Dividend Mantra

Recent Sale

noreply@blogger.com (Dividend Mantra) — Thu, 23 Feb 2012 11:30:00 +0000

Well, for the second time in three months I have sold out of a position. I'm a little surprised about it, because honestly I do buy stocks with the plan of holding on for the long-term. But, things change and as a small investor in a big market I have to stay nimble and open minded. I don't believe in holding on to stocks simply for the sake of holding. If the stock, and company behind the stock, keeps doing what I purchased it for then I generally hold until a reason to sell presents itself. I usually only sell a dividend growth stock if the fundamentals of the company change, the dividend is held static or cut or the stock has become grossly overvalued. Although the stock I sold didn't become grossly overvalued, I felt that a nice run-up occurred and the yield had fallen to a point that I felt was unattractive. I decided to book in my gain and I plan on using that capital for other opportunities.

I sold all 33 shares of my holdings with Exxon Mobil Corporation (XOM) on 2/22/12 for $86.85 per share. I originally purchased my entire lot of 33 shares on 6/9/10 for $60.69 per share. It was one of my first dividend growth stocks, being purchased shortly after I began my journey to financial independence through dividend growth investing in early 2010. Some investors might have a sentimental attachment to one of the first stocks they purchased, but I simply do not share that trait. I look at stocks qualitatively and quantitatively, but not emotionally (or at least try not to). I decided to book my 43% gain due to a couple of reasons.

First, oil, as a commodity and product, is riding multi-year highs right now. High gasoline prices can be seen and heard on every news program. I don't know where oil is going from here, and I'm bullish on oil long-term. However, I don't know how much upside XOM has from here, but I feel now is a good time to pull out of this position and use that capital for other opportunities.

Second, energy as a sector, in the form of oil majors, made up almost 20% of my portfolio until this sale. I felt that was just a tad high for one sector, as any major change in oil could have an overweight effect on my portfolio. Since I sold XOM, energy is now closer to 14%.

Third, and the biggest reason, is the fact that XOM is currently sporting a 2.16% yield. I asked myself if I would invest in XOM with the current yield being so low, and I decided that I would only invest if the dividend growth supported a large YOC within a short period of time. But, XOM actually has a fairly low dividend growth rate for sporting such a low yield. The 10-year DGR for XOM is a paltry 7.4%, and it's actually slowing down. I simply cannot make that work for me. I don't mind investing in a company with a yield below 2.5%, but generally do not. However, the DGR has to be high enough for me to warrant an investment. I felt the run-up in XOM shares, coupled of course with the low yield as a result, forced me to look in other directions. With a yield of under 2.5%, I would prefer a dividend growth rate in the mid-teens or higher.

I feel XOM is a solid company and a solid investment, but with such a low yield and also low DGR, I think my capital would be best used in other places. If XOM falls, and the DGR rises, it would then make a suitable investment once again. XOM has a rock-solid balance sheet, and is one of the best supermajors out there.

I plan on holding on to my other three oil stocks (TOT, CVX, COP) for now.

I'll update my Freedom Fund in early March to reflect the recent sale of XOM.

What about you? Booking any gains?

Full Disclosure: Long TOT, CVX, COP.

Thanks for reading.

Photo Credit: jannoon028

Stick To Your Plan

noreply@blogger.com (Dividend Mantra) — Wed, 22 Feb 2012 01:32:00 +0000

This article originally appeared on The Div-Net on February 16, 2012

The market has been on a tear to start 2012. The S&P is up 6.81% YTD, and it's showing little signs of slowing. This is a good thing or a bad thing, depending on your investment strategy. If you're a value-oriented dividend growth investor like myself, a market on fire can dim the prospects of finding a good value with which to put your capital to work.

There's a lot of talk about a forthcoming pullback in the market, due to the strong performance out of the gate. I agree that there is probably a pullback on the horizon, but when will it come and how large will it be? I lack the ability to answer these questions so I do one thing: I stick to my plan.

I have a plan. My plan involves saving a high percentage of my net income (over 60%) and using that excess capital to invest in attractive dividend growth stocks month after month after month. The market will go up and down by many percentage points during the course of this plan, which is likely going to be more than a decade long. After I'm done with the plan, I'll have a large portfolio filled with dividend growth stocks that pay out dividends in amounts that exceed my monthly expenses, and continue to raise those dividends at rates that exceed inflation. This way, even as my expenses go up over time my income rises even faster.

I'm showing my dedication to that plan. Even though the market is strong and many are awaiting an eventual pullback I entered the fray and recently added to my positions with PEP and NSC. The market could drop like a rock tomorrow, and you know what? I'll just buy some more. That's me sticking to my plan.

What's your plan? Are you sticking to it?

Thanks for reading.

Photo Credit: Master isolated images

Recent Buy

noreply@blogger.com (Dividend Mantra) — Thu, 16 Feb 2012 00:40:00 +0000

Well, everyone is expecting a pullback in the markets. I read about a lot of investors currently selling equities and converting that capital into short-term bonds or cash. I continue to believe in my long-term strategy of buying attractively priced businesses every single month on my march to financial freedom and holding those businesses as long as they continue to raise dividends and don't become extremely overvalued or lose the fundamentals that compelled me to purchase in the first place.

The S&P 500 is up 6.81% YTD already and we're not even two months into the year. It's been an extremely strong start to the year, and although I am expecting a pullback like a lot of other investors I don't know exactly when it's going to come so I just continue to do what I know how to do. I take excess capital from my high savings rate and purchase what businesses I think give me the best chance to grow my burgeoning portfolio.

As part of my Recent Buy series, I try to let my readers know of any equities I purchase soon after the transaction is completed. This is just one way I try to document my progress toward early retirement and financial independence.

I actually didn't plan on making any purchases this month. This was due less to the strong market performance and lack of value, and due more to the fact that I'm a little light on cash after the recent purchase of my car. Alas, I just can't stay away from the market when I see a weak day or see equities I'd like to add to my portfolio under-performing the market. Earlier today I made two purchases and I'll discuss them below.

I purchased 16 shares of Norfolk Southern Corp (NSC) on 2/15/12 at $68.23 per share. I initiated a position with NSC last month, and I feel it's one of the stronger railroad plays. I wasn't planning on adding to my position with this company so soon after my purchase, but it has dropped significantly since my last purchase and I do believe in averaging down on my positions. Today's 3.64% drop offered me an opportunity to do so. I believe railroads are a strong investment right now. The cost of oil is extremely high and railroads offer a cheap transportation option to get goods across vast distances cheaply. The low demand for coal right now, due to the low cost of natural gas, has hit NSC hard due to their reliance on transporting coal to grow earnings. I believe this is an opportunity, so I decided to add to my position with NSC. The entry yield on my purchase is 2.76%, which I think is respectable. This investment will provide me with $30.08 in yearly dividends based on the current payout.

For my second purchase, I decided to buy 19 shares of PepsiCo, Inc. (PEP) on 2/15/12 at $63.10 per share. This now makes PEP one of my larger positions, as I now own 77 shares of PEP. I love PEP. They have a wide economic moat due to their economies of scale, wide distribution network and quality product that people are usually willing to pay a premium for. I know I personally use their products on a near daily basis. The P/E ratio is 15.7, which while not fantastic, is a fair price to pay for this quality company. The moderately weak balance sheet is the only thing I really don't like about this company. I like the management in place, and I like the fact that CEO Indra Nooyi is staunchly against splitting the company's beverage businesses from the snack food businesses. I think PEP is a solid dividend growth holding for the long-term with 39 years of dividend growth behind it. It has a 5-year dividend growth rate of 12.2%. The entry yield on my purchase is 3.26%. It will provide me with $39.14 in yearly dividends based on the current payout.

I still own 24 positions, due to my adding to positions I already owned.

Some analyst opinions on my recent purchases:

*Morningstar currently rates NSC as a 4/5 star valuation.
*S&P currently rates NSC as a 4-star Buy.

*Morningstar currently rates PEP as a 4/5 star valuation.
*S&P currently rates PEP as a 4-star Buy.

I'll update my Freedom Fund in early March to reflect my recent purchases.

What are you buying?

Thanks for reading.

Frugality Vs. Quality Of Life

noreply@blogger.com (Dividend Mantra) — Tue, 14 Feb 2012 00:51:00 +0000

"Frugality Vs. Quality Of Life". That sounds like a title fight. Two heavy weight contenders going at it. But, it's not like that. Frugality and quality of life are not necessarily at odds with one another, nor are they mutually exclusive. However, I thought I'd share some of my experiences with living (extremely) frugally over the past year and how it's affected my quality of life.

I've experimented with cutting many expenses since I started to adapt a frugal lifestyle. Some have worked out for the best, and some not. Some expenses can easily be trimmed from one's budget, whereas others do affect quality of life negatively. This is where the "personal" in personal finance comes into play. Only you can know what you're comfortable with.

