Thursday, October 30, 2014

Recent Buy in IBM

clip_image001There have been so many articles flying around about IBM and whether it is sinking or swimming. So I read all of those and then started looking at the numbers. They look good to me so I initiated my first position in IBM and picked up a small number of shares.

Even with recent price declines the price is up there. I caught it at $163.79. It has dropped a little bit since then which makes me a little sad. What makes me not sad is the history of the great company.

The dividend contender has been raising dividends at least back to 1995 for a run of 19 years. That has averaged a dividend growth rate of 19.4% over the past 10 years and it is slowing down over time. The current year is only 12.1% which is still double digit growth that easily keeps up with inflation. 

They are pretty far down my ranking system coming in at #192. Mostly from the value at the time I put it together with September information. That was back when the price was $189. The big thing that caused the high ranking is its quality. This seems to be mostly the reason why they are going through all this restructuring to reduce debt and generate higher profits. I usually don't invest in a company with a TTM Price/Book ratio of 10.92 and such a high debt to equity ratio of 2.67. I would prefer P/B of 1 and D/E ratio of 1 as well.

However with plenty of room in the payout ratio and upwards of $13 Billion in free cash flow I think they will adjust to the next era of technology and services and keep on paying that lovely dividend.

Full Disclosure: Long on IBM

Saturday, October 25, 2014

If I Had Never Had to Pay into Social Security or Medicare?

Paying into Medicare and Social Security is always a hot topic. I always wonder if I had been able to invest all the money I have put into the systems over the past 20 years of my working life what it would amount to. Let's take a look at what I will have collected or earned by investing if I live until the ripe old age of 90.
If for some reason I want to wait until I was 70 before starting to collect it looks like I could pull in $3,323 a month. Collecting that for 20 years (until 90) would equal $773,520 collected over my old man life time. Keeping it simple I am not factoring taxes that I would have to pay on this income or inflation adjustments. Over the past 20 years myself and my employers have put a total of $180,047 into the Social Security and Medicare systems. Wouldn't that be nice if the companies I worked for would have just given me this money and I could invest it as I please.
For this scenario I am going to just take the latest Champions average dividend yield of 2.65% and an average price of $64 with a 10 year dividend growth rate average of 7.9%. I also threw in a low average stock price growth of 5%. Now taking the 180K now I would have 30 years until I am 70 to reinvest dividends Punching that into the handy dandy dividend reinvestment calculator let's see what we get.
Now let's take that total value with dividends reinvested and punch that in. This time I am going to collect those dividends and live off of them kinda like if I was living off of social security. Will those dividends total more than $773,520 over 20 years of retirement?
Pretty close with total dividends paid of $616,257. Is this better? Well if I could live off of the reduced income it sure is. When you pass away your social security benefits don't pass on to your kids. The big pyramid scheme just passes them on to the next retiree in the system. Having the money as my own I would be able to gift a large sum of over 2 million dollars to my kids.
There is risk in both scenarios. Social Security could be nonexistent or very limited in another 30 years. On the other end investing is always a risk. But diversifying in over 100 companies would certainly help to minimize that risk. The upside is you are in control and as long as you manage your portfolio the dividends will keep rolling in.
Have a good weekend!
Do you think Social Security will be around for our kids or will the government get it together?

Saturday, October 18, 2014

529 College Plan vs. Dividend Stocks

One of the things you get back after reaching financial independence is your time.  You wake up in the morning and your time is yours.  No having to go to work where your time becomes theirs (someone is telling you what to do.)  Like yesterday.  It had been a long week and I was tired.  Back when I was in college if I were tired I would go and take a nap and refresh myself.  Today, no way.  Gotta get that work done so the company can make more money.  The fact that my time was not my own and I couldn't decide what was best for me really irked me.  It also cause some dividend thoughts to pop into my head.

