Thursday, January 19, 2017

Some Recent Purchases for the New Year

Hello everyone,

I figured I'd take some time right now to go through some recent purchases for my dividend growth portfolio, to help me along my journey to financial freedom.

But first a funny / not funny really short story.

So when I was hired at my current job, I was fortunate in that I was given a pension. Unfortunately, direct contributions into that pension stopped recently. The good news, however, is that it continues to compound every year.

So every January, I check the balance to see what the new value of it is.
Well, part of this process is that the pension company wants you to select certain retirement dates as input for them to calculate the pension value when I stop working.

Of course, it calculates this value at the traditional retirement age of 65, but then I also chose a custom early retirement date to see when my benefit would be when I stop working.

For kicks, I came up with the year of 2025. I adjusted it to the end of December of 2025, which did not sound too too crazy.

You know what?

As they say, "that's my story, and I'm sticking to it".
This is now my target for an early retirement, and I will try my best to make it happen. I have now written it down, and it has become real to me, so that is now the goal. Nothing I would love more than to gain my time freedom, so now I am pushing for it. We'll see if it materializes.

Anyway, back to the subject at hand. I wanted to summarize some recent buys, as I have not done this in a while. Since the start of the new year, I have focused on 3 stocks, 2 of which I already hold positions in, and 1 was a new position.

WSM - Williams-Sonoma. 
This was a new position I opened this year. It had been sitting on my watch list for a while, but I noticed recently the price had decreased to a level where the yield had reached 3%. This is a threshold I am using currently as one of the factors I look for to start a position for my taxed brokerage account (for my Roth IRA, this is less of a factor, as I keep both high and low yielders in this account). I am looking for yields of at least 3% for the taxed brokerage account, as I want to grow my dividend payouts sooner than later in that account.

Originally when looking at this stock, I was less than excited, because I basically thought of it as just "pots and pans". Pretty uninspiring.

I gave it more thought, however, looking into why one may purchase said pots and pans. When it comes to food, I believe people tend not to skimp on quality when it comes to tools used to prepare food, at least for their customer base. Also, with housing markets doing well, as people move in to new residences, they tend to want to upgrade various parts of the home, including kitchens, and tools that go into those kitchens. So I began to feel better about WSM as an investment.

The payout ratio is quite reasonable at 43%, there have been 7 consecutive years of dividend growth (with annualized dividend growth over the last 3 yrs of 8%, which is not the best, but not the worst), and earnings have been steadily growing in recent years. Another key is that, although this is considered retail, and retail has been battered and bruised on account of Amazon, one can actually order their products on Amazon, so while Amazon soars to new heights, I don't see WSM being as impacted as some other stores that are in direct competition with Amazon.

Since the start of 2017, I have added 13 shares of WSM.

TGT - Target
Target's story is well documented, I won't repeat the details here. They are a Dividend Aristocrat with strong dividend growth, and so when they go on sale, I am all for picking up new shares. Struggles with Amazon have been well documented, but at the same time, I don't think Target is going anywhere anytime soon, or that sweet 3+% dividend yield. There is room for it to grow further, plus even though it may not experience 20+% annualized dividend growth like we've been used to, I expect the dividend growth to grow at a decent clip, maybe closer to what you see from WSM above.

News hit earlier this week, that TGT is lowering their guidance, and of course that means the sky is falling to the financial media (thanks CNBC, Marketwatch, and Yahoo Finance!).

In the meantime, I calmly added 10 more shares this week on the news. It may fall further, and I plan to be there to lower my cost basis.

CAH - Cardinal Health.
Speaking of battered and bruised, healthcare stocks have been fitting that bill, since our President-Elect referenced drug prices being too high. However, with CAH being in the business of delivery of needed medications to people, and the need for healthcare to be more key, the older we get, CAH is another long term play for me. The yield is a bit low, at around 2.5%, but the annualized dividend growth is strong in the double digits.

I added a few more shares in the new year to add to my existing position.

So while many stocks have run up into the super-frothy department, I still see these 3 companies being good values at the moment, and I have scooped up shares, adding to my projected dividend payout.

At present, my projected forward 12-month dividend income is $1,475.01, and I intend to add to that every week, as I noted in My Saving System.

Have you been making any buys recently? Let me know in the comments!

Wednesday, January 11, 2017

My Saving System

Over the past year, in the organization of my finances, I was able to get a better handle on things, and come up with my own system for saving and allocating money for investing. Of course I don't profess it to be a perfect system, but it works currently (and I reserve the right to change it as conditions change!). I also don't expect it to be the 100% best system for those reading this, but hopefully one can find something useful in here that may help them with their saving process. As time goes on, if I can make a tweak that can work better for me, it is definitely on the table, and why not improve when I can?

