Dividend Income – Mar. 2015

I think it’s important to celebrate wins on the path to your ultimate goal, no matter how small. Sharing my dividend income results with you readers gives you some insight to what is possible as you begin your journey.

My ultimate goal is to be able to live off of the passive dividend income from my investments, so I can just stay at home and play video games. Here is the money I made in March 2015 without lifting a finger.

MCD – $9.35
CVX – $9.63
EMR – $7.52
LMT – $7.50
BP – $30.00

Total: $64.00

Compared to the dividends I earned in December ($20), I’m already seeing some serious progress. I’ve more than tripled that income, progress in an early portfolio is always so impressive sounding. Sadly, with the changes to our goals for 2015, it will be a while until we can see this grow again.

The stocks I currently own all seem to be on a March, June, September, December payment schedule. So I didn’t see any dividend income for January and February.

Why I Regret Putting Money in My Roth IRA

Disclaimer: First thing’s first, I’m the realest. I’m also not a financial adviser, so anything I say here is just my opinion, and you’re responsible for your own money and returns.

With that out of the way, My goals for this year have changed recently. Some back story: My wife has student loans that are small enough that they could be paid off within a year. In the past, I had been of the opinion that the interest rates on the loans were low enough, that we would do better by making the minimum payments and continuing to invest in dividend stocks. Over time, the growth of the stocks and dividends would offset the expense of these minimum payments on the loans.

However, these loans are becoming a bigger burden than the money they represent. In the past few years, my wife has changed her name, and we’ve moved across the country. These changes, are causing the debt collector to start pestering my wife and her family for information on a regular basis. She makes her payments on time and consistently every month, so this behavior is completely unwarranted. As a result, this small amount of debt is creating a disproportionate amount of stress to her and her family.

So, we’ve decided that instead of trying to reach our goal of saving $18,000 this year, we will make an effort to 1) pay off her student loans, and 2) contribute $5,500 to my Roth IRA.

I traditionally make all of my investments in a taxable brokerage account, so this may sound a bit surprising that I would be making this change. I decided that there might come a day that I regret not taking advantage of the yearly contribution limits. Or so I thought…

My retirement strategy is to live off of dividend income from my investments. Dividends have favorable tax treatment, if your income puts you in the 10% or 15% income tax brackets, qualified dividends are taxed at 0%. Non-qualified dividends are taxed at the same rate as your income.

“What’s a qualified dividend?”
A qualified dividend is a dividend received for a stock you’ve owned 60 days before and 60 days after (without selling) the ex-dividend date. So, if I buy JNJ today, and it’s ex-dividend date is in 60 days, if I don’t sell those shares for another 121 days, that dividend will be taxed as a qualified dividend.

This is important because it means whether I put my money in a taxable brokerage account or a Roth IRA, they will both be taxed at 0%. Since I don’t plan on selling, I don’t care about the difference in capital gains tax. (This is all on the assumption that my income in retirement is under the cut off between 15% and 25% income tax rates, and that these rules are maintained)

I’ve already made 1 contribution to my Roth IRA, and now I regret it, because I’ve put limits on the usefulness of that money, with no benefit.

Instead, I will be putting the rest of my contributions in a traditional IRA, because I’m currently in a higher tax bracket than I would be in retirement.

What about you? Are you maxing out your Roth IRA, IRA, or avoiding them all together?

Don’t Just Own It, PWN It!

Most gamers recognize the words “pwn,” “pwning,” and “pwned” or any such variations. The origin comes from a misspelling of the word “own” back when warcraft was a strategy game. Over time, pwning has started to mean much more than simple ownership.

When you pwn someone in a game, you have completely dominated them. You had control of the whole match as a result of your skill and strength of will. The difference between owning and pwning is a matter of control and confidence.

There’s an old saying “the things you own end up owning you.” This is not the case with pwning. When you own shares of a company, they start owning you when you emotionally react to price fluctuation. When you have the strength and confidence to keep your cool during price swings, then you start pwning that stock.

