NAFTA, SCHMAFTA

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(This was originally published in the August 2017 version of The Dividend Growth Newsletter. It is available here.)

NAFTA talks aren’t going anywhere. North Korea continues to be a thorn in everyone’s side. Hurricane Harvey is the worst natural disaster on American soil since Katrina. The Bank of Canada is seriously contemplating an interest rate hike. Stock market valuations remain high. Housing prices continue to climb. We’re nearly three-quarters through the year, but we’re still no closer to figuring out the head scratchers of 2017. The TSX is down more than 1 percent this past month, and the S&P 500 a little less than that.

It could be a lot worse… but that’s not the proper mindset for investing. Investors don’t want to just lose less money than the next guy, they want to see their portfolios grow. Losing money doesn’t feel good, even when you lose less than the market. And when the markets fall, selling positions to generate cash isn’t a sustainable strategy.

Investing isn’t always about total return. Achieving financial objectives can be planned using specific income goals, and that’s where dividend aristocrats come in with their fixed payments and attractive yields. The key is to hold steady through rough waters, and that’s what these portfolios are designed to do – no new portfolio positions have been initiated this past month.

A word on savings…

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(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

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(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

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(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?

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(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!