ReplaceMyIncome's  Instablog

Send Message
I am a husband and father wroking hard to invest in things that will replace my income. I am an investor that has been burned by overpriced money managers and overpriced mutual funds. From this point I am taking control and I will be using Seeking Alpha as my sounding board. I will most... More
  • Interest Rates,Dividend Yields, And Profits 0 comments
    Mar 12, 2013 7:24 AM

    As I begin my journey into managing my own money I will really focus in on 3 metrics which are key to Me. They are interest rates, dividend yields, and profits.

    Interest rates are key because they determine your cost to borrow for things like a mortgage, car loan, or any other consumer debt. It is also the return expected to sit on cash at the bank. Ideally any investment I make needs to clear both hurdles. Anyone with money in the bank knows the lower hurdle is beating bank rates or US government rates. Consumer debt is even cheap but I want investments that will reward me over simply paying down my mortgage. As a proxy for interest rates I will use the US Government 10 yr note as I am taking a longer term view on my investments.

    Dividend payments are the most tangible reward of being a partial owner in a company. As an investor I see myself as an owner, not just trading pieces of paper with random values assigned. As an owner I want part of the profit coming to me, and I want that cash stream to grow. Preferably at a rate that will exceed inflation. My view on dividends will be how many dollars do I have to pay today for $1 of dividend cash flow. Of course there are chapters in finance books dedicated to the Future Value and Net Present Value, but I really will not bust out my old text books to perform this type of calculation.

    Profits I view in the same light as dividends. We want to own a profitable company. However, accounting tricks have made EPS only a marginally valuable metric. Instead I will focus on EBITDA. I will look at EBITDA as I do dividends, how many dollars do I have to pay today for $1 of EBITDA.

    The fourth variable to consider is inflation. Guessing inflation is really like trying to catch smoke. In general we have seen 2 decades of benign inflation thanks to Alan Greenspan. The current Fed policies of easy money could, at some point, trigger inflationary pressures. However, I do not have the time to play an Economist so I will simply use 2.5% as my inflation gage when look at my investments, particularly interest rates and dividend growth.

    Feel free to follow me on Twitter @TxMichaelDugan

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Back To ReplaceMyIncome's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.