Several good bloggers write about time so it got me thinking about my son.  He started his freshman year in high school this year and I realized how little time I have spent with him recently and even over the years.  I am comparing my time to that of my wife who got to stay home and raise all of our great kids.  I am jealous (except for when they are not listening) and would like to spend more time with them.  By the time I reach FI they will be grown up and I will have missed their childhood.  Weekends are my time with them.  The company even tried to get people to voluntarily come in Sunday to work a full day.  I made my excuses and got out of it but not sure how long that will last.

This is where my dividend thoughts started to occur.  I remembered my son has a 529 College savings plan.  A 529 plan allows the investment to grow taxed deferred and withdrawals are tax free as long as they are used to pay for college in the state you have the plan in.  I haven't touched it in a decade and don't even know how it is doing.   In taking a look it has roughly doubled in size in 10 years.  This includes the Great Recession.  The portfolio is laid out like this:

Percentage of Portfolio
Vanguard 500 Index
Vanguard Extended Market Index
Vanguard Developed Markets International Stock Index

I think my original percentages were 70/15/15.  I would seem Extended Index has been doing well over the years and chewed away at the 500 Index fund.  I could rebalance but for now I am ok with it and will leave it as is.  The less you touch the less fees they charge.

Now would this investment have done any better just being allocated to dividend stocks of my choosing with no management fees over 10 years except for the initial broker fee to purchase them?  I chose two companies that have been on my mind recently that I don't own yet, McDonalds and Johnson & Johnson. 

Image courtesy of

Would you look a MCD go.  Wow 5x growth.  So if a decade ago I had put all my son's money into MCD it would have quintupled (yes I had to look that up)!  I am assuming factors in the dividends in the growth over time as well as stock valuation.  Of course you should never sink all of your money (or your kids) into one stock.  Looking at JNJ it still did better than the 529 portfolio.  A $10,000 investment almost climbed up to $30k in those 10 years.  Now I am guessing this doesn't include taxes paid each year so it is similar to the growth of the 529 plans.

If I had taken more time to learn about investing a decade ago my son's savings may have more than doubled.  To put my son's savings into good solid blue chip dividend payers he would probably be sitting on a large nest egg for college.  Would the tax free withdrawal for college outweigh the growth of individual stocks?  Probably on JNJ it would balance out for a kid who has little to no income (less taxes).  ForMCD you would still come out ahead. 

As always the key is to find the blend of dividend companies that are still growing and pay an ever increasing dividend.  The fees the 529 plan charges every year whittle away at the funds and spreading your investments across too many companies does seem to lessen the growth.  This seems like a good topic for another day. 

As an investor would you put your money in a 529?

Full Disclosure: Long on the 529 plan but do not own MCD or JNJ

Sunday, October 12, 2014

Automatic Investment Blunder or Benefit

Usually this post is about recent purchases.  I had more than I expected thanks to a blunder on my part.  With ShareBuilder they have these automatic investment plans.  Depending on what schedule you have selected it will purchase your plan that Tuesday.  Unfortunately I had it set to When funds are available.  So my plan kept an eye on my balance and kept on purchasing until I caught it.  Nothing like an email while you're at work that you just purchased more stocks you never intended to buy at an unknown price.  I had to wait until I was out of a meeting then raced back to my desk and secretly logged into my account to see what was going on.  Needless to say it is now turned off.  What did I get (twice)?  Well let's take a look.

Entry Yield

Nu Skin Enterprises Inc. (NUS)
Nu Skin, founded in 1984,  is a direct selling company of personal care products and falls in the Consumer Defensive sector of the market.  They are branding themselves as an anti-aging company and are based out of Utah.  Companies like this develop products to help reduce the effects of age on skin and  pharmaceuticals to promote prolonging your life.  My wife doesn't use any of these products yet but I know allot of women who do.  Surprisingly allot of their revenue comes from China.  They are in 53 markets worldwide and recently declared a dividend of $.345 per share.  I just missed the Ex-Div date of September 12.

