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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

    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.

    Mar 12 7:24 AM | Link | Comment!
  • Day One, A New Look Ahead

    For years I have paid money managers and mutual fund managers to underperform, all the while charging healthy fees for their expert "super secret" management techniques. I am educated and have been a market follower for 25 years, but, as often happens, family and career have taken priority over managing my money.

    I have reached a point where I can now begin to manage my own accounts and will do so. I have decided I will pursue dividend stocks with some covered call writing and cash secured puts. I am 100% cash today. My journey will begin with S&P 500 Dividend Aristocrats. I heard an interesting statistic that it is typically the 2nd, 3rd, and 4th quintile of yield in the Dividend Aristocrats that perform best, so I will start there.

    Eventually I would like to build out my portfolio so that dividends will replace 100% of my income and option writing can be fun money for vacations or other such expenses.

    Goal 1: 100% income replacement from dividends, $110,000 per year

    Goal 2: $1,000 per month for fun costs from option premiums

    Since I can reasonably expect another 20 to 25 years of work, Goal 1 is a moving target. As my income goes up my goal will follow. Goal 2 may change with time, but I would like to achieve that before aiming higher.

    Dividend Income Current: $0

    Option Premium Current: $0

    I do not know if I will ever reach my goals, but I do know that without a plan, I certainly will not.

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

    Mar 08 4:04 PM | Link | Comment!
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