I tried a VOIP-based cell phone for a few months. Basically, I could only make and receive phone calls over an internet connection. The cost was $10/month. The cost was great, the experience was not. It started to impact personal relationships after only a couple months, as it was difficult to get a hold of me and it was difficult to clearly hear my voice when I was able to be reached. I canned that idea, and have since settled on a $40/mo. prepaid cell phone with unlimited minutes. It's a happy compromise.

I cut my gym expense. I was paying $30/month to work out at a fitness facility. I thought "I can do better than that" and canceled the membership. I decided to run outside and do push-ups and sit-ups at home. This didn't work. I found that I wasn't motivated enough to run around in a big circle outside for half an hour or more. I decided recently to reinstate my gym membership. I decided that keeping my health in a good state is important and worth at least the $30/mo. I'm paying. Another happy compromise.

I sold my car last summer. I proudly and doggedly lived without a car for about nine months. I took the bus, walked and bicycled everywhere I had to go. It worked out pretty well. Unfortunately, the bus was not reliably getting me to work on time and I had to recently purchase a car. If I didn't have such a tight schedule at work, or if I was already financially independent I might permanently live without a car. It's actually quite easy to get around without a car if you live in an appropriate location and if you have an open mind. This is one expense that I don't think affected my quality of live negatively, but it did isolate me. I'm not sure about others who live without a car, but I found it was difficult to meet up with friends after work and it was hard to relate my story to others when I'm living that "extreme". In this way, living car-free did affect my quality of life. I'm a bit more social now that I own a car again. If I lived in a very big city, being without a car would probably not be an issue at all.

These are just a few personal examples where I cut expenses and I was able to see first-hand how my quality of life was affected. I think, most of all, these examples show you how important it is to have balance. Balance in life is key, as you want to save money for tomorrow and delay gratification but at the same time you have to live a little today. Life is short and you don't know how long you have on this planet, so while living below your means is extremely important in my opinion, you also have to strike a balance between frugality and quality of life. I decided that maintaining personal relationships was much more important than saving $30 on a cell phone bill, that being healthy and in shape is worth the gym membership that is necessary to keep me motivated and that retiring early/becoming financially independent isn't all that great if you're isolated from everyone else. I mean how fun is it to be financially free at a young age if you're lonely, out of touch and out of shape?

Balance is key. I'm learning as I go and I lived extremely frugally in 2011. I look forward to trying my best to maintain a high savings rate in 2012, but I also look forward to trimming back the "extremeness" this year. I look forward to striking the most harmonious balance between frugality and quality of life. I think that if one strikes an appropriate balance between quality of life and frugality, it makes the journey much more pleasant and sustainable. If you're doing nothing but eating rice and beans, staying at home every single weekend and maintaining isolation in the search of an ability to save as much money as possible the journey may prove to be difficult and unsustainable. I lived an extremely frugal year, and came out great and learned along the way. I don't think I'd want to live so frugally for the rest of my life. After all, I think everything is a means to an end. Living frugally and investing in dividend growth stocks (my dividend mantra) is a way for me to achieve personal financial freedom from the chains of being a wage slave. I'd like to be in command of my own destiny and be the master of my own time. Being the master of my own time isn't very comforting if I can't do anything, see anyone or eat the things I like to eat.

I hope this doesn't come across as negativity in the face of frugality. I believe frugality affords an average wage earner the best chance at having excess capital to build wealth through an appropriate and well-thought investing plan. Frugality is something I live by every day. I drive a 13-year old car, talk on a cheap prepaid cell phone, eat as cheaply and at the same time healthily as possible and work-out to not only feel good but also to save on future health care costs. But, I think it's important to have balance and important to maintain a quality of life that you're comfortable with and one that's sustainable. The journey to financial independence is not a race, and if it was one it wouldn't be a sprint.

Let's have balance in 2012!

Thanks for reading.

Photo Credit: renjith krishnan

What's Your Crossover?

noreply@blogger.com (Dividend Mantra) — Fri, 10 Feb 2012 02:19:00 +0000

The "crossover" was a phrase or term popularized by one of my favorite books, Your Money Or Your Life. The crossover is basically the moment where your monthly passive income finally exceeds all of your monthly expenses. When I first read YMOYL and the chapter where this term was coined, it became a dawning moment for me; a moment where I felt like my eyes had been opened for the first time. I realized that it was possible to pay for expenses without going to a jobby-job for 50+ hours a week, and seeing it on a graph made it all the more possible for me to buy in to this theory.

A great site that conveys the crossover point for you in graphical terms is What's My Crossover. I decided to visit this site recently and input various numbers into the calculator, ranging from conservative to aggressive, and the chart shows me reaching financial independence anywhere from 34 years old to 40 years old! That's pretty encouraging, seeing as how my ultimate goal is to reach FI by 40 years old. I think 34 is probably unrealistic, but it's very exciting to see that passive income line cross over the expense line so early in life!

There's a lot of retirement calculators out there, many of them much fancier than the one I'm discussing today. But it's the graphical nature, in a way so similar to YMOYL, that excites me. It's especially exciting to see when the "second crossover" occurs. That's when your passive/investment income actually exceeds your main income source. That's when it truly becomes apparent that your money can work harder than you can.

What's your crossover?

Thanks for reading.

Income/Expenses For January 2012

noreply@blogger.com (Dividend Mantra) — Wed, 08 Feb 2012 00:03:00 +0000

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

Income from January 2012:

$3,558--Regular Paycheck
$165--Dividends
$954--Bonus and Spiffs

Total Income: $4,677

Expenses from January 2012:

$477--Rent
$189--Student Loans
$77--Restaurants
$74--Groceries
$53--Internet
$51--Gas
$40--Fast Food and Pizza
$30--Pharmacy
$30--Public Transportation
$43--Auto Insurance
$40--Mobile Phone
$2,151--Everything Else*

Total Expenses: $3,260

*The Everything Else category includes expenses I don't have a regular budget for. In this case it was largely comprised of the $1,900 I recently paid for a used 1999 Chrysler Sebring for transportation. This category also includes the costs for taxes and registration/license for the used vehicle, and also a repair bill as I had to fix a small coolant leak and change the oil. That repair bill was $92. These are obviously unusual expenses, especially for someone who hasn't owned a car in nine months.

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

The income was much higher than usual. This is mostly due to the inflated "Bonus and Spiffs" category. I included cash I received from my very generous and loving parents for Christmas in this category. I also received my first Google Adsense payment in a few months in January, and that was also reflected here. I also received a fairly large spiff at work due to a bonus program we were running for the month of December. Thanks to my loyal readers for the Adsense revenue! On top of all that, I also received my rewards check from my Chase Freedom credit card I opened a few months back. That was free money, baby.

Expenses were obviously much higher than normal due to the vehicle expenses. If you take out the one-time costs of buying a car and paying for registration, I would have been in the $1,100 range, which is more my norm. And, that includes gas and insurance on the car. So, overall I'm very happy with all other expenses. Food was very in-line with my expectations, and everything else was pretty normal. I've found this budget to be very efficient, but also allows me a pretty high quality of life. My expenses going forward are likely going to be a little more than they have been over the last few months due to the fact that I now have vehicle expenses. I'm ok with that, and having a vehicle has been nice. I enjoyed my time being without a car, but not having to lug a week's worth of groceries for a mile is a welcome change!

I managed to save 30% of my net income this month, which is actually pretty fantastic if you consider that I bought a car and paid cash for it this month. So, I purchased a car and still managed to save well above what most citizens in this country manage. That's a combination of good fortune, for which I'm very grateful, as well as my frugal acumen.

My goal is to average a 65% savings rate of my net income, monthly. So far, I've hit rates of:

30% - January

This isn't a great start, in terms of savings percentage, for the year if I want to hit a savings rate of 65%. But it is what it is. I needed a way to get to work and home on my own terms, and the public transportation in this city was not fulfilling that need. If I'm able to hit 60% or more this year I'll be pretty happy as 65% is fairly aggressive.

How are your budgets doing?

Thanks for reading.

Photo Credit: RambergMediaImages

Dividend Income Update - January 2012

noreply@blogger.com (Dividend Mantra) — Sat, 04 Feb 2012 22:16:00 +0000

Well, 2012 is off to a wonderful start for me. We're only one month into the year and I've already received a raise at work, accomplished one of my goals by purchasing a vehicle to get me reliably (hopefully) to work and home and I've received a solid month's worth of dividends which I reinvested into Philip Morris International (PM) and Norfolk Southern Corp. (NSC). That's a solid start! Hopefully the rest of the year goes as well.

The dividends I received for the month of January are recorded below. It's not my largest tally ever, but it's another solid month of passive income. It's income that I wouldn't have had otherwise, if I spent all my capital on depreciating goods instead of appreciating assets.