Key Statistics
I must have used my August ranking to find this gem as I didn't do one at all for September.  Wow did that month fly by.  They were ranked 4 out of the triple C companies (Champions, Contenders and Challengers).  My focus is on purchasing companies that have consistently increased dividends.  The U.S Dividend Champions spreadsheet is my starting point in my ranking system.  They are a dividend Contender having increased dividends for 14 years.

Value Rank
Growth Rank
Quality Rank
Yield Rank
Overall Score
TTM Payout Ratio

A low P/E ratio (currently at 9.03) was the key driver for the Value Rank.  The yield at both times of purchase was 3% or above.   Growth has been very good at 42% over the past 5 years.  This and growing EPS each year helped it get up to #17 in the growth category.  EPS may dip this year compared to last year unless there is a big surprise.  Prior to this year though EPS climbed each year since 2006.  This dip is one of the reasons for the today's price.  I was able to get this company at yields above 3%.  It has been trending upward the past few weeks so the yield is again below 3%.  It has been one of the few stocks gaining in the past few weeks.  The growth rate of the dividend over the past 5 years has been excellent.  With a low payout ratio I see growth continuing (but maybe not at 22% like the past). 

Nu Skin Wrap-up
The drop in the stock price this year is due to a lawsuit that very well may kick them out of China.  Like I said above China is a pretty big chunk of their revenue thus why I did not want to invest too much.  This double purchase has me slightly worried so I will have to keep an eye on their free cash flow and the outcome of this lawsuit.  Prior to this year they had quite a bit of cash but over the past twelve it is negative.

Horace Mann Educators Corp.
Back in August HMN was reviewed.  They ranked 1 above on my ranking system.  Entry yield was above 3% and the other key ratios still looked good at the time of purchase.  Looking at it today P/E is at 11.4 which is way below the 20 for  me to consider.  Neither Morningstar or ShareBuilder had enough information for me to figure out the free cash flow.  Yahoo shows $120M TTM leveraged free cash flow.  They are still doing well so I am OK with the double purchase here.

Value Rank
Growth Rank
Quality Rank
Yield Rank
Overall Score
TTM Payout Ratio

Overall I am happy with the investments into these companies.  Caught HMN slightly lower on the second buy.  Both of the purchases were both above my entry yield of 3%.  My only worry is the lawsuit that may affect dealings in China for Nu Skin.  But without that lawsuit NUS may never have gotten onto my radar.  I must admit researching companies is allot more time consuming that I originally thought.  I can see why most people go for funds.  I enjoy the research but wish I had more time to dig deeper and gain a better understanding of the qualitative factors.

Good purchase on NUS?  What do you all think?

Full Disclosure: Long on NUS and HMN

Wednesday, October 8, 2014

September 2014 Budget

I am pleased to announce I broke my 3 month savings slump!  Last month was not pretty.  It was an awesome feeling when I put the numbers in for September and my data bars (Excel thing) were not red .  For the year I have had 4 months of saving money and 5 months of borrowing from the savings to survive.  Well I can't borrow from savings anymore because with last month I completely wiped it out.  This was something I had to do so I could keep my 4 year streak of no credit card debt alive.   For September I really buckled down on the discretionary expenses.  This helped me save a whopping $425.57 <fireworks>. 

I have made a few adjustments to my process.  The first being I now add my taxable dividends in as income.  I went back and changed this for the year in my spreadsheet.  Second I was treating investments I had made as an expense when determining my net gain or loss for the month.  The way I look at it now is if that money is mine it is not an expense.  It is just in a different account.

What am I going to do with all that money I saved this month?  Will I invest it?  Unfortunately no.  My savings is drained for those bills that do not occur monthly and cars that break down.  A good budget should account for this.  So from that $425.57 I should be setting aside the following:

Bill Type
Averaged Over the Year
Car Insurance
Car Service

The money I had left over will not go into investments and it will go into building up the "savings" accounts for these types of bills.  While it is not enough to cover the total I need to save each month it is a start.  The more I can save for these the less likely the chance of carrying credit card debt.

