time highs, and these news events look completely irrelevant now looking back. As Dividend Sensei over at SeekingAlpha puts it, the market is constantly climbing a wall of worry. Investors that exited the market years ago when there was concern the market would crash have missed out on serious gains, which goes to show that nobody can accurately predict exactly when the market will crash. It's been proven that the typical equity investor significantly under-performs the market. This isn't because investors lack in the intelligence to perform in line with the market or outperform the market, rather it comes mostly from a lack of discipline and emotional intelligence.

Takeaways

One can begin to create a mostly passive dividend income stream today by selecting dividend growth companies that are trading at fair to better valuations. There are nearly 900 dividend paying companies that have increased their dividends for at least the past 5 years that you are free to skim through for idea generation for investing purposes. The longer a company's dividend growth streak continues, the more indicative it is that the company has strong fundamentals (i.e. wide business moat, strong balance sheet). As dividend growth investors, we are looking for such companies to grow our dividend income, and allow our money to work for us, so we don't have to work for our money.

Disclaimer

As always, please remember that I encourage investors to do their own due diligence, and the mention of any companies in this article should not be construed as an endorsement to invest in them.

Discussion

What is your preferred method of investing? How hard is your money working for you?


Saturday, August 25, 2018

The Path to Becoming An Equity Investor Has Never Been Easier

In this era of investor friendly, low cost brokers that we find ourselves living in, I find it somewhat unsettling that 46% of Americans don't own stocks. The even more disturbing part is that those who don't have access to a retirement account through an employer are less likely to have money invested in the stock market.

Given that we know the US stock market is the single greatest creator of wealth over medium to long term time horizons, why don't more Americans invest in the stock market? Below, I'll present some of the misconceptions that some Americans may have regarding the stock market that hold them back from investing. I will also offer a rebuttal for each of these misconceptions.



Reason 1: "Investing Is Only For The Wealthy"

I believe that one of the primary reasons that so many Americans don't own stocks is that they believe one must have access to thousands of dollars to begin to invest, so they just never start because of this mistaken belief. As we will discuss below, there are no shortage of options to choose from when investing. 

Twenty years ago, I'd agree to an extent that investing wasn't as accessible. Investing wasn't automated in those days, meaning more work to execute a trade (calling your broker to place a trade), and the costs were considerably higher; although in the last few years this has changed considerably. As I alluded to in my review of Robinhood, signing up for the broker is a very easy and user friendly process. It didn't take me more than 5 minutes to sign up, and a couple minutes to link my bank account to begin investing funds. Robinhood charges no fees to purchase stock. This is fantastic for investors that are just starting out and only have a few hundred dollars to invest. As long as you have enough money in your brokerage account to buy whole shares of stock rather than fractional shares, there is nothing stopping you from becoming a shareholder in some of the finest companies on the planet, and making your money work for you. If Robinhood isn't exactly your style, you could perhaps consider M1 Finance for free automated investing. Even if you prefer the bigger online brokers like Schwab, you can still trade cheaply for $4.95. The point is that regardless of if you have $300 to invest or a cool $1 million, you have access to so many fantastic brokers that allow you to begin investing with much less than you may have thought.

Reason 2: "The Stock Market Is Rigged"

What many Americans will argue when you tout the benefits of investing in the stock market is that it is rigged. In their view, institutional investors (also commonly referred to simply as "Wall Street") are screwing over the retail investor also known as "Main Street" or "the little guy"). This couldn't be further from the truth. Like retail investors, institutional investors also participate in the stock market. Unfortunately, what we continually see is that retail investors commonly try to time the market, and they also panic sell at rock bottom prices when we encounter recessions or a cyclical industry like energy experiences a bust cycle. It should come as no surprise to anyone that when one bases their investment decisions off emotion, they will make foolish decisions, selling precisely when they should be buying or buying precisely when they should be selling. As a result of these foolish decisions on one end of the spectrum, the party on the other end will benefit from the foolish decisions of the other party. Somewhere out there, there is someone who sold BP at $29 a share in January 2016, while someone else bought BP at $29 a share. The former likely experienced significant losses depending upon their cost basis, while the latter has experienced 49% in price appreciation with the current price of over $43 a share, not even including 10 dividend payments the latter investor has collected from BP over this time meaning they collected another $5.95 in the form of cash dividends that they could have reinvested into BP or other dividend paying stocks during that time, or they simply enjoyed the dividends however they chose during that time.

