A word on savings…

(This was originally published in the November 2016 version of The Dividend Growth Newsletter. It is available here.)

Canada’s Inflation Rate was 1% in January of ’15 and rose as high as 2% in January of ’16. In September, it was 1.3% and will likely rise a bit more towards the end of the year.

If your money was in a Savings account earning 0.80% or less, you’re actually not saving.

If your money was in a High Interest Savings Account earning 1.5% and you are paying income tax on the interest, you are still not actually saving.

If your money is “laddered” in five GICs with ⅕ coming due each year over the next 5 years, and your average interest rate is 1.80% and your marginal tax rate is 27.5% or less, you are breaking even.

If your money was invested in the WORST performing dividend mutual fund over the past 5 years and earned an average of 1.32% per year, and your only income was $50,000 in eligible dividends, you paid no income tax and broke even against inflation.

Could you imagine how much money you could SAVE if your portfolio performed better than the average dividend mutual fund?

Consistent income

(This was originally published in the October 2016 version of The Dividend Growth Newsletter. It is available here.)

Not only are dividend-paying stocks popular because they can be a source of consistent income, they are also an excellent gauge for a company’s success. Dividends are paid out from retained earnings, and only those that can grow their earnings can afford to pay and raise their dividend each year.

From the issuing company’s point of view, it’s a gesture of gratitude to their shareholders and a way to attract more investment into the company.

A history of consistent and growing dividends is a strong indicator that the company is financially successful; in turn, successful companies make for good investments.

As investors take advantage of these investments, this demand naturally drives up the stock price, further reinforcing the idea that the company is in excellent standing.

The hard truth

(This was originally published in the September 2016 version of The Dividend Growth Newsletter. It is available here.)

The hard truth is that almost no one becomes a millionaire overnight. Get-rich-quick schemes are just that – schemes that get you thinking about bags of money, but not the consequences when things go awry.

Warren Buffett’s considered the world’s greatest investor and he never won the lottery. His method: compounding money every year over a long period of time. A cursory look at his portfolio reveals that his biggest positions are in four dividend-yielding stocks: Kraft-Heinz, Wells Fargo, Coca-Cola and IBM.

Compounding is powerful because investors can earn interest off their own interest. Dividend Aristocrats have the ability to provide average returns of 10% a year while providing the safety and yield that other non-dividend paying stocks fail to do.

According to the Globe and Mail, the average Canadian household savings rate is at 3.6%. If you make $50,000 per year, you will save $1,800, and at a 10% return on your investments, it will take 42 years to become a millionaire.

Take, for example, Ronald Read, a Vermont gas station attendant who amassed an $8 million fortune by living frugally and avoiding fads and bubbles. Among his 95-stock portfolio, he owned Dividend Aristocrats such as Procter & Gamble and Johnson & Johnson.

What does retirement mean?

(This was originally published in the August 2016 version of The Dividend Growth Newsletter. It is available here.)

What if we were to define retired persons as people who no longer need to keep saving money in order to live the life they want? Retiring early means amassing savings derived from both active income and passive income – as quickly as possible.

The secret to a faster savings rate is to increase passive income starting today. Ongoing increasing passive income offers additional peace of mind and a buffer in case retirees outlive their retirement plans.

Investing in Dividend Aristocrats offers a diversified, lower-risk method to consistently increase passive income.

Case in point: 10 years ago, Coca-Cola’s quarterly dividend was $0.16 with an annualized dividend yield of 2.91%. Today, that dividend is now $0.35 with an annualized yield of 3.22%. It doesn’t seem like much, but at $21.92 per share on Aug. 4, 2006, the dividend yield based on cost today is now 6.38% and passive income has more than doubled over the past decade!

What difference does it make who the next President of the United States is?

(This was originally published in the July 2016 version of The Dividend Growth Newsletter. It is available here.)

Let me re-phrase: What if you knew how the stock market would behave over the next four to eight years – does that alter your plans?

The Dow Jones rose 85.74% during Bill Clinton’s first term and a further 70.01% during his second term. But, the Dow fell 7.65% during George W. Bush’s first term, and then another 15.2% during his second term.

If you planned on converting your portfolio to income from growth, or if you planned to make a large withdrawal to fund a purchase, Donald Trump could dramatically affect your lifestyle.

The analysis is much more than just Democrat vs. Republican, but the booming Eisenhower and Reagan (staunch right-wing Republicans) years indicate the stock market responds to spending, not ideology – the stock market loved road building and defense spending.

The real question should be: If Bill’s administration built the information highway, what will Hillary’s administration build? Or, perversely, if terrorists were afraid enough of Bush to bomb the World Trade Center, how afraid are they of Trump?