I hope these monthly dividend income reports provide inspiration for any investors out there that are just starting out. It's easy to see these payments rising month after month and it shows that it's possible to one day pay for monthly expenses with dividends, which would provide an investor opportunities and freedom to pursue other interests than full-time work. Without further ado:

January 2012 Dividends Received

PepsiCo, Inc. (PEP) - $29.87
Wal-Mart Stores, Inc. (WMT) - $13.87
Philip Morris International Inc. (PM) - $46.20
Illinois Tool Works Inc. (ITW) - $12.60
Altria Group, Inc. (MO) - $21.32
Total S.A. (TOT) - $25.03
Sysco Corporation (SYY) - $7.83
Medtronic, Inc. (MDT) - $8.97

Total dividends received for the month of January: $165.69

A great month of passive income! This is a healthy increase since January 2011's dividends of $33.35. This just goes to show you the power of continuing to stick to a plan, which in my case is reinvesting dividends and allocating fresh capital towards attractive equity opportunities.

This is a great start towards my goal of receiving $2,000 in dividends through the year of 2012. In fact, to receive $2,000 this year I'd have to average $166.67 per month in dividends. So, it looks like I'm right on track! This is a phenomenal first step for this year, and I'm more than confident that I'll achieve my goal! Please stay tuned and let's grow our wealth together.

I'll update my dividend income page to reflect January's dividends.

How is your journey to ever-increasing passive income going?

Full Disclosure: I'm long all securities mentioned.

Thanks for reading.

Photo Credit: sscreations

Freedom Fund Update - February 2012

noreply@blogger.com (Dividend Mantra) — Wed, 01 Feb 2012 11:30:00 +0000

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

I feel extremely fortunate and thankful that I'm able to post these updates every single month which shows the power of monthly contributions to investments because of the high savings rate I maintain. It shows how a relatively large sum of money can be built through the power of time, patience and perseverance.

The market correction I figured was just around the corner has not yet come to pass. The S&P 500 is up 4.36% since the beginning of the year, which is a pretty strong performance considering the markets ended the year on a pretty strong run. Because I lack the ability to forecast the future, I don't base my purchases on what I think is going to happen. I continue to purchase attractive equities every single month, as evidenced by my latest purchases. That's just part of my dividend mantra. I like to build my dividend growth machine one month at a time.

I made a few changes to the Freedom Fund since the last update. I purchased shares with Philip Morris International (PM), which is now my largest holding. I also purchased shares with Norfolk Southern Corp. (NSC), a new holding of mine. I look forward to the dividends and dividend growth that these two holdings will provide my fund.

The current market value of the Freedom Fund now stands at $57,730.84. This is a large increase since my last published value of $54,852.73. This increase is due to my recent purchases with fresh capital, as well as dividends received. The strong markets have also helped push the value of the fund up.

I'm currently invested in 24 positions. This is an increase since last month, when I was invested in 23 positions. This increase is due to a new position I opened in NSC.

Another fantastic month, and another month where I can sit back and realize how fortunate I am to continue to be employed in a down economy and contribute fresh capital toward investments. At a time when some people are struggling to put food on the table, I'm lucky enough to be able to save 60%+ of my net income and invest the difference. I'm fully aware of that, and extremely thankful. I'm starting off the year fantastically, but I am hoping for a market correction. Although that would bring the value of my fund down, it would provide me better entry points for future investments. I'll keep my fingers crossed.

How are your portfolios doing?

Thanks for reading.

Opportunity In Philip Morris International (PM)

noreply@blogger.com (Dividend Mantra) — Mon, 30 Jan 2012 01:16:00 +0000

This article originally appeared on The Div-Net on January 19, 2012

Philip Morris International Inc. (PM) is one of my favorite dividend stocks. It manufactures and sells an addictive product (cigarettes) with exceptional margins. It does business everywhere but the United States, which is where the domestic company Altria Group (MO) does business. This provides them with great exposure to emerging markets whose discretionary income is only set to rise over the next couple decades.

Recent weakness in PM shares may provide a long-term investor a nice opportunity. It is down 5.25% over the last trading week, and down 3.48% today. This appears to mostly be due to some analyst downgrades amid reduced EPS expectations. I think if you look out over the next 10-20 years, PM will be a strong performer. It currently yields 4.20%, and pays a quarterly dividend of $0.77 per share. The debt load is a little concerning, but the strong cash flow provides PM ample opportunity to keep debt in check while still continuing to raise the dividend.

Per Morningstar:

Philip Morris International is the world's second-largest tobacco company, behind only China National Tobacco, and holds almost 16% of the non-U.S. market. The firm owns seven of the leading 15 international brands, including Marlboro, the company's flagship brand that accounted for more than one third of total volume in 2010. Other key brands include L&M, Philip Morris, Bond Street, Chesterfield, Parliament, and Lark.

I think the recent weakness in PM offers a long-term investor plenty of opportunity to initiate or add to an existing position. The current payout ratio is 65%, which is comfortable with the cash flow this company has. PM will likely continue to raise the dividend for years to come, after being split from MO in 2008. MO has a long history of raising its dividend, with a 43-year record of raising the dividend. The current P/E ratio for PM is 15.49 and has a debt/equity ratio of 6.0.

What about you? Buying PM on the dips?

Full Disclosure: Long PM.

Thanks for reading.

Photo Credit: PMI

Recent Buy

noreply@blogger.com (Dividend Mantra) — Fri, 27 Jan 2012 01:03:00 +0000

The markets have been strong right out of the gate and we're starting 2012 off with a bang. The S&P 500 is up 4.84% YTD just over 3 weeks into the year. Generally when the markets are this strong, us value investors like to wait on the sidelines with a heavy dose of cash and wait for a pullback. I do consider myself a value investor, and dividend growth investor, however I also believe in purchasing shares of quality companies at the most attractive opportunities available every single month. When the market is down, I purchase quality at an attractive long-term price. When the market is up, I do the same thing. I don't believe in my ability to forecast the future, so instead I rely on the power of averaging my capital into the markets. I walk the walk when I talk the talk, and I made another round of purchases very recently.

As part of my Recent Buy series, I try to let my readers know of any equities I purchase soon after the transaction is completed. This is just one way I try to document my progress toward early retirement and financial independence.

I plan on achieving personal financial freedom through an ever growing source of passive income, with dividends from my stock portfolio fueling the majority of that passive income. I'm building that passive income stream one month at a time...slowly building my own little dividend growth machine. Think of every share I buy as a small gear in that machine. One day this machine will be busy working while I'm busy relaxing and doing the things I like to do.

For the first of two purchases this month, I decided to purchase 17 shares of Norfolk Southern Corp. (NSC) on 1/25/12 at $73.55 per share. I purchased these shares when NSC was very weak in the morning, followed by a strong bounce in the afternoon. Although NSC has been on my watch list for some time now, this purchase was partially inspired by my fellow dividend growth investor, and blogger, Deedubs. He owns shares of NSC and recently also purchased shares with Canadian National Railway (CNI). Although railroads aren't my favorite businesses in the world, as they are asset and infrastructure heavy along with being capital intensive, they do provide a great way to invest in the recovering economy. As the general economy recovers this business should start booming again as the general transportation industry starts to move more goods across vast distances.

I think NSC is one of the more attractively priced railroad businesses right now, with a P/E ratio of 13.74 and a P/B of 2.4. The balance sheet is fair with a debt/equity ratio of 0.7. As a dividend growth stock, the fundamentals appear pretty strong with 10 years of dividend growth and a 5-year dividend growth rate of 19.5%. Earnings and revenue are relatively flat over the last 5 years, as the economy has struggled, but I think NSC appears to be a well-run company. The entry yield on my purchase was 2.56% and will provide me with $31.96 per year in dividend income based on the current quarterly payout of $0.47. NSC appears to be shareholder friendly and committed to growing the dividend, and recently raised the dividend by 9.3%. This is the second time in the past year they've raised the dividend. NSC is a new position for me.

My second purchase was 20 shares of Philip Morris International (PM) on 1/25/12 at $74.43 per share. This was another purchase in the morning on weakness. It recovered strongly in the afternoon. PM has been weak lately, down 3% over the last 30 days compared to the 30-day performance of the S&P 500 at +4.2%. I've discussed why I like PM many times on this blog, but it basically boils down to the fact that as the middle class grows in emerging economies and developing countries there will be more and more consumers consuming the products PM produces. And, as they gain consumers the prices will also go up. I suspect PM will continue to grow their earnings, revenue and dividends for many years to come. I received an entry yield of 4.14% on my purchase price. Based on the current payout, I expect to receive $61.60 in dividend income per year. The major drawbacks of PM, as a business, is the fact that they have more leverage than I'm usually comfortable with and the fact that they sell a product that some people disagree with due to health implications. On the other hand, they are a cash cow business that produces an addictive product that has high margins. Philip Morris is now my largest position.

With the addition of NSC, I now own 24 positions.