Reason 3: "Investing is Complicated. It's Rocket Science."

As we discussed in the second reason, many believe that the stock market is rigged primarily because they don't understand that the stock market is filled with many great businesses that generate real profits for their owners (shareholders). That is simply because although we live in the golden age of investing, we also live in the age of  "information overload" or "analysis paralysis." People will often over-analyze the stocks that they own, and sell for the most immaterial reasons because of the opinion of some writer about a particular company they own. Many that don't invest are discouraged because they have been led to believe by the financial media that only professionals with an MBA in finance are qualified to invest in the stock market. The truth is that investing can be as simple or as complicated as you'd like it to be. If you don't have the time to invest yourself or you don't feel qualified, you can absolutely invest in low cost index funds. Even Warren Buffett, the world's greatest investor advocates that the vast majority of people should contribute regularly to a low cost index fund, set it and forget it for a few decades to let compounding do the heavy lifting, and propel individuals to a safe and secure retirement. Because investing is a game of patience and endurance, it's incredibly important to know your risk tolerance. I believe the question of whether you are possibly equipped to invest in the market yourself can be answered by the following question. If the stock market were to drop 50% in the next week (assuming that the fundamentals of the global economy are relatively intact and there isn't a zombie apocalypse) would you say A) "Heck yeah, the stock market dropped 50% for absolutely no reason. I'm going to buy up as many quality dividend paying companies as I can." Or would you say B) "Oh no! The stock market dropped by 50% in the last week. I better sell before I lose everything!" Regardless of what you said, it's absolutely fine either way. One of the most important rules in investing is to know thyself. If you would continue buying stock if the market plunged, you may possibly be suited to strike out on your own and begin a strategy such as dividend growth investing (DGI). If not, you'll do well for yourself to contribute to a low cost index fund, and mostly forget about it for a few decades. There is no right or wrong answer. Investing isn't a one size fits all subject. That's exactly what makes it such a broad and fascinating subject.

Takeaways

In no way do I write these sorts of posts to demean or criticize my fellow Americans. Actually, I write these types of posts to try to educate and inspire everyone to invest in the stock market. As they say, "getting started is the hardest part." Whether you decide to invest on your own or you invest through index funds, please know that before you do either, you must know your risk tolerance. Whichever way you choose, just know that there are so many great low cost options at the tips of your fingers that weren't around 5 or 10 years ago.

Discussion

Are there any reasons you think I missed why more people don't become equity investors? What is your investing style? Do you prefer an active approach like DGI or a more passive approach like index fund investing?











Tuesday, August 21, 2018

My Robinhood Review After 1 Year

In today's world, investing has never been easier for those who are just starting out. There are several platforms out there that are very investor friendly. I thought I'd take a few moments to give my review of one of those platforms I use called Robinhood after one year of using it to purchase dividend stocks.



What is Robinhood?

Robinhood is a broker that is backed by FINRA and is SIPC insured. Because they are federally registered and monitored, this should alleviate any concerns that prospective Robinhood users have about if Robinhood is legitimate. Robinhood is able to charge no fees or commissions because they earn interest income on any uninvested cash in the brokerage accounts of their customers. Secondly, Robinhood makes money off of margin account interest when Robinhood Gold users utilize the margin feature. Lastly, Robinhood earns money by offering the Robinhood Gold service to users for $10-$25 a month. This service allows Robinhood users unlimited instant reinvesting, instant deposits, and added buying power.

Robinhood Pros

User Friendly App/Website: Because Robinhood is a fintech company that seeks to democratize the process of investing, they have no account minimum to open an account. Regardless of if you have no money to invest or $50,000 to invest, you can open an account. Opening an account is very easy and user friendly. It took me about 5 minutes to provide the necessary information to have my account approved a couple days later. Linking a bank account in order to be able to invest was also a very quick and easy process. Also, since I joined Robinhood, they have added a desktop site for users to check their accounts.