Pwning a stock means you won’t be the newb that gives up on some solid dividends because you sold at a low price in a panic right before the price recovered.

You should strive to pwn everything in your life.

Pwn your Job – Take responsibility and base your actions on what will be best for the company, even if that conflicts with what your boss thinks.
Pwn your Relationship – Put in the work and communication to keep your companionship working. This doesn’t mean winning arguments, it means finding solutions.
Pwn your Health – Master the art of healthy eating, and find the workout plan you’ll stick to.

So, don’t just own it, PWN it!

How Investing Has Changed the Way I Game

When I first started investing, I would use my experience with video games to try to better understand certain concepts. For example, analyzing statistics and “min-maxing” in RPGs gave me the analytic background to determine which companies would be good investments for my style of dividend growth investing. RPGs taught me how putting the time and effort in could yield greater rewards in the future. Now I’m finding that after a few years of investing in the stock market, my patience and dedication to investing time in video game efforts has increased.

The big games I’m playing these days are Pokemon and Diablo 3. I’ve noticed that lately, I’ve had the mindset of an investor when playing these games.

In Diablo 3, I’m more willing to invest more time into getting specific items, and completing sets than before. In fact, my hardcore characters from Season 1 reached paragon level 290, which is leaps and bounds higher than before. I’m also driven to farming a ring of royal grandeur with great stat rolls, and this season I’m going to put in the effort to get a Hellfire Amulet which requires a massive time investment, after which you may not even end up with a very good item at all.

In Pokemon, I’m working on breeding and training competitive level pokemon, in fact all of the pokemon in the OU metgame according to Smogon. If you don’t know what that means, don’t worry, you’re just not as big of a nerd as I am. What it means is that my bus rides for the past 2 weeks have been dedicated to this effort. But putting in the time now means I’ll have these battle ready pokemon forever.

I’m also much more stingy with what games I’ll buy. I used to take chances on new games, but now I’m only getting games I know I’ll get at least 40 hours of entertainment out of. How about you, how has gaming affected your investing or vice versa?

New purchases: LMT and EMR

A couple weeks ago I made some new purchases. The market is pretty crazy right now, so it’s hard to say when the best time to buy is. More conservative traders may want to wait a little longer. I try to make new investments every month to sort of dollar-cost average the broader market. For this investment, I bought 5 shares of Lockheed Martin Corporation (LMT) at $194.39 and 16 shares of Emerson Electric Co. (EMR) at $60.04 per share.

Since these purchases both stocks have had a price drop, so if you are interested in them as well, you can get a better deal than I did.

At the time of writing this, LMT has a PE ratio of 19.07 and a dividend yield of 3.19%. This investment adds $30.00 to my yearly dividend income, and $2.50 to my average monthly income.

EMR has a PE ratio of 18.67 and a dividend yield of 3.3%. This investment adds $30.08 to my yearly dividend income, and $2.51 to my average monthly income.

Putting me at $286.50/$500.00 for the annual passive income goal and $23.87/$100.00 for the monthly passive income goal.

It always sucks seeing investments fall 5 or more percent shortly after making them, but these are long term investments that I’ll see very little difference in outcome by the time I’m living off of them.

Dividend Income – Dec. 2014

I think it’s important to celebrate wins on the path to your ultimate goal, no matter how small. Sharing my dividend income results with you readers gives you some insight to what is possible as you begin your journey.

My ultimate goal is to be able to live off of the passive dividend income from my investments, so I can just stay at home and play video games. Here is the money I made in December 2014 without lifting a finger.

MCD – $9.35
CVX – $9.63

Total: $18.98

So close to $20 I can taste it! In fact, if these companies raise their dividends next year (like they have for several years), I can easily break $20 in December 2015 without investing another dime. This would require each company to raise their dividends by about 6%, which is not ridiculous to expect.

I look forward to January 2016, when I can compare the dividend income of December 2015 to this post and reflect on the progress I’ve made through the year.

