Last week, I started a new investment series called “Build an Investment Strategy”. All my readers have made at least one trade in their broker account, but it doesn’t mean they have a solid investment strategy. It goes far beyond a simple set of ratios and metrics that you enter into a stock filter. An investment strategy is your philosophy; it describes the way you intend to manage your portfolio. The investment strategy is useful when you are about to make a tough decision: to buy or to sell.
There are thousands of companies in the world, who have chosen to list their shares on a stock exchange. It would take a lifelong journey, in order to learn everything there is about every one about these publicly traded companies. Fortunately, out of that large universe of investments, less than 300 represent that investment universe of dividend growth investors. As a dividend growth investor, your goal is to select investments that can afford to increase distributions every single year. The three lists I focus my attention on include: Dividend champions: This list is maintained by David Fish. It includes all companies which have managed to increase dividends for at least 25 years in a row. In addition, David’s list also includes Dividend Contenders, which are companies that have managed to increase dividends for at least ten years in a row. The champions and contender lists are superior to the dividend aristocrats and dividend achievers lists, because they are not excluding companies based on superficial criteria such as market capitalization or average trading volume. Therefore, they provide a more complete population of potential investment ideas for the enterprising dividend investor.
Linked here is a detailed quantitative analysis of United Technologies Corp. (UTX). Below are some highlights from the above linked analysis: Company Description: United Technologies Corp. is an aerospace-industrial conglomerate with a portfolio that includes Pratt & Whitney jet engines, Sikorsky helicopters, Otis elevators, and Carrier air conditioners, among other products. In July 2012, UTX purchased aerospace competitor Goodrich.
There were a few decent dividend increases this past month in March 2014. Unfortunately for me, I didn’t own any of them. However, there are a couple that I wouldn’t mind owning. Let’s check them out!
Another month has passed by, and it’s time for me to post an article on my favorite subject: dividend income. The reason why I love to post articles on dividend income is because it’s pure numbers. It’s hard to argue the success of long-term dividend growth investing when you can slowly and surely see dividend income rise over time and get closer to covering one’s expenses.
Every year, like clock work, we all have to do our taxes. For many like me, we have to report our dividends and pay our taxes on this amazing passive income. The great thing about dividends is that it’s a passive income and it has a preferred tax rate compared to interest or regular income. Only capital gains has a better tax rate but you have to sell your investments to access your money. (Note that the amount of tax you pay really depends on all your income.)
Dealing with interest rates is something we all have to do at some point in our life. In fact, if you purchase a residence, chances are you took a mortgage which is subject to interest rates. The question you will have to answer is if you take a variable rate, a 3 year fixed term, a 5 year fixed or a much longer term. The interest rate and your appetite for handling fluctuating interest rates will affect your choice along with your financial stability.
A vision is taking the time to contemplate and anticipate, in detail, what the future will bring. A financial vision needs to consider future earnings, savings and economic issues such as inflation. Then based on your vision, you formulate an action plan to ensure the best possible outcome given your unique circumstances. You can’t have a retirement plan until you have a retirement vision. It would seem to me that there are a lot or retirement plans out there but very few retirement visions.
Dividend investors should not view every stock they purchase as a price that fluctuates on a computer screen however. On the contrary, they should view each stock purchased as a share in a business. Therefore, the most important thing to focus on is the underlying strength of the business you are investing in, and not day to day fluctuations in security prices. Once an investor has a list of quality businesses, he needs to be able to decide at what prices to purchase them.
Linked here is a detailed quantitative analysis of Emerson Electric Co. (EMR). Below are some highlights from the above linked analysis: Company Description: Emerson Electric Co. designs and supplies product technology, and delivers engineering services and solutions to a wide range of industrial, commercial and consumer markets around the world. Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description: