Saturday, June 3, 2023

Health Savings Account (HSA) for Dividend Investors

A Health Savings Account is a tax-advantaged medical account which is available to individuals in the US who have enrolled into a high-deductible health plan (HDHP). For 2023, individuals cannot contribute more than $3,850/year, while families cannot put more than $7,750. There is a catch-up contribution of $1,000 for those 55 or older. Individuals who are enrolled in Medicare are not eligible to open an HSA. 

I first signed up for a Health Savings Account (HSA) with my employer almost a decade ago. I signed up for the HSA mainly as another way to defer money for future investment. As most of you know, I am already maxing out other tax-deferred accounts in an effort to cut one of my largest expenses.


An HSA offers a triple tax advantage in most states. The contributions are before tax, which means that the account holder does not pay Federal, State and FICA taxes. If you were in the 24% marginal tax bracket, had a 5% state income tax rate, and you didn’t pay 7.65% for FICA, you will end up saving 36.65% merely by contributing to an HSA account. On $3,850, this comes out to $1,411.02 in tax savings right off the bat. The money can be used for qualified medical expenses at any age, without having to pay any taxes on such withdrawals. However, support documentation should be retained in case of an audit. Withdrawals not for qualified medical expenses are subject to a 20% penalty and income tax. After age of 65, withdrawals are not subject to a 20% penalty. While they continue to be tax-free for medical expenses, they are taxed at your ordinary income rate for any other type of distribution from the account.

I was attracted to HSA’s because of the large up-front tax deduction. When I contribute money to a tax-deferred vehicle, I have more money under my control, since I reduce the largest expense in my household budget ( taxes). I have done a similar thing by maxing out 401 (k) and Sep IRA contributions since early 2013. 

I was also attracted by the fact that money put in an HSA account compounds tax-free. In addition, unlike a Flexible Spending Account (FSA), the money does not have to be used by a certain date. Hence with an HSA the money carries over from one year to the next, and thus stays in the account and could potentially compound over time.

The other nice thing about HSA accounts is that they are portable. I can move balances to another plan, even if I am still employed and using my employer's HSA plan. In other words, I am not stuck with an HSA plan that may have high fees. I can either do an HSA Transfer or an HSA Rollover. 

An HSA Transfer involves filling up a form, and having the current HSA Custodian send the money to another HSA Custodian. Usually there is a small fee involved.

An HSA Rollover involves filling up a form, obtaining a check from the current Custodian and then depositing the money into the new HSA Account. While this avoids fees, you have to be careful to rollover the money within 60 days, or else face penalties and fees by the IRS. You can only do one HSA rollover within a 12 month period.


One of the major drawbacks to HSA accounts is the large monthly fees with many providers. When I reviewed different providers in 2014 - 2015, it looked like a minimum account balance that is anywhere between $3,000 - $5,000 has to be maintained in cash, in order to avoid a monthly charge in the range of $2 - $5/month. 

Many employers tend to cover this amount for their employees, so this is a benefit. However, there are additional fees on each withdrawal, ordering checks to pay for items, opening fees, account closing fees etc. Plus, there are monthly fees if you plan to invest that HSA money into something. This is in addition to the fees for failing to maintain a minimum balance in the account. In addition, most of the investment options are limited to mutual funds, some of which have really high expense ratios that come close to 1%/year.

The one positive thing however is that a person is not stuck with an HSA provider, if their employer offers a high-fee HSA provider. One can simply rollover the funds from their original HSA administrator, to the HSA administrator of their choice. This is one thing I did a few years ago. I moved my HSA money to LivelyMe, which is a no-cost HSA alternative. 

The other drawback is the low limits on how much one can potentially defer. If limits for individuals are increased to at least match those on IRA or Roth IRA accounts, this would be a good start.