Then again, you may hate every part of the system, and wish you had never visited this post. Oh well, now you'll know what not to do! 

Though this is not a conventional budget where every dollar has a "home", I have set it up to where I am adding to my savings every week, and I use a spreadsheet to guide me. Some may choose a monthly process, whereas others may opt for a bi-weekly process / once per pay period (assuming you're not one of the few that get weekly paychecks still). 

Why do I do this? 

Nothing scientific, it just felt like a good interval. Waiting until payday every 2 weeks, seemed a little long for me. Fridays are good for lots of things, so why not add to my savings every Friday? Plus it gives me something to get excited about, even when additional money is not coming in (well, aside from any dividends that may be trickling in at that time). I like my routines, and weekly seemed like a good interval to use. 

Some general facts about my situation:
  • I get my paycheck every 2 weeks (well, virtual paycheck, via direct deposit).
  • I love credit card rewards, whether they be for travel or cash back, so 90% of my spending is with cards that have good rewards programs (Why not get rewarded for my spending?).  Some key caveats here: I pay off my balances in full every month, and where possible, I pay them off after each pay period (every 2 weeks). Zero balances and positive rewards coming my way are a beautiful thing.
  • I am currently overpaying my car loan each month, to pay it off more quickly.

Starting with the virtual paycheck, I max out my 401k immediately. This is how I pay myself first, as the saying goes. I was late in realizing this, but I could have done this years ago. However, I was spooked by the fear that I would not have enough left over to cover my bills. Clearly I did not compute in detail what my remainder would be after taxes are withheld, otherwise I would have realized how silly this fear was. I might have been miles ahead of where I am right now. But I digress...

In my investing spreadsheet, I dedicate a tab to this process of determining how much I will save each week. 

In the current pay period, I enter my current checking account balance, as well as my savings account balance with the same bank. I use this savings account as a temporary savings account to be almost emptied and replenished every payday (I keep my emergency fund in a separate online higher yield savings account). I'll explain later. During each pay period, I keep about $260 in this savings account. The spreadsheet will add up both balances to determine the money available to work with for the rest of the current pay period.

Then, I record current Credit Card Balances on the spreadsheet. I also record the bills that will be paid from my checking account during the current pay period (ie, car loan, electric bill, car insurance, rent, etc.). The spreadsheet adds all these up to get a total for expenses for the current pay period. 

I think you start to see where I am going with this.

I then record a miscellaneous amount I expect to spend between the current day and the next payday. Obviously the closer I am to payday, the lower this number should be. 

Every Thursday I make sure to hop on this spreadsheet to give it the proper update of info, and compute my surplus for the week. What is my surplus? It is simply:

Surplus = Bank account balance total (checking + temp savings) - total expenses - Miscellaneous spend estimate

Then a little fork in the road. 

If the next Friday is not payday, I divide my surplus in half (to leave some surplus for the following week until payday arrives). If the next Friday is payday, I keep the surplus as is.

When Friday arrives, I use the following breakdown 
  • $106 goes to my Roth IRA (basically works out to the $5500 limit at the end of 52 weeks)
  • 70% of my surplus - $106 goes into my taxed brokerage account for Dividend Growth Investing. To enable a weekly deposit and purchase of stocks/ETFs, I currently use a brokerage that charges no commissions. If they did charge commissions, I would likely keep a cash position until I had enough to where it would be reasonable to purchase stocks/ETFs.
  • 30% of my surplus goes into a separate online high yield savings account. I use this account for my emergency fund, and then any additional money is to accumulate to jump in on a quality stock that quickly becomes undervalued (FLO, otherwise known as Flower Foods Inc, being the latest example where I did this).

I "pay myself first" with the 401k, but the rest does not get determined until the pay period ends, which kind of goes against the spirit of the mantra, but oddly enough, this system has helped me stay consistent with my saving.

When payday arrives, I do the following
  • Transfer $250 from my temporary savings into my checking account (my checking account has an automatic setting to transfer $250 into that savings account. It's a psychological thing for me, to make sure at the very least that $250 will be available to save every pay period)
  • Pay off all credit card balances
  • Allocate the calculated amounts to my Roth IRA, taxed brokerage account, and the separate online savings account as indicated in the spreadsheet

With this system, I am able to maintain a 40-45% savings rate usually. My goal is to get to 50% and above, but not quite there yet.

There you have it. However, such explanations are better clarified by an example, so I will include one below. The numerical values have no bearing in my reality, but they are there for illustration.