Some analyst opinions on my purchases:

*Morningstar currently rates NSC as a 3/5 star valuation.
*S&P currently rates NSC as a 4-star Buy.

*Morningstar currently rates PM as a 2/5 star valuation.
*S&P currently rates PM as a 5-star Strong Buy.

I'll update my Freedom Fund in early February to reflect my recent purchases.

What are you buying?

Thanks for reading.

Ever Consider Semi-Early Retirement?

noreply@blogger.com (Dividend Mantra) — Sun, 22 Jan 2012 22:46:00 +0000

One of my biggest goals in life is to have the freedom to retire early in life, if I so choose. I plan to be financially independent by 40 years old, earning passive income from investments I'm making now. I've said many times in the past that this is no noble goal, and may not necessarily be a better way to live than someone who chooses to spend most of their money "living for today". There is no doubt that I am delaying gratification. But, what if there was a way to balance earning yourself more time and living in the moment? What if you could have significantly more time to do the things you'd like, but not have to sacrifice for years on end toward that goal of more time? This is where the idea of semi-early retirement comes into view.

What is semi-early retirement?

My take on this idea is that one would try to amass a significant asset base that can generate passive income, but not have to work so long, and live so frugally, so that the passive income exceeds 100% of known expenses. For instance, generating 50% of your expenses with passive income may be what you want to target here. In order to pay the rest of your expenses you work part-time, take on intermittent projects, perform consulting work on a need-to basis or even try to find work you really enjoy for a reduced income. This plan could allow you to reach some of your goals much earlier in life and perhaps earn yourself significant flexibility without having to delay gratification too far into the future. The asset base not only provides you a source of passive income in these examples, but also provides a "cushion" just in case things do not go as planned.

Why consider this idea?

The idea of semi-early retirement or "partial financial independence" could provide you the flexibility to have a lot more time on your hands to spend with loved ones, relax at the beach, build things, write a novel or whatever else you want to do with your time. Perhaps even some of these hobbies would produce some kind of small income. That would be even better. This flexibility could come much earlier in life than if you were to try and aim for passive income that meets 100% of expenses. In exchange for gaining access to this type of flexibility earlier in life you would have to find a way to pay for any expenses your passive income does not cover.

Let's take a look at my own situation

My income and expenses have been well documented on this blog. My expenses average somewhere near $1,200 a month. In order to generate passive income that meets this expense level, I'd have to have $360,000 invested at a 4% safe withdrawal rate. $360K is a lot of money, and with my middle class income and savings rate I'd need at least ten years to build a portfolio of that size. My journey, as it stands, is planned out to be a 12 year journey starting from 28 years old and ending at 40. But, what if I could cut that journey in half?

Let's say I only want to cover half my expenses with passive income. That means I'd have to have $180,000 invested, at a 4% SWR, in order to generate $600 per month of income. Based on what I have now, I could likely reach that figure in less than five years. At that point, I'd only need to earn $600 per month from outside sources, such as paid part-time employment. I know that the unemployment rate is historically high, but earning $600 per month shouldn't be terribly difficult. Even in this environment, part-time employment providing that type of income should be relatively easy to find.

What does it all mean?

Having a portfolio that provides passive income to meet half my expenses in less than five years from today means that I could potentially get away from the grueling 50 hour workweek I have now and move into something that I might enjoy quite a bit more with a much less demanding schedule. That means at 35 years old I could potentially work 20 hours per week or less for the rest of my life. Or, perhaps I could work seasonally...or just work really hard for 3-4 months per year. This could provide me significantly more personal time than I have now.

Boredom

One reason one might want to consider this idea is the likelihood you might get bored once you reach early retirement. Being retired at an extremely young age will likely put you in a precarious position. You'll likely be home when all your friends and family are at work. Fighting boredom might be something that will be a daily battle, and something that you might not be used to. And, if you do find yourself bored what are the odds that you look for some type of paid employment? Paid employment, at the point of early retirement, will provide you with not only a way to fight boredom but also as a method to acquire additional income to fund some of the desires you may have above and beyond living frugally.

If you're the type of person that will be extremely bored without employment, the argument could be made that early retirement of any form is probably not something that you're going to seek out anyway. The flip side of that coin is that you likely do not know how you'll respond to early retirement until you're actually there. If you think it's likely that you'll seek out some type of part-time income source even if your investments provide you more than 100% of your expense level, then maybe getting out of the rat race early and doing something that provides you more flexibility might not be a bad idea. Basically, if in the end you're going to work part-time anyway, and it's a foregone conclusion, should you not skip ahead to that conclusion? It's an interesting question. It's also something that I don't really have an answer for.

Partial Financial Independence

Although semi-early retirement isn't something that's talked about often, the idea of being able to work part-time indefinitely might be something that's attractive to some. The idea of this partial financial independence gives you flexibility as to what kind of employment you choose to engage in, gives you flexibility to choose your own schedule and gives you a lot more time to spend on personal interests. You get most of the rewards of early retirement, but much earlier than you would be led to believe possible.

Will it work for you?

This lifestyle wouldn't work for all. But, if you're already living fairly frugally, are aiming for retirement extremely early in life, do not identify yourself through your job, do not particularly enjoy your career and/or the time it requires to be proficient at it, would love more time than you currently have, are a flexible and open minded person and willing to work extremely hard for 5-10 years of your life this might be an idea to consider.

What about you? Ever consider semi-early retirement?

Thanks for reading.

Photo Credit: digitalart

My New Ride - Part II

noreply@blogger.com (Dividend Mantra) — Sat, 21 Jan 2012 00:39:00 +0000

My New Ride!

Last May I wrote an article titled "My New Ride" and it was a proclamation to the world about my intentions and the amount of effort I was willing to put into my journey toward financial independence. It basically highlighted my decision to sell my car and rely solely on a bicycle and local bus system for my transportation needs. I gave it a fair shot. I've spent the last seven months using the bus and doing my fair share of walking. This taught me a lot about perseverance and independence, and it shows me just how much spirit an individual can have when one wants to express it.

However, the local bus system leaves a lot to be desired. While cheap and relatively clean, the reliability and timeliness of said bus system is sorely lacking and, unfortunately, is no longer a realistic transportation option. I've been late to work one too many times and have been forced to seek an alternative.

Recently, when highlighting my 2012 goals, I let everyone in on a secret: I was either going to purchase a car as my primary chariot or I was going to purchase a small scooter as a back-up for the days when the bus was late. I decided that a scooter, while cheap, was simply too dangerous and risky. I try to limit risk in all facets of my life.

So...this leads me to now. Yesterday, I purchased a 1999 Chrysler Sebring Lxi. It has 135,000 miles and it's in pretty decent shape. Working in the automotive industry gives me an advantage of cheap repairs and readily accessible parts. I had it inspected and it does need minor repairs, but nothing that can't be cheaply taken care of. I paid all of $1,900 for the vehicle. While not a small sum of money, there are few options in the sub-$2,000 crowd.

I'm sure I've let a few readers down, and I'm sorry about that. There are few people in this world that are more hungry or more motivated to reach financial independence. But, earning an income is a necessity and I won't be earning an income much longer if I continue to show up to work late due to broken down bus issues. The vehicle purchase will certainly put a damper in my goal to save 65% of my net income this year, but I'm determined to still make a go of it. It'll be fun!

In the end, I purchased what I thought was the cheapest vehicle available while still providing a high amount of value. I've had it inspected, changed the oil and performed a minor repair to the coolant system. It looks to be fairly reliable and will not only get me to work and back, but also provide me a little more flexibility in my lifestyle. The bus is great, walking is wonderful and a bicycle is a great method of transportation. But, in a town as spread out as the one I live in, it's nice to have a car to go to the beach or get across town in a hurry if necessary.

I hope everyone realizes that this was a decision that was forced upon me and I'd still be riding the bus if my schedule was a bit more flexible. Unfortunately, my schedule is extremely rigid and lacks any type of flexibility at all. I'll continue my frugal ways and look to maximize income while simultaneously minimizing expenses to make a solid attempt to save 65% or more of my net income this year. Please join me on the journey!

How about you? Have your transportation needs changed since adopting a frugal lifestyle?

Thanks for reading.

My Goals For 2012

noreply@blogger.com (Dividend Mantra) — Sun, 15 Jan 2012 18:31:00 +0000

I'm a big fan of having goals. Goals give you something to shoot for, they're a target so that you can track your progress. Putting goals down on paper, and then showing them to the world does a couple things. First, by actually typing these goals up I realize them in a physical form. If the goals only exist in my head they're easy to forget. Second, by showing them to the world I obviously want to save face and do my best to reach the goals as my pride is on the line.

I try to make goals challenging, but achievable. This sets the bar high and forces me to do my best, but also reinforces positive results. Without further ado:

Goal #1 - To receive $2,000 in dividends in 2012.

