In my post related to my 2014 goals and objectives, I shared with readers my roadmap to financial independence by 2018. Currently, the goal is to have more than 2/3rds of expenses to be covered by dividends. I believe that a 100% coverage of expenses by dividends by 2018 is very doable, as long as existing companies I own manage to raise dividends by 6%-7%/year on average and I manage to reinvest distributions at 3%-4%. As I had mentioned earlier, most of my contributions are now going into tax-deferred accounts, in order to create a tax-free buffer for the excess dividend income I will be generating.
The road to financial independence is very exciting and liberating. I find it really liberating to check every quarter how much of my expenses is being covered by my dividend income. Ever since I converted to Dividend Growth Investing in late 2007 – early 2008, my dividend income has been increasing exponentially. This is a result of my plan to retire early.
So for the past 7 or so years, I have been focusing on several levers within my control, in order to achieve financial independence. The levers include saving a lot, finding ways to earn extra money, investing my hard earned money in the best values at the moment, and focusing my attention on researching companies and continuously increasing my knowledge about investing matters. The most difficult part of the journey however is the job situation, which has resulted in increased levels of stress for the past several years. The pay has been decent, but the increase in level of responsibilities has exceeded the level of income growth by a large factor. It is very difficult to keep producing and keeping up to those high expectations and stress, when you are also so close to the finish line. The problem is that the finish line is about 5 years down the road. ( 2014, 2015, 2016, 2017 and 2018). The one thing that I find difficult, is to endure the daily grind that leads to the dividend crossover point. I do not believe that it is healthy to sit in a cubicle for 60 hours on a slow week, while getting stressed out over impossible deadlines.
This means I still need to keep motivated enough, and work harder, before getting to the Promised Land. I find it tough to keep up with the daily grind, which is why I try to motivate myself to perform, because the daily grind is a major source of capital for my FI. I motivate myself by consistently trying to save a large portion every month, in order to put it to work, and have the asset base to generate more dividends. I motivate myself by searching for quality companies at bargain prices, and researching their business models in order to determine whether they can be sustainable engines of dividend growth for the foreseeable future. I also motivate myself by charting my dividend income over time, and visualizing the point in time when expenses will be more than covered by dividends by a nice factor of 1.3 - 1.5. I do want to do it the right way, and not quit in the middle of the journey. That’s why 2018 is the reasonable goal to have.
For me this is the point where my dividend income increases expenses, and technically I would never again have to work for money. That doesn’t mean I would do nothing, but would provide me with freedom of choice to pursue only projects and people I find interesting. I may still choose to work after that point, or do something else. However, having options in life is something that is extremely valuable.
The types of dividend growth stocks that will pay for my retirement, provide me with consistent raises include:
Philip Morris International Inc. (PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products. The company has managed to increase dividends for 6 years in a row, and currently sells for 17.10 times forward earnings and yields 4.30%. Check my analysis of PMI.
PepsiCo, Inc. (PEP) operates as a food and beverage company worldwide. This dividend champion has managed to increase dividends for 42 years in a row, and over the past decade has managed to boost them by 13.70%/year. Currently, the stock is trading at 19.40 times forward earning and yields 3%. Check my analysis of PepsiCo.
Exxon Mobil Corporation (XOM) explores and produces for crude oil and natural gas. This dividend champion has managed to increase dividends for 32 years in a row, and over the past decade has managed to boost them by 9.60%/year. Currently, the stock is trading at 13 times forward earning and yields 2.70%. Check my analysis of Exxon Mobil.
Johnson & Johnson (JNJ), together with its subsidiaries, is engaged in the research and development, manufacture, and sale of various products in the health care field worldwide. This dividend champion has managed to increase dividends for 52 years in a row, and over the past decade has managed to boost them by 10.80%/year. Currently, the stock is trading at 17.30 times forward earning and yields 2.80%. Check my analysis of Johnson & Johnson.
General Mills, Inc. (GIS) produces and markets branded consumer foods in the United States and internationally. This dividend achiever has managed to increase dividends for 11 years in a row, and over the past decade has managed to boost them by 9.90%/year. Currently, the stock is trading at 19.10 times forward earning and yields 3%. Check my analysis of General Mills.
There are several lessons however, which are applicable to everyone reading, even if you really enjoy your work and never want to retire. Things change, people change, companies change, which is why it is quite possible to really start hating what you do in the future, which might be unthinkable to you today. I am very lucky that I never had much in terms of debt, other than a credit card I pay off in full every month. I am also very lucky that I have had the frugal mentality to save as much as possible from my income, and also focus on increasing it over time. The problem of course is that reaching the goal takes time, which is the one commodity we can never buy back. On the bright side of course, once you reach the point of your goals, you would only have to deal with the rest of life’s challenges.
So how do you stay motivated on your road to financial independence?
Full Disclosure: Long PM, PEP, XOM, JNJ, GIS
- How to become a successful dividend investor
- My Retirement Strategy for Tax-Free Income
- Dividends Provide a Tax-Efficient Form of Income
- What is Dividend Growth Investing?
- What are your dividend investing goals?
One of my favorite books on investing is “ The Snowball: Warren Buffett and the Business of Life ” by Alice Schroeder. The book describes ho...
I view each investment I make as a seed that I plant for the long-term. Some seeds could turn into a tree that would provide fruit (dividen...
In my previous article, I discussed the concept of the dividend snowball as it applies to my dividend portfolio and dividend income. The po...
In a previous article, I discussed that I will reach Financial Independence some time in 2018 . After I reach the dividend crossover point ,...
One of my largest holdings is McDonald’s (MCD). The company recently raised its quarterly dividend by 4.7% to 89 cents/share. McDonald's...
In a previous article titled, My Dividend Retirement Plan , I outlined the concept of the dividend crossover point. This happens when your d...
One of the biggest mistakes I ever made was not maxing out my 401 (k), IRA and HSA accounts between 2007 and 2012. As a result, I ended up ...
The more I learn and experience about investing, the more convinced I become that doing nothing is the best strategy for long-term success i...
I started my site dedicated to dividend investing in January 2008 . I had been able to accumulate some money for the first time in 2007, and...
I expect that this year, I will be able to cover something like 60 - 80% of my targeted annual expenses from dividends alone. This means tha...