Investing Options: Robinhood has ramped up the number of investing options that are available to its users. Since I started my account last August, they have added options trading and cryptocurrency. I'll probably never use either of these new features, but for anyone that would like more options than just stock investing, Robinhood has become a great platform for so much more than just stock investing.

Free Commissions: As I alluded to earlier, Robinhood charges no fees or commissions. This can save users of Robinhood quite a bit of money.

Diversification: Because Robinhood charges no fees or commissions, I've been able to invest small amounts of money into a wide variety of great dividend paying stocks. At the time of this article, I'm invested in 31 different companies through my Robinhood account. My investments in companies range from as little as $150 to over $500. The larger investment holdings in my account weren't even built in one purchase either. I've been able to average down my cost basis on positions like AT&T (T) and Exxon Mobil (XOM) through several purchases over time. I've had 52 transactions since I signed up for Robinhood which has easily saved me hundreds of dollars in fees. If not for investor friendly platforms like Robinhood, I'd have to invest much more money in fewer positions to not accumulate so much in fees, which would sacrifice the diversification of the portfolio.

Customer Service: To this point, the only interaction I've had with customer service was when I didn't receive my dividend from Royal Dutch Shell (RDS.B) a few days after the dividend pay date back in March of this year. This was when I wasn't aware that it can at times take longer for ADR shares to deposit dividends into your brokerage account. I emailed customer support and they promptly informed me of this. The dividend was deposited into my account a few days later just as they said it would be.

Order Types: Robinhood offers a variety of order types for users looking to buy or sell stock. There is the market order type that allows you to buy x amount of shares for whatever the most recent market price is. If one is looking to buy a stock for a specific amount, they can place a limit order stipulating the maximum price they are willing to pay for shares of a stock. The order isn't executed until the stock is at or below the demanded price. An investor can set the limit order to be good through the end of a trading day or until the trade is executed.

Free Shares of Stock: When one signs up for Robinhood, they have the choice to use a referral code in order to get a free share of stock from Robinhood. Both the referrer and the referred party receive a free share of stock. You have the opportunity to get your hands on a share of stock like Apple, Facebook, Microsoft, GE, Ford, etc. The maximum monetary value of stocks that one can be rewarded through using a referral code when they sign up, and for anyone they refer to Robinhood is $500. If for instance, one has received $490.00 of stock from Robinhood, they can only receive a share of stock worth $10.00 or less for referring someone else because of the $500 cap. Robinhood calculates the amount you are rewarded as whatever the stock is worth whenever you receive it from Robinhood. Please note that you cannot sell the stock you receive until 2 days after you received it, and you can't transfer the proceeds of the sale to your linked bank account until 30 days after you are rewarded the stock. If you are interested in signing up for Robinhood and getting a free share of stock, I'll include my referral link in this section of the review.

Robinhood Cons:

No Automatic Dividend Reinvestment: For those looking to for the ability to automatically reinvest their dividends into a company through a DRIP, this is one of the very few drawbacks to Robinhood as they don't offer this service at the time of this post. This is something that doesn't personally doesn't bother me that much as I prefer to let my dividends build up in my account, so that I can opportunistically buy whatever dividend stock I believe to be most compelling at the time.

No Retirement/Custodial Accounts: Unfortunately, Robinhood doesn't offer retirement accounts such as the IRA or Roth IRA at this time, nor do they offer custodial accounts for those looking to open an account for minors. I'd absolutely like to see these options added at some point in the future as this would be icing on the cake given how much I already love Robinhood.

Not Available Outside the US: Robinhood is not licensed anywhere besides the United States. Therefore, international readers are unfortunately unable to sign up for Robinhood at this time.

No research platform: While Robinhood doesn't have much of a research platform, I don't find this to be much of a problem anyways. I use Morningstar for most of my research, so expecting a value conscientious app to offer a top notch research platform is simply unrealistic. If you need an all in one investing app, this lack of a platform may be disappointing to you.

Conclusion:

Like any other brokerage account, Robinhood has its advantages and disadvantages. For any new or experienced investors alike looking for an app that has value and utility in mind, I highly recommend Robinhood. I wouldn't even bother writing a review of Robinhood or continue to maintain an account with them if I didn't truly believe in Robinhood.