It would be fantastic if I could reach, and exceed, this goal. That would be an average of $166 a month throughout the year, and a big increase over my ~$1,200 year-end dividend total in 2011. With the amount of money I have in my Freedom Fund, I could easily reach this by investing strictly in high yield securities, but I'm a dividend growth investor and I do favor stocks with strong entry yields, but more important to me is the growth rate. With high yield securities, one usually sacrifices the growth rate a bit for that high yield. So, my dividend totals may not "wow" anyone, but the compound growth will start to take shape 5-10 years from now. That's when the wow factor will begin. It's important to note, that this is not a running annualized total. I actually want to receive $2,000 in dividends from January 1-December 31 of this year.

Goal #2 - To save 65% of my net income earned in 2012, averaged monthly.

This would be huge. I lived a fairly frugal life in 2011 and was able to achieve a net income savings rate of 59.3%. To improve on that would be fantastic, as I think the ~60% savings rate is pretty phenomenal. Although I was able to consistently get over 60% a month for the last few months of 2011, some key things that will make reaching 65% difficult this year will be some hefty taxes owed in the spring (due to investment gains) as well as some alternative transportation plans I have. The bus is great, but is late more often than I'd like and was late yet again this past week which resulted in me being late for work. So, this is something on my mind. A scooter or cheap used vehicle may be something I own in the near future. This leads me to goal #3.

Goal #3 - Develop or purchase a frugal transportation alternative to the bus.

Unfortunately, this is necessary at this point. As I recently discussed, I received a promotion at work. This promotion comes with the possibility of more income, but definitely comes with more responsibility. Being late to work, especially in a new position is just something that I can't do on a regular basis. The bus system here in my city is cheap, clean and has routes that cover most of the area. Unfortunately, the reliability and timeliness of said bus system leaves a little to be desired. If I could get by on the bus indefinitely that would be great, but I can't. I will have to come up with a back-up plan in 2012 and this is something I will be addressing sooner rather than later.

Goal #4 - Weigh less than 190 pounds by the end of the year.

I've discussed my affinity for physical fitness and staying physically active many times on this blog. In fact, one of my 5 steps to retire in 12 years involves staying physically active to try and help reduce health care costs. As a former competitive bodybuilder I took a big step toward frugality when I recently quit my gym membership. Although saving money is great, it's not a good move if one lets their health go down the tubes. I currently weigh 193 lbs. at 5'9". That may sound heavy to some, but keep in mind that a muscle weighs more than fat and I've always had a fairly muscular frame. Since quitting the gym, I've found it more difficult than I had planned to get exercise in. It requires motivation to strap on some shoes and go for a two mile jog everyday after a long day at work. But, part of my long-term plan is staying in shape with or without a gym membership and 2012 will be a big test for me.

I'll be updating my goals page accordingly.

What are your goals?

Thanks for reading.

Photo Credit: Stuart Miles

2011 Goals Reviewed

noreply@blogger.com (Dividend Mantra) — Wed, 11 Jan 2012 00:30:00 +0000

With 2011 behind us I wanted to take a moment to review my goals I set forth for the previous year and see how I did. I'm pleased to say that for the four goals I set out to attain at the beginning of last year I achieved all of them! They were pretty challenging, and to be honest I didn't think I'd achieve them all. I was determined and worked hard and because of that I can look back and proudly say that 2011 was a huge success.

Goal #1

My first goal for 2011 was to earn $1,200 in dividends during the calender year. This was actually a pretty challenging goal for myself, seeing as how I only attained $269 in dividends in 2010. I knew that I'd have to stay committed to investing in quality companies at attractive valuations every single month and that I'd have to be pretty aggressive with my capital commitments. I'm proud to say that I achieved this goal by receiving a grand total of $1,202.06 during the course of last year! I beat my goal by $2.06. Pretty tight forecasting, but I was actually doubtful I'd achieve this goal as 2011 was drawing to a close. You can view my dividend history here.

Goal #2

My second goal for 2011 was to reduce expenses by $150 per month by the end of the year. I easily did this, and actually reduced my expenses much further. I achieved this goal by selling my car, cutting my cell phone bill, moving to a cheaper apartment, cutting my food expenses and budgeting my income and expenditures. This was probably the easiest goal of the four and I attained this goal quite early in the year.

Goal #3

My third goal for last year was to get rid of and/or pay off my car by the end of 2011. I did this by selling my car last May. This was a huge step for me. I had long sought to live car-free, but it's much easier said than done. I think it was mostly fear that kept me from doing this earlier, but I decided it was time to stop living in my head and go out and aggressively pursue financial independence. So, the car went and this goal was achieved.

Goal #4

My final goal was to average a 50% savings rate of my net income, monthly. With December's budget now posted I can proudly say that I easily exceeded this goal with a final savings rate of 59.3% on the year. I think that saving 60% of one's net income is extremely challenging but equally rewarding. It's because of my frugality and adherence to a strict budget that has afforded me the opportunity to invest in quality dividend growth companies monthly and set out on the path to financial independence at a young age!

Looking Back

All in all, 2011 was a huge success. I achieved every single personal and financial goal I set out to attain and I did it with gusto and enthusiasm. I think that when I finally do reach financial independence I'll look back on 2011 as the turning point; the year when I really took control of my future. This is the year I stepped out of the cave and opened my eyes.

2012 And Beyond

Looking forward, I'm extremely excited about the way things are going. I'll be setting forth some challenging goals for 2012 very soon. Please stay tuned!

How did you do with your goals?

Thanks for reading.

Photo Credit: jscreationzs

Income/Expenses For December 2011

noreply@blogger.com (Dividend Mantra) — Sun, 08 Jan 2012 22:57:00 +0000

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

Income from December 2011:

$3,948--Regular Paycheck
$181--Dividends
$555--Bonus and Spiffs

Total Income: $4,684

Expenses from December 2011:

$474--Rent
$160--Student Loans
$62--Restaurants
$56--Groceries
$106--Fast Food and Pizza
$57--Public Transportation
$53--Internet
$44--Pharmacy
$40--Mobile Phone
$39--Everything Else*

Total Expenses: $1,096

*The Everything Else category includes expenses I don't have a regular budget for. In this case it was gifts for Christmas and my youngest sister's birthday. As I explained before, most of my Christmas gifts were procured from a reward program I participate in from my employer.

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

Well, this is the last monthly budget for 2011 and it was my best one yet. I look back on the year and I can slowly see myself becoming more proficient at managing a monthly budget and I see my frugality becoming more of an everyday way of life instead of a sacrifice. It's really wonderful!

Income was the highest I've ever recorded for one single month. This is because there were 5 paychecks for me in December, so my regular paycheck category is higher than usual. Also, December's dividends were the highest I've ever received as my passive income continues to reach new heights. The major difference, however, is the bonus category. I received a fairly large Christmas bonus at work, which was much appreciated. That accounted for most of that category.

Expenses were pretty well in line, and I can't complain about anything. I believe, without going through every monthly budget I have, that this is the first time I've spent less than $1,100 in one single month. I'm very proud of that! I'd love to get the expenses in the triple digits, but I just don't see that happening. I think I've really stricken a nice balance between frugality and quality of life here and the $1,100 mark monthly is right in my wheelhouse. It takes time to find that right balance, and if you cut your budget too far you will find yourself experiencing diminishing returns. Trust me.

Food was a little higher than usual. This is due partly to the holidays. I ate a little more than usual, and ate out more than usual as well. Traveling added to that as I ate in airports coming and going. I had long layovers in Atlanta to and from Florida and ate overpriced low quality airport food. Oh, well.

I managed to save 76.6% of my net income this month. That's a fantastic number and if I could maintain that to any regularity I'd be extremely happy. In the end, a higher savings rate will depend more on increased income than reduced expenses. My expense level is right about where I want it.

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

52.5%-January
54.4%-February
39.9%-March
61.8%-April
35.9%-May
72.9%-June
50.0%-July
64.3%-August
69.6%-September
72.2%-October
62.3%-November
76.6%-December

I reached an average of 59.3% for the year of 2011. I exceeded my goal and almost hit 60%! That's pretty fantastic for my first full year of actively pursuing a frugal lifestyle. I'm proud.

I'll be updating my goals page to reflect the fact that this goal has been achieved. I'll also be reviewing my goals from 2011 and also putting forth my goals for 2012 later this week. Stay tuned!

How are your budgets doing?

Thanks for reading.

Photo Credit: RambergMediaImages

Start Off Your New Year Right

noreply@blogger.com (Dividend Mantra) — Fri, 06 Jan 2012 03:09:00 +0000

This article originally appeared on The Div-Net on December 29, 2011

Get Started!

What better goal to have for 2012 than to start a diversified portfolio of dividend growth stocks that will reward you for being a loyal shareholder by distributing quarterly, semi-annual or annual dividends? Building a sustainable passive income stream by investing in quality businesses that have an economic moat, a lengthy history of rising earnings and dividends, solid balance sheets and are trading at attractive valuations allows you to take that income and reinvest it back into dividend growth stocks or use that income stream for other ventures. It is important to remember that not only do you receive a portion of earnings in the form of dividends from these companies, but these companies also re-invest earnings back into the company to continue to grow the business. This will lead to higher earnings, and therefore a higher share price which leads to an increase in the market value of your investment.