Happy 2015th Birthday America!

Before I get yelled at by people that can’t take a joke, the title is a joke.

Happy New Years!

Before I share our goals for 2015, it’s time to look back on 2014. It was a big year, and didn’t go exactly as planned.

The first and most important factor to bare in mind is that we bought a house. I had been planning to make this move in at least another year or 2, but the housing market here and the cost of living is raising fairly rapidly, and I believe locking down a deal now is going to pay off in the future. I view buying a house as a necessary liability, it’s like acquiring a rental property, but ensuring that your tenant is the best tenant you could ever hope for. I’ve written about my opinion on buying a home as your primary residence here. Unfortunately, this month it feels like more of a liability since we need to make a repair to the chimney.

The next important factor that made the home buying possible, was getting a new job. My job has been a great improvement in my quality of life, both financially as well as emotionally. My previous job was bringing me nothing but stress and frustration, so getting this new position was a huge win.

All of these big transitions made it difficult to keep up the blog, but I have no regrets.

Now, down to business: the 2014 goals.

1. Cut expenses in January. At the end of 2013, we were not in an ideal financial situation due to extra expenses regarding the ’98 Jeep, and the upcoming weddings and bachelor party. We ate really cheaply and relied on gift cards in January, and as a result, we were back on track by early March. So I think this one turned out to be a success.

2. Save $20,000. Through the entire year, we were able to save about $14,500, and most of that came out to go towards the down payment on the house anyways. I think we made a valiant effort for everything that happened this year, but in the end, I must call this a failure. Some big factors here had to do with a month of rent overlap, and extra money that went to the down payment and never got a chance to be invested.

3. forward monthly dividend income of $50. Based on a rough calculation, the average monthly dividend yield from the total of our 2014 investments (had we not sold for the down payment) would be less than $50. So since we failed the savings goal, it stands to reason that this goal would also not be met.

I don’t want to beat myself up too much over only achieving 1 out of 3 goals, because this year has been fantastic and rewarding. However, 2015 should be a lot more tame and thus it should be easier to pull off some decent goals.

1. Another cheap January. We’re in a much better financial situation this year, but we’re also experiencing some lifestyle inflation with the new job. We don’t eat out too much, but I think taking a month to get back to the basics well benefit us. I think this kind of financial reset is very helpful to staying on track for the rest of the year. At some point this year, I want to achieve a month where expenses only take up 50% of our income leaving the rest to be saved. Unfortunately, we have a substantial repair bill on the horizon for our chimney, so it’s unlikely I’ll be able to make a new investment this month.

2. Save $18,000. After getting a dose of reality in 2014, and the before mentioned lifestyle creeping, I’m dialing back the savings goal to something more reasonable. This goal means we’ll need to save about $1500 each month. Assuming the holiday months might make this more difficult, it might be good to shoot for $2000 on good months, so there is some flexibility on the expensive months.

3. Try cooking a new healthy dish every month. I have a habit of relying on my old standby for dinner, tacos. If I want to improve my health and happiness, I will benefit from expanding my menu. Which leads me to goal number 4.

4. Lose 10 pounds by June. My 30th birthday is coming up in June, and I’d like to be in decent shape before the big day. I plan to workout and eat healthy to get my weight down to under 200 pounds.

So this is what I’m hoping to accomplish in 2015. What goals are you setting?

New Purchase KO

Last week, I bought 25 shares of Coca Cola (KO) for $42.04 per share. I covered some of the reasons that I love Coke in another article (Taking a sip of Coke). At the time of this purchase, the PE ratio was over 23, the payout ratio was over 68%, and the yield was 2.9%. These statistics might seem unfavorable based on my usual entry criteria. However, this is a company that we miss having in our portfolio, and technical indicators on its stock chart are not indicating the price will get much lower in the near future. The reason these stats look this way is their EPS is lower than when I wrote the previous article ($1.93). I have no reason not to expect growth next year.