Let's start with the following assumptions for a current pay period (also assume it is a random Thursday):
  • Combined in bank account: $1000
  • Combined CC balances: $300
  • Bills to be paid from my bank account(s): $150
  • Misc remaining spending: $100

I then calculate my surplus as: $1000 - ($300+$150) - $100 = $450

If the next Friday is not payday, this surplus becomes $225 (I divide $450 by 2)

If the next Friday is payday, this surplus remains at $450

For simplicity, let's assume the next Friday is payday, so using a surplus of $450, the savings allocation breakdown goes as follows:
  • $106 goes to my Roth IRA
  • $209 goes into my taxed brokerage account (70% of $450 - $106)
  • $135 goes into my online savings account (30% of $450)

So onto the elephant in the room. What happens when there is no surplus?

If there is no surplus, then I try to be disciplined, and unfortunately I do not add to my savings for that pay period (aside from the 401k). This does not happen often, but it has happened. The exception is when this is due to an emergency purchase. In this case I would draw the amount from my online savings, and transfer the amount into my checking account, and use that new amount for my checking account in my surplus calculation. It has to be a real emergency for me to do this.

When I am not able to add to my savings for a particular pay period, it actually serves as a great motivator for the following pay period to do better and generate a surplus. In a way it's my own "earnings report" every 2 weeks! When it comes out zero or negative, I know that I did not do well for that period, and that I need to do better for the next pay period.

So there you have it, my saving system. As I said, it has kept me on track, once I started getting serious about my finances last year. 

What is your system for saving, and does it work in keeping you accountable? I would love to hear what others do in this regard. Let me know in the comments below!

Tuesday, January 3, 2017

December 2016 Dividends

Hello everyone,

It's that time again, time for reporting on my dividends for December of 2016, my exercise of accountability en route to reaching my goal of financial freedom.

See the details below:

Taxable Accounts
Intel (INTC): $2.86
Cummins (CMI): $8.20
Emerson (EMR): $4.80
Target (TGT): $18.00
Compass Minerals (CMP): $6.26
Flower Foods (FLO): $18.72
Prospect Capital (PSEC): $19.60
Qualcomm (QCOM): $26.27
Vanguard High Dividend Yield ETF (VYM): $8.70
Vanguard REIT Index ETF (VNQ): $10.28

Taxable Account Total: $123.69

Roth IRA Account 
Vanguard High Dividend Yield ETF (VYM): $24.01
Vanguard Growth ETF (VUG):$2.11
iShares Core S&P Small-Cap ETF (IJR): $3.80
iShares Core S&P 500 ETF (IVV): $14.42

Roth IRA Account Total: $44.34

Overall Total Dividend Income for December 2016: $168.03

Forward 12-month Projected Dividend Income: $1,432.33

My Thoughts
I have come to enjoy reviewing my progress for the months of March, June, September, and December as these are the months that return the most in dividend income. These are the months where the "pat on the back" is its strongest!

This year since June, every quarter has resulted in hitting all-time highs in dividend income for that month, which is a joy to see. December was no different, as you can see from the below table, I have reached another all-time high, with December 2016 bringing in $168.03 in dividend income. A big part of this was Target (TGT). The proceeds from my sale of Viacom (VIAB) a couple months back, due to their 50% dividend cut, went right into shares of Target, as at the time, it was attractively valued, it was paying out a 3% yield, and it had a double-digit dividend growth rate. Also, it didn't hurt that I am frequent shopper there, so I felt it would be a good place to invest that money. Also, I have been putting money into Flower Foods, a bread company, as I saw them as very undervalued, especially after the price took a dip after news hit of the lawsuit from many of their drivers, on being classified as independent contractors, as well as less than stellar earnings results. I figured this was a short term setback and invested. The 4% yield with decent dividend growth for a nice slow moving industry like bread, attracted me to the stock as well. In addition, many of the ETFs had their payouts increase substantially over the last quarter. These reasons, added to the money that I am adding each week to attractively valued, well-run companies, all contribute to such a set of good results.

Here is my monthly dividend history:


The progress becomes clearer, when looking at the above information charted below:

Can you guess approximately when I switched my focus from just dividends to dividend growth?

From December 2015, my dividend income grew from $49.89 to $168.03, a Y/Y increase of +237% (yes, that is not a typo). From the last quarter (September 2016), my dividend income has increased from $101.70 to $168.03, a Q/Q increase of +65%.

Dividend machine, full steam ahead!

Now each month I look forward to higher and higher income, which enables me to look forward to the end of the month when I can tally up such good news. I fully understand that my January 2017 Dividend Report likely will not have numbers higher than my December 2016 income shown here (especially since the January, April, July, and October months are typically my lowest income months), but I fully expect to see higher numbers than my October 2016 report. I also expect to see another all-time high in dividend income when March 2017 rolls around.

Things are definitely moving in the right direction.

How was your December? Let me know in the comments!