Fund Your Dreams

The best way to start building a dividend growth portfolio is to start with a little capital. I personally started with about $7,000 when I initially started building my Freedom Fund. After tinkering with mutual funds and miscellaneous stocks for a couple months, I found the dividend growth investing startegy and decided after much research to focus my capital and time in this investment strategy. It doesn't take much capital to start, and one can start with as little as $1,000. If finding $1,000 to invest proves to be cumbersome, then I would first recommend you start budgeting, cut out unnecessary expenses and start saving money.

Now You're Rolling

Once you have a little capital set aside for investing, it's just a matter of opening a brokerage account and start researching individual stocks to invest in. When initially building a portfolio from the ground up, I would stick with a few large-cap blue chip dividend growth stocks to build my portfolio around. These would be your core positions. Stocks like Procter & Gamble (PG), Coca-Cola (KO) and Johnson & Johnson (JNJ) would fit the bill here. These companies typically are consumer based, are not cyclical and produce products that have demand in all economic cycles. Once you have your core built up, you can start to expand your portfolio around this core and invest in other solid companies that also have economic moats, sustainable and growing earnings/dividends, produce quality products, have solid balance sheets and trading at attractive prices. I ty to keep a watch list of 50 or so quality dividend stocks, which includes the companies I'm currently invested in. Stocks like Medtronic (MDT), Emerson Electric (EMR) and Illinois Tool Works (ITW) are all companies I've invested in and am willing to invest further funds based on valuation and my allocation at the time of investment. Companies like Becton, Dickinson (BDT) and Kimberly-Clark (KMB) are examples of stocks that I have not invested in yet, but are on my list to invest with at a future date depending on valuations and changes in the individual companies and the market as whole.

Stay Focused

The key to starting your new year off right and building a dividend growth portfolio is to commit to a plan, do your due diligence and be ready to make changes as market conditions change. My plan involves committing at least 50% of my net income monthly to dividend growth stocks and investing in 1-2 quality companies per month. I roll with the punches and sometimes make mistakes. I recently sold my entire position with Telefonica S.A. (TEF) (ADR) and reinvested that capital into other attractive opportunities. The key is staying humble, doing your research, sticking to your plan and realizing that building a solid dividend growth stock portfolio takes time and is a get rich slow plan. If you invest in quality companies at attractive valuations and plan to hold for the long-term while remembering to continuously monitor your portfolio you will build wealth, and with it a passive income stream that could afford you financial independence and freedom to pursue your dreams. When you no longer have to exchange your time for a paycheck, you will effectively be buying yourself time to chase whatever goals and desires you have in your life.

Best wishes for a prosperous 2012!

Full Disclosure: I'm long KO, JNJ, PG, MDT, EMR, ITW

Thanks for reading.

Photo Credit: arztsamui

Dividend Growth Index Update - Q4 2011

noreply@blogger.com (Dividend Mantra) — Thu, 05 Jan 2012 00:58:00 +0000

Well, I hope my readers haven't forgotten about the Dividend Growth Index. This was in index started in September of 2011 and involved many fellow respected investment bloggers. We all picked three stocks each, for a total of 24 companies comprising the index. We are all tracking our individual positions, and the index as a whole to show the power of long-term compounding. You can read a full synopsis of the performance so far here.

My first pick was Philip Morris International (PM), which is also one of my picks for the best dividend stocks of 2012. According to the spreadsheet we are tracking, PM is up 27.25% since we started tracking it in the index. I've discussed my affinity for this company many times on this blog and am confident it will be a strong performer over the next couple decades and is one of my largest positions.

My second pick was ConocoPhillips (COP). This is a strong integrated energy company that plans on splitting into two individual companies this year. One company will concentrate on upstream operations, and the other company will focus on downstream operations. I think it has offered many opportunities for value over the last year whenever oil dips. It produces a product that has global demand that increases every day, it offers a solid yield and the company split may unlock shareholder value. This pick is up 18.29%, according to the index spreadsheet.

My third selection for the index was Procter & Gamble (PG). This company is a no-brainer in my opinion. They are a core holding of mine and they produce a myriad of consumer products that have brand name appeal and global reach. Unless something changes dramatically with PG, I plan to hold this one for the long-term. It hasn't been as strong a performer as some of the other selections in the index, but that's ok with me. This isn't a race, it's a marathon. It's up 6.63%.

It's important to note that a lot of the strong performance with the Dividend Growth Index was fueled by the strong performance of the S&P 500 over the last few months of 2011. I think the entire index is made up of strong long-term performers, but I wouldn't expect growth like this to continue. I would expect, if anything, a correction in the overall market in the short-term along with drops in value for all of my picks and the index as a whole.

It's also important to note that these are not "stock picks". This is a virtual index we are tracking to show the long-term power of compounding. Short-term fluctuations are expected, and I actually look forward to fluctuations and volatility as it offers a value investor opportunities to invest for the long-term.

You can read about the other bloggers and their individual performance:

The Dividend Guy
The Passive Income Earner
Dividend Growth Investor
Dividend Monk
My Own Advisor
The Wealthy Canadian
Dividend Ninja

Full Disclosure: I'm long PM, COP, PG.

Thanks for reading.

2012 Best Dividend Stocks

noreply@blogger.com (Dividend Mantra) — Tue, 03 Jan 2012 11:30:00 +0000

Yours truly has agreed to be part of a friendly stock picking contest among some fellow respected finance bloggers. I'm excited and looking forward to seeing how all of our picks turn out. This is the 4th annual iteration of this contest, but the first time I'm competing. Let the fun begin!

I'm including what I feel are the best dividend growth stocks for 2012. In the end, it's terribly difficult to try and ascertain what the return will be for individual stocks over such a short period of time. One year in investing terms is an extremely short time frame. Due to such, any dividend growth investor worth his salt is in it for the long haul. Every single time I invest money in a company, I plan on owning it forever...unless the company's fundamentals change significantly. Changing fundamentals and economic climates is a primary reason one must continue to monitor a portfolio and individual positions. Companies change, people change and so with it portfolios change.

With that little disclaimer being said, I hereby present my picks for the 2012 Best Stocks Contest.

Philip Morris International Inc. (PM)

Per Morningstar:

Philip Morris International is the world's second-largest tobacco company, behind only China National Tobacco, and holds almost 16% of the non-U.S. market. The firm owns seven of the leading 15 international brands, including Marlboro, the company's flagship brand that accounted for more than one third of total volume in 2010. Other key brands include L&M, Philip Morris, Bond Street, Chesterfield, Parliament, and Lark.

Philip Morris has been on an absolute tear. It was up 34% in 2011. It has a solid dividend, has a dominant position in the international tobacco market and an addictive product people are willing to pay a premium for. There are few things not to like about PM. This is my top pick for 2012, and one of my largest positions. They are able to increase the price of their products faster than inflation, which bodes well for increased earnings, revenues and dividends.

Beginning price: $78.48

General Dynamics Corporation (GD)

Per Morningstar:

Falls Church, Va.-based General Dynamics manufactures ships, armored vehicles, defense-oriented information technology systems, and business jets. The firm gets around 72% of revenue from the Department of Defense and the rest from foreign sales and Gulfstream business jets. In 2010, the firm generated $32.4 billion in sales and $2.6 billion in earnings with the help of 90,000 employees.

I could have picked just about any defense major here. I could have substituted RTN, LMT or even HRS. I went with GD though because I feel they have a solid defense product lineup backed by the private sector business in Gulfstream. Defense stocks all have compressed P/E ratios, and a number of them will likely appreciate simply on P/E expansion once some of the DOD budget issues are worked out. Investors are anticipating major defense budget cuts, resulting in the values in this sector. I'm not as bearish about our defense budgets, as I believe that worldwide armed conflict is, unfortunately, not going to cease anytime soon.

Beginning price: $66.41

Intel Corporation (INTC)

Per Morningstar:

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

I see some value in tech, namely INTC and MSFT. I could have substituted MSFT here, as they are both cheap. I just happen to like INTC better as a business. They are a cash cow, with a dominant position in their industry. I think as server demand increases due to increased use of smart phones and cloud computing, INTC only stands to benefit. They offer a solid yield and are cheaply priced for a worldwide leader in their industry.

Beginning price: $24.25

Emerson Electric Co. (EMR)

Per Morningstar:

Emerson manages five business segments: process management (28% of sales), industrial automation (21%), network power (27%), climate technologies (16%), and tools and storage (7%). Primary products include motors, drives, valves, switches, test equipment, air conditioning compressors, electric tools, and home storage solutions.

