I like to keep my investing simple. I purchase shares in companies I believe to be attractively valued, when I see a track record of raising dividends and having the fundamentals to support further dividend increases. For each dollar that I invest in, I end up earning anywhere between 2 to 4 cents per year in dividend income alone. The initial amount will then grow above the rate of inflation over time. It is that simple – for each dollar I put to work today, I earn an average lifetime income of 3 cents right from the start. To reach financial independence, I need to both cut costs and increase the level of passive dividend income to meet those expenses.
I have been on this journey for eight years now. It is becoming a second nature by now:
1) Earn money,
2) Think of ways to earn more money,
3) Save Money
4) Think of ways to save more/cut expenses
5) Invest those savings wisely
6) Keep thinking how to be a more impactful investor
7) Reinvest dividends during accumulation stage
For example, if I spend $1,200/year on cable, I would need something like $40,000 invested in dividend growth stocks today. If I earn $20/hour, work 2,000 hours per year, and save 50% of my income, it would take me approximately 2 years of savings in order to accumulate $40,000. If I completely eliminate this expense however, I would be two years closer to retirement.
If my income goes up by 50% to $30/hour, and I maintain my spending at $20,000/year, I would be able to save the $40,000 within one year.
Alternatively, if I find a way to generate 6% on my capital in a sustainable way that will also maintain its purchasing power, I am also going to be able to “retire” earlier.
Saving and investing for financial independence is fun, isn’t it?
In the past month, I managed to purchase shares in the following companies.
ACE Limited (ACE), through its subsidiaries, provides a range of property and casualty insurance and reinsurance products worldwide. ACE Limited has managed to increase dividends for 23 years in a row. Over the past decade, the company has managed to boost its annual dividends by 12.30%/year. The stock currently trades at 10.90 times expected earnings and yields 2.60%. ACE will be acquiring Chubb in the near future for cash and stock. I invested the amount of cash I expect to receive for ACE shares. I would not be opposed to add to my position later in 2015. Check my analysis of ACE Limited for more information.
Diageo plc (DEO) produces, markets, and sells alcoholic beverages worldwide. Diageo has managed to increase dividends for 15 years in a row. Over the past decade, the company has managed to boost its dividends by 5.80%/year. The stock currently trades at 19.60 times expected earnings and yields 3.20%. At this time of turbulence, it is rare to find shares in a consumer defensive company that are not overvalued. I like the company and I will likely keep adding to it slowly. Check my analysis of Diageo for more detail.
Ameriprise Financial, Inc. (AMP), through its subsidiaries, provides various financial products and services to individual and institutional clients in the United States and internationally. Ameriprise Financial has managed to increase dividends for 11 years in a row. Over the past decade, the company has managed to boost its quarterly dividends by 19.80%/year. The stock currently trades at 11.60 times expected earnings and yields 2.40%. If the stock market falls down further, it is very likely that earnings projections and the intrinsic value could decline temporarily. This would be a good time to buy more. Check my analysis of Ameriprise Financial for more information.
The Walt Disney Company (DIS), together with its subsidiaries, operates as an entertainment company worldwide. The company operates in five segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products, and Interactive. I analyzed the company in 2014, and finally managed to initiate a small position in it. The stock currently trades at 20.50 times expected earnings and yields 1.30%. I would be interested in the stock if it goes down further below $100.
Full Disclosure: Long ACE, DEO, AMP, DIS
- Coca-Cola: A wide-moat dividend growth stock to buy and hold
- Dividend Growth Investing – a great strategy for long-term investors
- How much money do you really need to achieve financial independence?
- Is time spent learning dividend investing worth it?
- Am I a successful dividend investor?
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