Create Wealth Using Dividend Growth Investing

We all have noticed the ups and downs in the stock market at times. The truth is that over time stocks produce better returns than bonds or other investments. For the long-term investor, stocks have returned on average 10% annually compared to bonds 5.3%, and short-term investments 3.5% before inflation. While stocks don’t give us a straight trajectory ride upward, they do offer the greatest return over time, which is important for securing our financial futures.

Let’s look at the period January 1926 to February 2015, which is the time frame of the beginning of the S&P 500 Index to early in the new year. For $100.00 invested in the stock market with dividends reinvested and held to this year, the dollar value would be $544,200. That’s a half-million dollars for putting $100 bucks in the market and leaving it there. The same amount invested in bonds would equal $9,800. and in short-term investments $2,100. Inflation would have resulted in $1,300. change in $100. Data Source: Ibbotson Associates, 2015 (December 1925-February 2015).

Bear in mind, that we don’t have to put all long-term money into stocks. Adding a mix of regular savings, certificates of deposit, bonds and other appreciable investments is the smart thing to do. But, to emphasize again, over the long-term stocks give people the best return.

There are a number of approaches to investing in stocks and each can offer specific benefits to the investor. One method that has proven to bear fruit over time is dividend growth investing. Finding good stocks that fit the characteristics of this style, produces passive income for the investor that continues to grow over time.

Three reasons for this include cash flow, management philosophy and risk. Cash flow relates to the fact that companies that pay dividends tend to maintain a positive cash flow in order to service the dividend. Better dividend growth companies will hold less debt and concentrate on cash flow producing revenue dedicated to the dividend payment.

Good dividend growth companies have management teams who understand the importance of maintaining and growing dividends with strong cash flow. Capital is allocated with respect to company projects and goals that offer the best growth opportunities for paying dividends. Earnings and future earnings are paramount in a good dividend growth company.

Management values in dividend paying companies are sensitive to current income first and foremost. While all companies must continually look at future revenue producing projects, dividend growth companies are careful not to over concentrate on future growth orientation at the expense of current income and dividend payments.

Since dividend growth investing produces passive income for the investor, common to most dividend growth companies is they are defensive in nature and have risk propensity to withstand market swings, offering a smoother ride. These companies tend to be large, well-known, high quality businesses that have guided through good economies and bad with success, adding to investor security when buying shares of stock.

It cannot be stated enough that the most important element of a good dividend growth company is that it pay a regular dividend, and it continually increase the dividend. This gives the investor steady, passive income that is both reliable and predictable to a compelling degree.

An excellent starting place to find and learn about these companies is at the website: The DRIP Investing Resource. DRIP stands for dividend reinvestment and is almost as important as the dividend itself. Reinvesting paid dividends buys more company stock and compounds growth. Compound income growth is the greatest secret to building wealth. This method of investing builds passive income that will consistently grow, producing more passive income for the investor.

New investors may be put off by the ups and downs of the stock market, market swings that is. It seems that the least bit of good or bad world news can send the market off to new heights or treacherous lows. While this is true, it calls to mind another important axiom of dividend growth investing. It is a long term-strategy. The longer a stock is held the less risk involved.

This chart tells the story of long-term horizon for investing in dividend stocks. Notice dividend paying stocks significantly outperformed non-dividend paying stocks, and dividend growth stocks outperformed stocks just paying a dividend.

Annualized Return of S&P 500 Index by Dividend Policy (1/31/1972-12/31/2014)

Dividend Growers/Initiators Annualized Return = 10.70%
Dividend-Paying Stocks Annualized Return = 9.28%
Non-Dividend Paying Stocks Annualized Return = 2.34%

Examples of dividend growth companies include Procter & Gamble, which pays a dividend of $0.66 per share each quarter and has raised its dividend 59 years in a row. Another company is Johnson & Johnson, paying a quarterly dividend of $0.75 per share, raising it 53 consecutive years. Target pays a $0.56 quarterly with raises for 48 consecutive years.

The share price for these companies has grown over time and investor money has grown in value, compounding investor returns. This doesn’t mean the share price ignores market swings, but it does mean a rising passive income is produced for the investor, regardless of the price per share of stock. Share values in good companies also tend to bounce back from down markets and dividends continue to grow.

Dividend growth investing in solid companies has been proven to build wealth over the long-term. Internet searches, community investment clubs, local community colleges and many other resources can guide the new investor into this exciting method of reaching financial goals.

I have been an active investor for over 35 years. With the exception of employer sponsored retirement plans, my investments have always been self directed. My preferred investment style would fall into the value with dividend growth and income method.
I have also had a life-long interest in personal finance and have taught community classes to a varied of groups.
Investment experience in Equities-REITS-Oil & Gas Royalties-Utilities-Varied Fixed Income.

How To Make Money Through Relationships

There is a necessary element to making money and building wealth people often overlook and that is people. I often see would be millionaires taking courses, reading books, punching buttons on their calculators, working overtime and still not making much headway financially. What could possibly be holding these hardworking and focused people back? It is often because they are people overlooking people. People and your relationships with them are essential to financial success.

Take my grandfather for an example on the importance of people when building wealth. My grandfather was a wealthy man when he died, but he didn’t start out that way. His family was so broke that on his 18th birthday his father invited him to leave home. All he took with him was a borrowed suitcase and a change of clothes, but when he died he owned over one hundred properties, had money in the bank and bought new cars and trucks almost seasonally. Where did he get all of his money? From people, he didn’t get any from dogs or cats.