For my last pick, I decided on EMR. I say go with what you know, and this is another stock I own. The great thing about EMR is that it was extremely weak in 2011, down over 18% on the year, and you get an extremely diversified company with just one pick. EMR is a dynamite company and I think it will be extremely strong over the long haul. They are offering a solid yield. and it's one I'm thinking of adding to in my personal portfolio.

Beginning price: $46.59

I'm just one blogger participating here. Check out some of the other entries:

Where Does All My Money Go
Million Dollar Journey
The Financial Blogger
Money Smarts Blog
Dividend Growth Investor
My Traders Journal
Intelligent Speculator
Beating The Index
The Passive Income Earner

Full Disclosure: I'm long PM, GD, INTC, EMR

Thanks for reading.

Freedom Fund Update - January 2012

noreply@blogger.com (Dividend Mantra) — Mon, 02 Jan 2012 01:22:00 +0000

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

The markets have been extremely resilient lately. I think investors are a little too optimistic about the overall state of the economy and some of the sovereign debt issues. This could mean that there is a market correction just around the corner, which would be more than welcome by me. I always look forward to corrections as a value investor, as that gives me the opportunity to purchase more shares for my money.

I made a few key changes to the Freedom Fund since my last update. I sold all my Telefonica S.A. (TEF) (ADR) holdings, due to what I thought was an unsustainable dividend--which later turned out to be an extremely accurate prediction as the dividend was cut less than a week after I sold. I used capital from that sale, as well as fresh capital from my paycheck and dividends to purchase shares with Emerson Electric Co. (EMR), Illinois Tool Works Inc. (ITW) and AT&T Inc. (T). I'm extremely pleased with these purchases, and all three are new positions to the Freedom Fund. EMR is down quite a bit since I purchased, which may open an opportunity to average down on that position to lower my cost basis.

The current market value of the Freedom Fund stands at $54,852.73. This is a sizable increase from the last published value of $51,379.60. This increase is due to my recent purchases, as well as strength in the markets.

I'm invested in 23 positions. This is an increase since last month, when I was invested in 21 positions. This is due to my purchases of T, EMR and ITW and the sale of TEF.

Another great month for the Freedom Fund. I directed the sale of a weak stock, and initiated positions with three strong companies. The market value continues to increase due to my aggressive purchasing during both up and down markets. It's great to start off 2012 with almost $55,000 in equities, as that gives me a great point to start from and build onto. I'm looking forward to aggressively adding to the fund monthly, as long as capital and opportunities present themselves.

How are your portfolios doing? Starting off 2012 on the right foot?

Full Disclosure: I'm long ITW, EMR, T.

Thanks for reading.

Happy New Year!

noreply@blogger.com (Dividend Mantra) — Sat, 31 Dec 2011 21:51:00 +0000

Happy New Year! As 2012 fast approaches, I thought I would give thanks to all of those that supported me over the last year and made Dividend Mantra such a success. I have two reasons for keeping up on this blog. First, I think it's great to document my journey to financial independence/retirement early in life and prove that it's possible on a middle class income. Second, I hope to inspire and learn from others! I think it's important in life to find inspiration for the things that matter to you, and I hope that this blog provides a small dose of financial fresh air as well as a platform to share ideas.

2011 has been wildly successful for me. I didn't anticipate finishing the year with more than $50,000 in my Freedom Fund, but here we are ending the year and I have done just that. I've worked hard at it. I've also been aggressive at work, doing my best to show myself as a valuable employee. Due to such, I very recently (this week) received a promotion! This could have significant upside to my bottom line and the pay raise that comes with this promotion is extremely welcome and appreciated. All told, it could be as much as 40% more income. However, my excitement is tempered as I'm a realist and being new to the position I expect my income to (hopefully) stay relatively similar in 2012 to what I earned this past year. I learn fast, so we'll see! This new position also comes with additional responsibilities, and I'm keenly aware of that. I'm ready.

I'm going to be reviewing my goals very soon, as I set out at the beginning of 2011 with a small list of accomplishments I had hoped to achieve and I worked hard to achieve all four. I'll also be setting forth a small list of goals for 2012. Stay tuned.

Over the course of 2011 I purchased at least one attractively valued dividend growth stock every single month. Purchasing monthly, and averaging my capital into the market, is just one part of my overall mantra of trying to build a sustainable dividend growth portfolio on my journey to financial independence. I've learned to become more frugal than I ever thought I would. This year I sold my car, canceled cable television, moved to a cheaper/smaller apartment located along a major bus line, bought a bicycle for local transportation, took a free vacation and cut my food expenditures.

Now, on to the love! I just wanted to thank a few people who have continued to support Dividend Mantra and make the blog successful.

The Dividend Guy Blog
The Dividend Guy has continued to support the blog, and it's very much appreciated. He actually initiated a little project, called the Dividend Growth Index and included yours truly! Thanks TDG!

The Dividend Ninja
Ninja has been a huge support of this blog and I just wanted to say thank you. One of our neighbor bloggers from the Great White North (Canada!), he mainly blogs about dividend paying stocks but also gives indexers something to read about too. Check him out!

Dividend Monk
The Monk posts some of the finest stock analysis articles that you'll see anywhere on the internet. His attention to detail is amazing and unique and he also espouses minimalism in some of his articles (hence the Monk moniker). He has a fantastic value-oriented portfolio and his site is really educational.

My Own Advisor
MOA is another blogger from Canada and has a great site that is focused on investing, finance, life and how all three are interconnected. He has some great posts about living well while being financially aware. He has been an incredible supporter of this blog and I truly appreciate it.

Mr. Money Mustache
MMM is all about putting more cash in your 'stash! He retired extremely young and is empowering others to live frugally and be financially aware of the fact that small everyday decisions impact the big picture. He was kind enough to offer me a Guest Posting opportunity and I took it gladly. Thanks MMM and we all appreciate your unique perspective on financial independence and life in general.

Dividend-Growth-Stocks
Dividends4Life has been instrumental in the success of this blog and he added me as a core member to the Div-Net, something that I've been appreciative of and have been contributing weekly articles to ever since. D4L's blog is extremely motivating and inspiring as his huge dividend numbers give all of us a moving target to aim for.

I also wanted to say thank you to all my regular visitors who comment and share information. It's through sharing information that we all learn and grow as individuals and investors! I am also glad to see that a few regular readers have started their own blogs to document their individual journeys. Best of luck guys!

Please, have a safe celebration tonight. I'm going to ring in the New Year with my significant other with a nice, quiet dinner out. We'll come home early and relax as 2012 begins.

I hope everyone has a prosperous 2012 and may it bring your much joy and success!!!!

Thanks for reading.

Photo Credit: Idea go

Dividend Income Update - December 2011

noreply@blogger.com (Dividend Mantra) — Thu, 29 Dec 2011 04:34:00 +0000

2011 is just about behind us, and with December's dividends recorded, I have my first full year of dividends received and documented! I feel like a big first step has been taken on my journey toward financial independence. It feels great. It's been a year of ups and downs, and I've learned a lot along the way. All in all, I feel that 2011 was a great success as my first full year of investing. I'm on my way!

The dividend income I received for December was the most I've ever received. It's my biggest month to date, and I'm really excited. One day I hope to look back on this month and see that this was the turning point. The point where I can start to see how passive income by way of dividends can replace my full-time work. I'm still a long way off, but December was a big success.

I hope these monthly dividend income reports provide inspiration for any investors out there that are just starting out. It's easy to see these payments rising month after month and it shows that it's possible to one day pay for monthly expenses with dividends, which would provide an investor opportunities and freedom to pursue other interests than full-time work. Without further ado:

December 2011 Dividends Received

Aflac Incorporated (AFL) - $24.42
Intel Corporation (INTC) - $15.12
ConocoPhillips (COP) - $36.30
Harris Corporation (HRS) - $11.20
Exxon Mobil Corporation (XOM) - $15.51
Chevron Corporation (CVX) - $20.25
Johnson & Johnson (JNJ) - $39.90
McDonald's Corporation (MCD) - $9.80
The Coca-Cola Company (KO) - $9.40

Total dividends received for the month of December: $181.90

A superb month. This was my biggest month so far, and I'm excited for the day that I eclipse the $200 monthly dividend income mark. It took quite a large chunk of my portfolio to hit this number, so my excitement is tempered by cautious optimism.

I've been chasing a goal to receive $1,200 in dividend income for the year of 2011, and at times I was confident that I was going to just miss that goal. Well, I'm extremely happy to report that with December's dividends I have received a grand total of $1,202.06! Whew! That was close! I don't think I could have put that goal any closer had I tried. I figured it would be a challenging, but achievable goal and it was very challenging and I just barely achieved it. I'm very proud of myself for exceeding my goal. I'm very excited for what 2012 brings and I'm ready to get the year started.

I'll update my dividend income page to reflect December's dividends.