Best Providers

I looked at different providers, and looked at their costs to have an account, and availability of investment options. In my research, I give extra points for companies that are not going to charge me $4- $5/month on a $3,000 - $6,000 balance that takes 1 – 2 years to build up, or at least will not charge me monthly fees after my total balances exceed a reasonable amount of dollars. I am talking about eliminating as much in monthly or annual fees are possible, since some administrators tend to charge you an HSA Bank fee if you have less than $3,000 - $5,000 in a bank, in addition to charging you a monthly brokerage fee. I also wanted to find the broker that would allow me as much flexibility as possible in choosing investments that do not cost me a lot. 

When I originally wrote this article in 2015, there were not a lot of good options out there. At the end of 2021 however, there are two great options.

The first one is with Fidelity. Up until a few years ago, it was impossible to open an account with Fidelity. But now, it is relatively easy and anyone can open one to move money to a Fidelity HSA.

It offers No-Fee-HSA's, which means that you have a maximum amount of money working for you. There are no account service charges, minimum fees, or fees to invest your money. You can pretty much invest the money in anything you want from individual stocks, to ETFs or mutual funds. Plus, this is with Fidelity, which is an investing brokerage powerhouse.

The second one was with Lively up to 2023. It had no fees for HSA accounts, and also offered free investing options. There were no hidden charges. You could invest the money through TD Ameritrade. My only downside for Lively was that it is a relatively new player, so it may not be around for a long time if it gets acquired or goes out of business. 

One recent change with Lively is that their investment option is moving from TD Ameritrade to Charles Schwab. That's because Schwab has acquired TD Ameritrade. Unfortunately, that means there will be an annual fee of $24, unless the account holder holds $3,000 in cash in their Lively Account. At a 4% interest rate, that's an opportunity cost of $120/year to save on $24 in fees.

I have used both Fidelity and Lively, and really like the ease of opening and funding accounts. You can do pretty much everything electronically. You do need to fax information if moving assets, but that is similar to moving assets from one broker to the next. 

The thing to consider of course is that fees can change if minimum balances are changed as well. Plus, there might be fees assessed if you transfer money from one custodian to the next.

I have contributed to a Health Savings Account since 2015, and have enjoyed the process of accumulating funds there and investing them. One thing to note is that all of my employers that have offered an HSA have also matched a certain portion of contributions. This is similar to a 401 (k) match, but only for HSA's. In a way, it is another account to use to accumulate a nest egg in a tax efficient way.

Health Savings Accounts make perfect sense for those like me who are looking for another vehicle where they get a tax deduction upfront today, and receiving a tax-advantaged growth of their investments. The real nice part is that after age of 65 I can withdraw the money for whatever reasons I desire, and will not have to pay any penalties (if the money is spent on non-medical expenses, it is taxed at ordinary income tax rates). I have decided that even if I have to end up with an index fund in that Health Savings Account, I would be better off than picking individual dividend stocks in a taxable account. Let me walk you through a hypothetical (made-up) calculation.

I calculated that if I choose to invest $1,000 in an HSA that generates a net annual total return of 7%/year, I would end up with $5,807 in 26 years. This return assumes that no taxes are taken and also assumes fees paid are subtracted from returns ( meaning the gross return is slightly higher). However, if I were to earn those $1,000 from my day job but decided not to put them in an HSA, I would be left with $623.50. This is because I would be paying 24% Federal Tax, 5% State Tax, 1% City Tax and 7.65% FICA. If I managed to earn an after-tax annual total return of 9%/year for 26 years in a row, my account balance will be $5860. The break-even point will be 26 years. Of course I am not comparing apples to apples here, because an after-tax return of 9% in a taxable account usually requires a return above 10% even at today’s low rates on dividends and capital gains.


To summarize, I believe that HSA accounts provide several benefits to investors who want to build retirement savings, and have exhausted common vehicles such as 401 (k) or IRA's. 

The first advantage of HSA's is triple tax advantage, because of the deduction for Federal, State and FICA taxes. This leaves more money working for the investor. 

The second advantage is tax-deferred growth of that capital for decades. 

The third advantage is that this money can be withdrawn at any time, penalty free if it is for qualified medical expenses. It can also be withdrawn penalty free after the age of 65.  

The money is taxed after the age of 65 if used for non-medical purposes at the ordinary income tax rates. 

