As I go from mutual-fund investor to dividend-growth investor, I've got a long and interesting transition ahead. I'm learning, I'm trying to be patient and, with the help of the fine folks here at Seeking Alpha, I'm determined to make sound decisions.
I was laid off about three years ago at the ripe old age of 48 and now am part of the "underemployed" statistic, working a few part-time jobs for a fraction of my previous salary. My story, however, is not a woe-is-me tale. My wife has stable employment and decent benefits, we have zero debt and our kids are independent. We've been pretty diligent savers over the years. Of those whose lives were impacted severely by the recession, we're among the fortunate.
I know I've made a few OK investing decisions -- especially maxing out our 401k and Roth IRA savings for years -- but sometimes I think we've built our savings despite my choices. In 2000, for example, I received a little inheritance and decided to do what everybody else was doing: make big money in the stock market! I signed up for an E-Trade account and bought the high-flyers of the day. That didn't turn out so well ... though I did get a settlement of approximately 2 cents for every $100 I had put into WorldCom, so I had that going for me. I sold my stocks, licked my wounds and vowed not to lose my mind that way ever again.
Eight years later, a few months before I lost my job, I bought dividend-paying blue-chip companies General Electric (GE), 3M (MMM) and DuPont (DD). At the same time, I started a DRIP directly with Procter & Gamble (PG). Without ascribing to any particular investing philosophy, I figured that if I could get paid just for holding shares of good companies, it was free money.
Though I bought GE at $30 -- ugh! -- I resisted the temptation to sell when it hit single-digits during the recession. I consider that to be a mental investing breakthrough of sorts, because the '90s me would have bailed. I have well over 1,000 shares and see no real reason to sell now at $19.50; I might as well enjoy the dividends. (Whether I should be reinvesting those dividends in GE, as I've been doing, or taking them in cash and investing in a different company, is another decision I eventually need to make.) I sold DD at a slight profit to help purchase the house we bought when we moved from Chicago to Charlotte in 2010. I'm still holding MMM and still contributing monthly to the PG DRIP.
Otherwise, most of our portfolio is in retirement accounts made up of Vanguard funds: Wellington, Extended Market, Health Care, International Explorer. My wife's 401(k) from her Chicago job is in a TIAA-Cref annuity that will never earn less than 3 percent annually and can earn double that or more; I figured that would work kind of like a bond, balancing an otherwise stock-heavy portfolio.
I started reading Seeking Alpha a few months ago and, like so many here, am convinced that DGI is the right strategy. I'm cautious because I've been burned before by using a join-the-pack mentality, but the strategy just makes so much sense that I feel I'd be doing a disservice to our future selves by not going with it.
I moved an old 401(k) into my Vanguard brokerage account. I also sold my TIPS fund and moved it into a money-market fund within my brokerage account. Seeking dividend-growth diversity, I bought Vanguard Dividend Appreciation ETF (VIG). Seeking international exposure and a company with both a good yield and history of growing dividends, I bought Philip Morris International (PM). I soon wished I had bought more PM, so I did. I just bought some Intel (INTC) because I wanted more tech exposure, and I thought this had the best fundamentals - but I probably was a little impatient doing so and bought near its 52-week high. I'm sitting on plenty of cash in the IRA brokerage account, and antsy to use it!
Right now, our stocks and two of our funds (Health Care and Wellington) combine to produce a total of about $750/month in dividends. My goal is to triple or even quadruple that number in 15 years. Along with our pensions and Social Security, that would give us solid monthly income ... and we hopefully will not have to touch our principal to have relaxing, rewarding retirements.
I figure that means we need to get out of funds -- especially those that pay no dividends -- and replace them with solid dividend-paying companies. In lieu of bond funds, I plan to maintain a healthy cash position (at least two years of expenses) as well as my wife's 401(k) annuity. Otherwise, my hope is to be invested in a broad (but not too broad) spectrum of stocks that fit the DGI profile.
I want to keep it simple, buying only companies I understand and mostly those that consistently have raised dividends (and expect to do so for the foreseeable future). At this point, I'm not interested in options or puts or other more complex investing methods. Maybe one day I will learn how to make such investments, but maybe not. Based on what I've read here, one can build very healthy portfolios without making things too complicated.
So it's probably no surprise to fellow Seeking Alpha readers that I'm considering "CCC" companies -- Dividend Champions, Contenders and Challengers such as: Abbott Laboratories (ABT), Coca-Cola Company (KO), Colgate-Palmolive (CL), ExxonMobil Corp. (XOM), Genuine Parts Co. (GPC), Illinois Tool Works (ITW), Johnson & Johnson (JNJ), Kimberly-Clark Corp. (KMB), McDonald's (MCD), Harris Corp. (HRS), Microsoft Corp. (MSFT), Raytheon Company (RTN), Waste Management (WM). I'm considering a few others that didn't quite make the CCC cut, but have good histories and great potential, too.
Knowing what I want to do and doing it aren't necessarily the same thing, however. For example, I have liked owning the Health Care fund, which is now a big chunk of my Roth IRA. Do I start selling it off and replacing it with ABT, JNJ and other health stocks, or do I stay the course because it has worked OK?
Do I hold Wellington, which has been solid? Or do I dump it (and its 33 percent bond component) to buy the likes of KO, XOM and MSFT? How patient should I be while waiting for prices of these and other good companies to come down? Do I sell my mutual funds now so I have plenty of cash available? (On the one hand, I'd be ready to pounce when values are more in line; on the other, I'd be denying myself potential gains while I sit in cash.)
Do I sell the Extended Market fund and look for mid- and small-sized companies that fit the DGI model or do I hold it for diversity even though it generates almost no dividends? Do I sell the international fund and look for international dividend payers?
I think I know some of the answers, but divorcing one's investments is never easy after a decades-long marriage.
Anyway, I wanted to use my first article to introduce myself and my situation. As I make decisions, I occasionally will provide updates because they might be useful for those in similar places in their lives. Who knows? I might even be confident enough one day to give advice instead of just taking it!
Although I will do my own research, I will listen to suggestions from the many outstanding, experienced folks here at SA. It's nice to be part of a community with a common goal.