Full Disclosure: I'm long AFL, INTC, HRS, COP, XOM, CVX, KO, MCD, JNJ

Thanks for reading.

Photo Credit: sscreations

Merry Christmas!

noreply@blogger.com (Dividend Mantra) — Sun, 25 Dec 2011 12:30:00 +0000

I wish all my readers a very Merry Christmas! I am spending the holiday in Michigan with family and I hope you and yours are all enjoying the little break from day-to-day life.

I'll be back at it this following week after I return home to Florida.

Thank you to all who support Dividend Mantra. It means a lot to me to share my journey, and learn from everyone out there. May you have a wonderful holiday.

Thanks for reading.

Photo Credit: suphakit73

Guest Post At Mr. Money Mustache

noreply@blogger.com (Dividend Mantra) — Fri, 23 Dec 2011 18:57:00 +0000

Hey everyone!

I was fortunate enough to receive a most warm invitation to guest post over at Mr. Money Mustache. For anyone not familiar with MMM, please check out a little bit about him here. MMM is a champion of the frugal living/early retirement/financial independence scene and retired at...drumroll, please...30 years old! It's wonderful to see like-minded individuals seeking financial freedom through hard work and living frugally. He asked me to present an introduction to dividend growth investing to his readers as he kicks off a series on investing. I jumped at the chance!

Please check out my guest post here and leave a comment.

I hope you all enjoy. Big thanks to MMM for the opportunity!

Thanks for reading.

Time: A Dividend Growth Investor's Greatest Ally

noreply@blogger.com (Dividend Mantra) — Thu, 22 Dec 2011 11:30:00 +0000

This article originally appeared on The Div-Net on December 22, 2011.

As a young (29, and counting) dividend growth investor, my primary ally is time. Time affords me the ability to commit investing errors, allows me flexibility and freedom in my general investment thesis and allows me the ability to compound my investment capital and reinvested dividends over many years. As a young dividend growth investor, there is no greater asset than time. If time is on your side, you have a very powerful tailwind indeed.

Let's investigate how time can help a dividend growth investor.

Committing Errors

If you make an investment blunder, such as I did recently with my investments in Telefonica (TEF), time allows you to recalculate a position and start back over again. Even though I lost some money with my TEF investment, I still have plenty of time to invest those funds elsewhere and regain my losses. If you invest with a company and later realize that this particular company no longer fits in with your strategy you can likely move on and over time you will be better off for it.

If you lose $1,000 with an investment, time allows you to write off that loss, take your capital and grow it somewhere else. If you have 20 or more years of an investment career left the odds are good that $1,000 will be regained many times over. Of course, if you're making massive leveraged bets that go sour it may take many years to break even. Even with plenty of time on your side I believe it's prudent to invest with caution, stick to your long-term plan, invest in quality and diversify.

Flexibility

Time allows you to be a bit flexible in your investment thesis and strategy. For instance, I mostly invest in quality dividend growth companies that have sustainable competitive advantages, or economic moats, that grow earnings and dividends at a rate that outpaces inflation. These companies usually have entry yields over 2.5% and are available at attractive prices relative to their intrinsic value. Companies like PepsiCo, Inc. (PEP) and Johnson & Johnson (JNJ) come to mind.

However, because I'm still relatively young and have plenty of time left in my investment career I can afford to stray a bit from this strategy. I could invest in a company with an extremely low entry yield, due to either a higher price due to higher expected growth or the fact that it simply not a traditional dividend stock. Visa Inc. (V) comes to mind here. Dividend investors with a limited time horizon and in need of income would likely take a pass on Visa due to the fact that its entry yield is less than 1%. However, if you have a longer time horizon before you'll need the dividend income to live on, Visa may be paying out a YOC of 10% or more by that time.

With plenty of time on your side you could also explore pure growth plays or high risk stocks. If the investment goes sour on you, this would be "committing an error" as discussed earlier and hopefully you could make up ground over time. I would make plays like this a limited part of one's portfolio (under 5%), even if you have a lengthy time horizon so as to limit your loss potential.

Compounding

Perhaps the greatest power that time has is compounding. Whenever I commit capital to a new investment, I plan on keeping that money invested for the rest of my life. If the company's fundamentals change, then I roll with the punches and reevaluate my position. But, if the investment stays on track then the odds are good that over 20-30 years your initial investment is going to grow many times over.

To show you how powerful time can truly be consider that $5,000 invested into an instrument earning an 8% return annually will turn into $160,000 after 45 years. After only 10 years, however, that initial $5,000 still earning that annual 8% return will be only $10,800. The investment still doubled, but you can clearly see the effects of time. Time allows a small sum of money to turn into a very large sum if you feed it a healthy dose of patience. The preceding calculations did not take taxes or inflation into consideration, but are still illustrative.

In summary, I believe that one should always be prudent and stick to your plan. My plan involves generally investing in quality dividend growth stocks that have sustainable economic moats, a proven track record of growing earnings, revenues and dividends, and produce products that have enduring value. However, time allows someone even as conservative as me to stray from the track every once in a while and if one gets burned it allows you to learn from your mistakes. While experience pats you on the back and gives you a wag of the finger, time will allow you to get back on path and give your reinvested capital a gentle tailwind blow that over the course of many years will turn into quite a gust.

Full Disclosure: Long JNJ, PEP.

Thanks for reading.

Photo Credit: digitalart

Free Your Chains

noreply@blogger.com (Dividend Mantra) — Sun, 18 Dec 2011 23:06:00 +0000

As any regular readers know, this blog is mainly focused on dividend growth investing but is not solely about such. I also like to delve into frugality, retiring early, the philosophy on consumption, budgeting and so on. Today, I'd like to talk a little about the chains of consumption.

I read Plato's Allegory of the Cave when I was in my teens, and although I didn't know it at the time this allegory forever changed my view on life. I highly recommend anyone who hasn't already read it to seek it out and let me know what they think.

The basic premise behind the allegory is that there are prisoners in a cave, who have been chained to the walls of the cave for all their lives. They are unable to turn their heads. They entertain themselves by looking at shadows on the walls in front of them, shadows that are cast by puppeteers around a fire behind them. They take these shadows as reality and the chains as part of life. They try to guess which shadow is going to come next and take great pleasure in these shadows. One day, one of the prisoners is freed. He is temporarily blinded by the fire and doesn't understand how the figures are casting shadows on the wall. Later, he leaves the cave and is blinded by the sun. It takes him a while to understand the true way of the world and later pities the prisoners still chained to the walls of the cave.

I was once chained to these walls, burdened by a work-earn-spend-consume-work cycle. I knew of no other way. I thought that this was the only way life could be lived, because that's what everyone else was doing. The shadows being cast on the walls (commercials of new cars, visions of expensive vacations) showed me what life is, and I had no reason to doubt this as truth. Everyone around me was also chained to these walls, looking at the shadows, working to earn and earning to spend, so I was simply in the same predicament as everyone else. How bad can that be? Worse than I thought. These chains made up of debt and needless consumption are extremely hard to break.

I was freed from those chains in mid-2010. I started to seek out an alternative way of living and stumbled upon one of the only real books I've ever sought out on my own. I read Your Money Or Your Life, a book that discussed your life in terms of time and energy and not in terms of money. When you are working for a paycheck, you are basically exchanging units of your life energy for money. Life energy is limited, as you only live so long and one day you will no longer be alive. How much of that limited time that you're given is worth exchanging for a big house (and mortgage), a newer car, a new wardrobe? How many chains do you want attached to your wrists? I decided that I wanted no chains at all, and I walked out of the cave. It was blinding at first, but my eyes have adjusted now.

I have learned that my time here on Earth is limited and that every minute that passes by is one less unit of life energy that I have left. I don't want to spend 50% or more of this available time at an office trying to climb a corporate ladder to nowhere. I have learned that if you pay attention to the shadows (commercials for consumption), instead of the puppeteers (marketing companies for products) you'll never escape those chains. I'm not saying to never spend money, but simply to be thoughtful about your consumption. Having a 5-bedroom house when you have no children, three cars when there are only two people using them, or keeping your thermostat at 80 in the winter are all ways of living that could, and should, be changed. Getting away from the endless pursuit of stuff will only benefit you. It's benefited me.

My basic plan, now that I'm no longer bound, is to be mindful of all expenses. I budget every single dollar I earn and spend, I moved to a state with no state income taxes and free outdoor activities, I cut out expenses like my mobile phone, cable, I sold my car and take the bus, and I rent a cheap apartment that is located on the bus line that takes me to work. I take my excess savings and I invest in companies that produce products that people use everyday. Think beverages, food, gas, medicine, toothpaste and the like. Even frugal people still need to brush their teeth! These companies reward investors with regular distributions, in the form of dividends, and with those distributions I hope to one day be able to pay 100% of my limited expenses and have money left over.

What about you? Are you bound by your own chains? Have you stepped out of the cave?

Thanks for reading.

Photo Credit: jscreationzs