Expense Breakdown
So let's take a look at what I had to do to stay in the green this month.  It was a grueling battle constantly telling my family why we couldn't buy this or go out to eat.  I am considering printing out how I am trending through the month and putting it in our kitchen so it is big a visible.  Maybe seeing the weekly numbers will help them to understand you can only spend what you have.

The House
If I add up anything that has to do with a house that totals 47% of my expenses.  I included utilities that are part of the house minus cell phones & cable.  I did not include the average of home repairs so it might be higher than that.  My 'rent' doesn't increase yearly but that other stuff that goes along with a house does.  Insurance and utilities creep upward.  The list of repairs is pretty constant and the time it costs me to fix it is also in the back of my mind.  Is a home worth it?  Maybe I will do a deep dive in another post.

Through good menu planning and limiting the amount of junk food bought I was able to come in $120 under budget.  This is the lowest amount I have spent on food all year.  I did not stop buying organics but instead focused on organics on the dirty dozen list.  In addition we still buy organic milk.  Other than that it is mostly sticking to my grocery list and stocking up when there are good sales.  My health insurance also has this shopping card.  If I buy healthy food it gives me a 1% cash rebate.  It only works at one grocery store.  Shaving a dollar or two though is worth it.  Plus I hope to own stock in that store one day anyway.

Just to clarify I do categorized everything in Quicken but this stuff I just lump together in my expense spreadsheet.  This was a glorious $259 under budget.  Mostly due to restraint and no unexpected healthcare expense.  Childcare (clothes and other kid related expenses) still tops this category.  As you can see my wife and I spend very little on ourselves.  I think my wife bought something because she had holes in the existing garments.

Personal Care

Guilt Free Spending Money
I do not have a formal budget item any longer for this buy I still track it.  Dining out still tracks highest on this one.  The big dinner expense was eating out for my daughter's birthday.  The rest were pizza and some lunch with co-workers throughout the month.  If only I could completely resist that would save me $144 bucks.  My wife and I reminisce about our days long ago when we would eat out maybe once a month if that.  We were young and broke (not much has changed except for our age). 

The other big expense in this category was school pictures.  What a racket.  Blew almost $100 for pictures of my 2 older kids.  I guess photographers have to make a living somehow right?  The trend is downward so that is what I want to see.  Some fun is good but not sure now if it was worth draining my savings (aka emergency fund).  I will have to rebuild that over the next year.

The dividends I counted as income ($27.40) went straight back into those companies.  Allot of fractional shares but I will take it.  I still need to post additional investments I made with cash I had set aside in September.

All things considered I had a good month.  Hopefully you had a good month as well.  The more you save the more of your time you get back.

Image By Mister GC and courtesy of

Friday, October 3, 2014

September 2014 Dividends

Fifteen difference sources of income found their way into my world this month for a grand total of $376.78.  It gives me a bit of comfort knowing as I add companies to my portfolio the sources of income will continue to multiply.  The more steams flowing into my river of wealth the less chance it will dry up just because one of the streams does.  As those streams compound and get bigger they will allow me to take away a stream (income from a job) one day.

The majority of it is from stocks held in an IRA.  These profits I will not count as income until such a time where I can take advantage of the IRA without penalty.  The remaining taxable income is $27 bucks.  This is coming from 6 income streams.  All are currently small but with each passing quarter it is slowly growing.  This covers one trip to fast food joint for the family.  Going forward I am going to start counting this income in my budget post.  A community member got me to understand income is income even if you reinvest it automatically.  If you need it to live off of it is there.

This month is leaps and bounds over September of last year.  Looking back I only received $1.06 in dividends.  With cash flow to invest and picking good companies that grow their dividend I see this higher next year.  Not sure by how much but if I can grow my dividends 10-20% year over year I will be ecstatic.

Hope you all had a good month as well.  What percentage are you looking to grow your dividends every year to reach your goal?