The drawbacks behind HSA's include fees, low variety of investment options and the fact that annual contribution limits are low. Of course, for those of us who understand the power of compounding, we know that even a small contribution of $3,000/year over a period of a couple decades could turn into a few nice supplement to the retirement nest egg.

Relevant Articles:

Why I Considered Tax-Advantaged Accounts for My Dividend Investments
Roth IRA’s for Dividend Investors
Six Dividend Paying Stocks I Purchased for my IRA
Twenty Dividend Stocks I Recently Purchased for my 401 (k) Rollover
Nine Quality Dividend Stocks Purchased for the Roth IRA

Thursday, June 1, 2023

Carlisle Companies (CSL) Dividend Stock Analysis

Carlisle Companies Incorporated (CSL) operates as a diversified manufacturer of engineered products in the United States, Europe, Asia, Canada, Mexico, the Middle East, Africa, and internationally.

The company is a dividend champion, which has increased dividends to shareholders for 46 years in a row.  Over the past decade the company has managed to grow dividends at an annualized rate of 13%/year.


The last dividend increase was in August 2022, when the Board of Directors approved a 38.90% hike in the quarterly distributions to 75 cents/share.

Chris Koch, Chair, President and Chief Executive Officer, said “As part of our legacy of being superior capital allocators, we are very pleased to announce a dividend increase for the 46th consecutive year. This 39% increase is our largest in the past 25 years, and reflects our strong, sustainable financial position, and confidence in continued growth of Carlisle’s earnings power. Our commitment to returning capital to shareholders is made possible by the support of Carlisle’s dedicated employees, who embrace our culture of continuous improvement and maintain a steadfast commitment to creating value for all stakeholders.”

The company has managed to boost earnings from $3.57/share in 2012 to $17.58/share in 2022. The company is expected to earn $18.05/share in 2023. We have to take forward guidance with a grain of salt, given the state of affairs in the world economy today.


Their Vision 2025 strategy is an interesting program. In Vision 2025, the company targets doubling annual revenues to $8 billion, expanding operating margins to 20%, and generating 15% ROIC. This would be achieved through 5% organic growth, and reducing costs by 1% - 2% of sales, by using efficiencies. The company is also working to make acquisitions and review existing divisions for further optimization. Carlisle expected to invest in M&A through 2025. The company is working to develop its employees as well, and spend money on capital expenditures, share buybacks and dividends to reward long-term shareholders.  Carlisle Companies is trying to reach $15/share by 2025. They expect revenues of 8 billion by 2025.

I like these slides on the Vision 2025 strategy:

Also check out the Vision 2025 Website

The company operates in these major segments: 

Construction materials accounted for 80% of 2021 revenues. Manufactures EPDM, TPO, and PVC roofing systems, as well as energy-efficient rigid foam insulations panels, spray polyurethane foam, and metal roofing products. Key end markets served include US and EU Non-residential and Building Envelope.

The risk factor is that a slowdown in construction amidst rising interest rates could slow down growth, leading to a decrease in profits. The impact of a slowing construction may not be seen for a few quarters to an year.

Interconnect Technologies accounted for 14% of revenues. Designs and manufactures high-performance wire, cable, connectors, contacts, and cable assemblies for transfer of power and data. Key markets served include Commercial Aerospace, Medical Technologies and General Industrial.

Fluid Technologies accounted 5% of revenues. Manufactures industrial finishing equipment for spraying, pumping, mixing, and curing of protective coatings for industrial applications. Key markets served include Transportation, General Industrial and Automotive.

The company has been active on the share repurchase front over the past 7 years. Prior to that, shares increased, due to acquisitions.


The company’s dividend is well covered from earnings. It has managed a conservative payout ratio that has largely remained below 30%.


Right now, the company looks fairly priced at 12 times forward earnings and yields 1.40%. 

Saturday, May 27, 2023

Eight Companies Rewarding Shareholders With a Raise

I review the list of dividend increases every week, as part of my monitoring process. This process helps me identify companies for further research. It's also one of the steps that helps me monitor existing investments.

