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!