Discussion: 

What are your thoughts on Robinhood? Did I miss any important points in my review of Robinhood? Do you have a brokerage account through them? If not, what is the biggest drawback that you'd like to see modified?

Saturday, August 18, 2018

Recent Stock Purchase - Abbvie Inc (ABBV)

After several months of gathering up dividends plus a bit of money left over from a purchase in June, I was able to add a share to my position in Abbvie (ABBV), bringing my stake in Abbvie to 3 shares. This purchase added $3.84 in forward annual dividend income to my dividend portfolio, bringing the projected forward annual dividend income to $419.32. I'll discuss a few reasons why I decided to add to my position in Abbvie.


Basic Description of the Company

Abbvie is a global pharmaceutical company that focuses on oncology and immunology. It is the developer and marketer of the blockbuster drug, Humira. Since Abbvie's spinoff from Abbott Laboratories (ABT) in 2013, it has raised its dividend every year without fail.

Massive Tailwinds

I'm an investor that subscribes to the keep it simple stupid (KISS) motto. It's much easier for a company to succeed in growing its business when there are advantageous long term trends in its industry. With that said, we can very easily observe that a large growth catalyst for the company going forward will be a global population that is growing older, larger in population, and more affluent. As healthcare spending becomes an ever expanding share of the global economy, this will tremendously benefit companies like Abbvie. The healthcare industry is also very inelastic, meaning that people won't be as deterred by a price increase for a medication that is vital to their everyday functioning as they would be if we were talking about a consumer cyclical industry, such as luxury goods. As a result of this, Abbvie is a more defensive pick when compared to a luxury goods company, meaning it likely won't be as negatively impacted by a downturn in the economy as a luxury goods company would be.

Massive Growth Runway

Having discussed that Abbvie will benefit from massive tailwinds, we can see that the investment research firm CRFA projects Abbvie will grow its earnings at an annual rate 22% over the next 3 years. When considering that Abbvie has grown their earnings at a rate of 21.6% since the spinoff in 2013, this doesn't seem entirely unreasonable. Obviously, the biggest concern and obstacle in achieving this growth is if Abbvie's revenues from other drugs in their promising pipeline don't grow at a rate sufficient enough to more than offset the eventual decline in Humira. Given that Humira biosimilars from Amgen and Mylan are off the US market until 2023, it's reasonable to believe that Humira will remain the top selling drug in the world for at least a couple more years. This gives Abbvie's fantastic management team adequate time to prepare for the eventual drop in revenue from its blockbuster drug, Humira.

Strong Dividend/Undervaluation

As Jason Fieber pointed out a few weeks back in his Undervalued Dividend Growth Stock of the Week series, Abbvie's dividend yield is significantly higher than its 5 year average yield. When the dividend yield is well above its 5 year average yield, this can mean one of two things. The company's fundamentals are deteriorating or the market is simply currently undervaluing Abbvie. Given that we've already discussed the strong fundamentals of the company, I don't believe that the dividend yield is well above its 5 year average simply because Abbvie's business is deteriorating. Similar to Jason, I believe the market is undervaluing this strong dividend payer by too strongly focusing on the risks of an investment in Abbvie. Yes, Humira does provide the majority of revenue for Abbvie. I understand the concern in the investor community about this, but it's not as if Abbvie doesn't have time to transition away from its reliance on Humira for the majority of its revenue. Abbvie is projecting for Imbruvica to reach annual sales of $5 billion by 2020. Another recently approved drug to treat endometriosis pain, Orilissa, has the potential to dominate that market and become a billion dollar drug. This doesn't even scratch the surface of other drugs that Abbvie has on the market or in its drug pipeline.

Conclusion

I view Abbvie as a quality dividend growth stock that doesn't even have to come close to matching past performance to be a strong long term holding. With the current dividend yield at almost 4% and earnings growth set to be in the double digits, I believe this is a company that is absolutely capable of double digit returns over the long term. As always, any purchases that I make are unique to my circumstances and my risk tolerance. Although I view it as unlikely that Humira's revenues won't be offset by Abbvie's other drugs such as Imbruvica and Orilissa, it is entirely possible that my investment thesis could prove to be wrong. After all, no investor has a perfect batting average. This is why I advocate a diversified portfolio, and to never invest more than you can afford to lose. Being a pharmaceutical company, there are numerous risks that Abbvie is exposed to including loss of exclusivity/patent expiration, regulatory risks, and legal risks.  Please be sure to factor these risks into your investment decision. Please use my recent stock purchases as idea generation, and conduct your own due diligence before making investment decisions.