My grandfather had this saying that I try to remember when I deal with people, “If you are the kind of person that people would enjoy spending a minute or two with, then you just might be the kind of person that people would enjoy spending a dollar or two with.” People liked my grandfather and they actually enjoyed spending money with him. Over the years they got a lot of enjoyment from spending a lot of money with him.

Regardless of what you have heard, companies don’t buy things and they don’t make deals. I have dealt with companies from Berkshire Hathaway to General Motors and I never had a company buy a single thing from me or agree on a contract, it was always people.

There are no such things as accounts either, there are people in charge of making buying decisions, but there is no such thing as an account. You may wish to differ from me and how I look at things, but I assure you it will cost you money. If you don’t believe that, then just imagine the two of us having a little competition. You go after the money and the business dealing with the people as only being accounts and companies, I will go after the money and the business treating people like people, my good friends actually. Who do you think will win?

There is an old saying that is still true today, “It is not what you know, but who you know that matters.” When it comes to hiring, promotion and getting the contract or purchase that is definitively true. When your money and your future are on the line you want to work with someone you know, like and trust. That is why people appearing less technically qualified or having less experience often win out over people with better paper credentials. The loser may look more qualified on paper or in the experience department, but they were less qualified in the relationship department.

This is not as hard as it may seem. I teach sales and I teach rapport skills and methods, but I find we already know more about relationships and sales than we are using. Napoleon Hill said something like this about it, “You don’t need a course on relationships to know how to get along with someone, just imagine they are a rich relative about to die and you will inherit a million dollars from them if you can stay on their good side and stay in the will!” That should do it.

So how do you get on the good side of people and how do you stay there? For that let me bring out the Golden Rule. One way to state it is, “Treat other people like you want to be treated.” We may think we don’t know how the other person wants to be treated or even how they deserve to be treated, but we always know how we want to be treated. Put yourself in their shoes and things become much clearer.

If you want to improve your relationship skills as well as your financial standing let me leave you with a few action points.

1. Keep a list of everyone you meet along with all the information you come across on them. This includes their spouse if married, children, interests, career and the resources available to them. Of course you will want their contact information, their phone, address, email and any website that pertains to them.

When you need something refer to your list and find someone capable of helping you. Next find something you can do for that person that can help them do what you need done. Start with what you can do for the other person.

2. Don’t try to be the most interesting person in the room, try to be the most interested person in the room. Deeper levels of rapport are created by listening to the other person than by talking to them.

3. Maintain your list and I don’t mean with paper and pencil, I mean by connection and contact. Touch base with people from time to time to keep the connection fresh. Send an email, a text, sometimes just pick up the phone for no real reason and call to check on them. You don’t have to take someone out to an expensive dinner to let them know you are their friend and thinking of them.

4. From time to time do this mental exercise. Imagine you woke up tomorrow and you were the only person alive on the planet. No one to talk to, no one to help you, no one to share your thoughts, ideas and feelings with, no one. Solitary confinement is considered the worst form of punishment in prisons. In a world without people the entire world becomes a prison. Remember this and it will help you keep your relationships where they belong, at the top of the list.

If you would like to learn more about making money and building wealth I am pleased to offer you my new eBook, “Empty Pockets” as a free resource. It is a book covering the reasons most people are not wealthy and how to fix them.

Give Your Retirement Savings a Raise

Making sure you can keep the lifestyle you’ve grown accustomed to in your working years is a concern for many when it comes to preparing for retirement. There are several factors to consider, so where should you start? First and foremost, you can take advantage of your employer-sponsored savings plan if one is offered or fund your own IRA. With your future cost of living unknown, it’s a good idea to save as much as possible, starting now, with the goal of building a nest egg that allows you to maintain a comfortable lifestyle when your working years are done.

Work harder-or smarter. Extra income is always a welcome addition when you want to increase your retirement account. If you happen to get a raise or a large bonus, allocate a portion of the increase to your retirement account. If there’s no such opportunity with your current job, think about adding a gig. Consider a part-time job or consulting work, which are great ways to boost your disposable income and increase your ability to save.

Make small sacrifices. They really do add up. Examine where your spending has gotten out of hand and reel it in. Every “extra” you forgo now leaves more in the bank that can then be put into savings for your future. Your morning latte is a treat you may regret indulging in down the road. By the time you factor in a tip, you’re spending $5 per day that could be invested instead. Newspaper and magazine subscriptions are another example of luxuries you may be able to cut back on or live without. The point is pennies saved here and there snowball over time.

Be smart about debt. Debts that accrue interest can take a bite out of your ability to save. Delay purchases until you can afford them without taking on new debt. If you absolutely must take out a loan, repay it as quickly as you can. Utilize credit cards to earn cash or travel rewards, but avoid carrying a balance. With the growing acceptance of debit cards, you may be able to skip having a traditional credit card or just reserve the ones you have for emergencies.

Help yourself first. Your ability to help family members or support your favorite philanthropic organization will be much stronger if you keep your own financial needs front and center. Therefore, avoid straying from your plan and dipping into your retirement dollars to lend financial assistance.

Consult with the experts. Another important but sometimes overlooked way to increase your savings is to utilize a balance of investment products designed to enhance return potential. Rather than try your hand at picking hot stocks or timing the market, look to a qualified financial professional for expert advice. A financial advisor can recommend appropriate investment vehicles for your goals and needs while also helping you work within the context of a personal financial plan. Together you can periodically review asset allocation and adjust your investments to meet your needs.