Dividends offer a strong signaling value. An increased dividend reflects the board's confidence in the company's ability to generate strong earnings and cash flow. It reinforces a company's commitment to a sound capital allocation strategy centered on delivering shareholder value. Increasing the dividend is also indicative of consistent performance and the board's confidence in a company's long-term strategy and growth trajectory..

Over the past week, there were 21 companies that announced dividend increases. Eight of these companies had managed to increase dividends annually for at least ten years in a row. The companies include:

This of course is just a list of dividend increases from the past week, not a recommendation.

When I review companies, I look at ten year trends in:

1) Earnings per share
2) Dividend payout ratio
3) Dividends per share
4) Valuation

Since I have some experience evaluating dividend companies, I also modify my criteria based on the environment we are in and the availability of quality companies. If I see a company with a strong business model and certain characteristics that I like, I may require a dividend streak that is lower than a decade. I have also found success in looking beyond screening criteria by purchasing stocks a little above the borders contained in a screen.

It is important to be flexible, without being too lenient.

You may like this analysis of Lowe's (LOW) as an example of how I review companies.

Relevant Articles:

Wednesday, May 24, 2023

Atmos Energy (ATO) Dividend Stock Analysis

Atmos Energy Corporation (ATO) engages in the regulated natural gas distribution, and pipeline and storage businesses in the United States. It operates in two segments, Distribution, and Pipeline and Storage.

The company is a dividend aristocrat with a 39-year track record of annual dividend increases. The last dividend increase occurred in November 2022, when Atmos raised its quarterly dividend by 8.80% to 74 cents/share.   

During the past decade, Atmos has managed to grow dividends to shareholders at an annualized rate of 7.20%. The five-year annualized dividend growth is at 8.70%.

At the same time, the company has managed to boost earnings from $2.37/share in 2012 to $5.61/share in 2022. Atmos Energy is expected to earn $6.03/share in 2023 and $6.42/share in 2024.

Growth will be generated through continued capital investment in the business. The company believes that most of that capex would be immediately accretive within half a year or so. Most of the capex is on increased safety and reliability.

The company’s earnings are generated through regulated gas distribution and natural gas transmission and storage.

Growth in rates over time should compensate for investments. The risk is that states may not be as accommodative to utilities. This risk is somewhat mitigated by the fact that Atmos operates in several states in the US – Texas, Louisiana, Colorado/Kansas, Mississippi, Kentucky.

The company obtains capital by selling shares, in order to fund its growth Capex initiatives. As a result, the number of shares outstanding increased from 91 million in 2012 to 138 million in 2022.


The dividend payout ratio has decreased from 58% in 2012 to 48% in 2022. The lower dividend payout ratio can result in a dividend growth that is higher than earnings growth over the next decade.

I believe that the stock is fairly valued today at 19.30 times forward earnings. The yield is low for a utility at 2.55%, but the dividend payout ratio is lower too.

 Relevant Articles:

- Nine Companies Rewarding Shareholders With Raises


Friday, May 12, 2023

How I Would Invest A Lump Sum Today

One of the most common questions I receive relates about the idea of how to invest a lump-sum amount. I believe that the answer is not a one sized fit all approach. I also believe that the answer for the same person may vary from time to time.

In general, there are pros and cons to each approach. If you look at the historical data, it makes sense to invest money as soon as possible. The stock market usually goes up most of the time, and when you invest, you get to enjoy receiving dividends and the opportunity for capital gains. Of course, this approach assumes that past performance is an indication of future results – this is the warning below each investment that is discussed. The future cannot be forecasted, so in theory, any historical data is not going to be a bulletproof way for future riches. 

Either way, the lump sum investing approach also uses the common-sense theory that since no one can predict the future, it makes sense to invest right away. If you do not invest right away, then you are engaging in timing the market.  

To put more support behind lump-sum investing, if you have the money to buy 100 shares of Johnson & Johnson today, you get to enjoy the right to $404 in future annual dividends from the start. That’s much better than waiting in cash, and earning a lower level of interest income. (taxed at worse rates as well).