What dividend stock(s) have you recently purchased? What are your thoughts on my recent purchase?






Tuesday, August 14, 2018

The #1 Reason Most Americans Can't Retire (Part 2)

Now that I've provided some insight from Part 1 of this 2 part post into the reason why many Americans find themselves in a situation where they have nothing saved for retirement and how many Americans couldn't cover a $400 unexpected expense without resorting to debt, we can delve into the possible solutions to address this pandemic that our country faces.


Acknowledgement

As I alluded to in part 1 of this 2 part series, I believe that simply spreading the message that this country faces a systemic crisis in regards to financial illiteracy and retirement is the most important part of the equation to work towards solving the above issues. Without knowing the origin of an issue, along with the severity, we can't effectively provide solutions to this problem. Trying to fix this problem without fully understanding the magnitude of it is comparable to a doctor trying to treat a patient for an illness they don't yet have a diagnosis for. It's not advisable to attempt to fix a problem without fully understanding it first.

Education System Reform

The first course of action now that we know the scope of this problem is to prepare the younger generations such as myself on finances while they are still in middle school and high school. Of course, there are two obstacles to this plan of action succeeding. The first is that many of the teachers that would teach these courses probably don't know much about personal finance themselves, and the good intentions of this program could be somewhat negated in that regard. The second issue to this is determining how we can actually make personal finance an interesting topic to teenagers. There are even many adults whose eyes glaze over when talking personal finance. However, the good news is that teenagers are still highly impressionable if the ideas originate from someone they respect or view as "cool." If it was required in a personal finance class that everyone read a blog such as MrFreeAt33 or Mr Money Mustache, that could perhaps appeal to youth as it did for me. Who could object to being able to live on their terms? I believe even kids could put 2 and 2 together and realize that if they were financially independent, then every day would be like a "summer vacation" in a sense. Even if there are objections to the above sites, I believe that everyone can take away from the sites that there may come a day that you may be unable to work for whatever reason. This could be because you are physically or mentally unable to hold employment or you are fired from your job because of downsizing. If this does occur, wouldn't it be more favorable to have assets that could help you through those tough times? Asking these questions of students that are basically impossible to refute could be useful in transforming their mindset from the spender mindset to the saver/investor mindset. Driptilrich also referenced a great idea in this post. We are taught in school the effects of compound interest in abstract terms, but we are never really taught about the benefits of investing or the drawbacks to being in debt. I would expand curriculum to teach the youth the true power of compounding in the world of personal finance.

Public Policy Reform

Lastly, as much as I believe in the personal responsibility aspect of addressing this issue, I do believe that because there will be some Americans that aren't able to save enough for retirement or simply choose not to, it is important that our political leaders address the issues facing Social Security Retirement benefits. The Social Security trust fund is expected to be depleted by the year 2034 according to this article by Forbes. As the Baby Boomer population ages with 10,000 Americans retiring everyday, the expenditures for Medicare and Social Security will continue to consume more of the budget each year. This presents major problems for the tens of millions of Boomers that are relying upon these benefits because either benefits will have to be cut in a significant way, FICA taxes will need to be increased, or both will need to occur to preserve the benefits that our aging population is dependent upon. I'm split on whether our politicians will do what needs to be done to address this problem in a timely manner as they continue to "kick the can down the road" on this issue as they seem to do with almost everything, although I do believe they will be forced into both raising FICA taxes and decreasing benefits because of their procrastination at some point.

Conclusion

In summary, I don't have any one suggestion that will solve the financial illiteracy and retirement crisis completely on its own. Rather, I am offering the above suggestions to hopefully begin a meaningful conversation. 

What are your thoughts on my suggestions to remedy this dire situation that most Americans find themselves in? Are there any possible solutions that I may have missed?