This is a case where I would rather buy a wonderful company at a mediocre price than a mediocre company at a wonderful price. Additionally, its dividend is poised to be raised next year, which should push the entry yield for this purchase over 3%.

It’s also important to keep track of where this purchase puts me in terms of my goals.

This is one more company on the path to 10 companies, putting me at 4/10 for that goal.

This is (at current yield) $30.50 per year, putting me at $226.42/$500.00 for the annual passive income goal. Almost half way there!

It also works out to $2.54 per month, which certainly isn’t much, but every little bit adds up. It puts me at an average of $18.86 per month, almost 20% of the way to my $100/month goal.

Where We Are and Where We’re Going

As 2014 is coming to an end, now is an excellent time to take a good look at our current status and our goals for next year. In a recent article, I said I was going to rededicate myself to transparency. So I’m going to take this opportunity to share the current holdings in the account I track on this blog.

This is my joint account with my wife, and we’re hoping to use the dividends from this account to become financially independent. This is what it looks like (Ticker – shares – annual dividends paid):

BP – 50 shares – $120.00 per year
CVX – 9 shares – $38.52 per year
MCD – 11 shares – $37.40 per year

My goal going forward is to share the new stock purchases I make as I make them.

I had some yearly goals for 2014 that I will talk about in another post closer to New Years Eve. However, there are some other goals I want to start tracking here for both short and long term. These are kind of milestones, but could also be though of as achievements in a video game.

Goals:

– Save 50% of our joint income for at least one month (in other words, keeping our expenses below 50%).
– $500 forward annual dividend income
– $1200 forward annual dividend income ($100 per month average)
– Own 10 companies
– Own 20 companies

These goals are obviously not massive in scope, but they are the targets I want to achieve on my way to financial independence. It’s unlikely I will achieve all of them in the coming year, so these goals do not have deadlines. However, it will keep me on track to how how much closer to each goal I am with each purchase that I track here.

Hardcore

I’ve learned new aspects about my risk tolerance by playing perma-death games recently. In most games, when your character dies, it’s only a minor setback. Usually, you lose a little bit of progress and carry on as if nothing happened. In games with permanent death (or perma-death), your character doesn’t respawn, and you have to live with that loss. These mechanics make you play differently since every choice carries much more weight, and as you play, you’ll find you’re much more emotionally invested.

Right now, I am playing a hardcore Diablo 3 character with my wife. This means that each of our characters has the potential to be gone forever if things go south. We had done this once before and got to about level 22 before my wife’s character died in a fight we weren’t expecting. My wife was very sad, and I found myself feeling almost nihilist futility while finishing the fight. Our recent characters are at the maximum level and are tackling much greater challenges.

Because of that previous experience, we’re playing much more conservatively this time. Additionally, I am playing much more defensively to keep her alive, probably more so than I would while playing solo.

The interesting thing is that I can see direct parallels to this in the way I approach our investments. In my personal account, I’m willing to take greater risks and trade on margin in hopes of bigger wins, but in our joint account, I invest very conservatively in blue chip dividend growth stocks.

I’m also currently playing Pokemon on the 3DS with self-imposed rules from the Nuzlocke challenge, which basically applies perma-death rules to Pokemon who faint in battle. One special rule here is that you have to give nicknames to each Pokemon so that if they fall you feel a deeper loss. In this case, I still find myself playing much more defensively and conservatively than I would without those rules.

Instead of getting all “YOLO” here, I’d like you to think about this: At any moment, you could lose all of your money. It sounds pretty unlikely, especially if you’re diversified, but bad decisions can balloon to the point where the consequences are much greater than you planned for. Sure, we can comfort ourselves by saying “you can always make that dollar back,” but it won’t be the same dollar. You can only lose a specific dollar bill once.

The risk tolerance I’ve seen in my perma-death gaming is much lower than has been exhibited in my recent trading. I think everyone should try games like these to learn more about their own psychology and risk tolerance.

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