The longer you sit in cash, putting off investing in a stock, the more future dividend income you are missing out on. So perhaps, as long as the valuation is not ridiculous, it may make sense to invest as soon as one has the cash. That assumes that this investor will continue buying even during the next bear market or two, and even after securities fall by 20% - 50% or more. It assumes that the investor will not sell in panic, merely because the stock price is lower.

If you are more risk averse, it may make sense to wait before you invest. Some readers spread the money over a certain period of time. They do so in order to avoid the risk of putting everything at the highest point, only to see a 40% - 50% loss, dividend cuts etc. I believe that if that approach works for the risk tolerance of these investors, it is preferable to them trying to wait for a bear market for several years, while they are waiting in cash for a crash. At least with the dollar cost averaging approach, they have a plan in action to conquer their fears. An imperfect plan you can stick to is much better than not having a plan in place. The downside to that plan however is that you may be missing out on dividend income, and the potential for future appreciations, because you are sitting in cash for a decent chunk of time. To put it in other words, if you plan to own 100 shares of Johnson & Johnson that pay $4.04 in dividends, and have the money to do it, you miss out on $404 in annual dividends by sitting in cash. 

Both of those examples are looking at money that is earmarked for long-term investment. If you need money within the next 1 – 3 years for a major expense such as a down payment on a house, a health issue, a car or college, it makes sense to keep the money in cash/fixed income.  If you have a large credit card debt, you are better off paying it off in full, before starting to invest in equities.  

Depending on your risk tolerance, it may make sense to de-risk by paying off your mortgage. The downside of course is that you may miss out on future dividends and appreciation by doing so – just ask anyone who paid off their mortgage between 2010 and 2014. The upside is that you will get a totally different perspective for someone who paid off their mortgage in 1999 - 2000, and missed out on the bear market from 2000 - 2003.

I have thought a lot about the topic, and my opinion has shifted over the years. I went from being risk-averse to slightly less so. But If get a large enough lump-sum amount, I would most likely invest it right away.  If I were a reader of my newsletter, I would likely put the money in an equally weighted portfolio of all companies in the portfolio. I would of course keep costs to the bone, and invest preferably in a tax-advantaged account. Either way, I would continue investing in the companies I identify every month afterwards. The weights may be different, if we for example put $50,000 in the 50 or so companies in the portfolio today, and then put $1,000/month in ten companies for several months. Over the course of the next 5 – 10 years however, things will work themselves out of this initial lopsided situation.

While some companies appear to have stopped growing dividends, others seem to have reduced the rate of dividend growth, while a third group may appear overvalued, I believe that after a long period of time, (e.g. ten years), the investor may be better off investing right away and holding, than sitting in cash waiting for the right pitch. This opinion may have been influenced by the relentless rise of equity prices over the past decade however too. My earlier experiences in 2007 – 2009 showed me that it pays to wait before you invest, despite the data showing me that under most scenarios it has historically paid to invest right away. The issue of course has always been that past performance is not an indication for future results. The other issue is that your personal situation may vary from the averages due to skill or luck. Speaking of personal experiences being different than averages, at the beginning of the decade, I had a colleague who went into a surgery that supposedly had a 98% success rate. Unfortunately, he turned out to be of the unlucky 2% and perishing at the tender age of 27. He was one day older than me. Fate can be a tricky thing.

Alternatively, one could also put the money on an equally weighted scale in the 30 members of the Dow Jones Industrials Average or Dividend Aristocrats or Dividend Champions if they had a lump sum.

If I invest right away, I get to enjoy dividends right away. If share prices decline after my investment, I will just use the dividend cash to acquire more shares that pay more dividends. I have come to believe that timing the markets is a fruitless endeavor. Certain decisions such as waiting to invest are a way of market timing. I invest my money regularly whenever I have cash to invest, so I do not see a reason not to do that with lump sum amounts too. 

Thank you for reading!

Relevant Articles:

Should I buy dividend stocks now, or accumulate cash waiting for lower prices?

Dividend Investors: Stay The Course

- How to invest a lump sum

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