Saturday, November 27, 2021

The Great Resignation, FAFSA, Lyondell Basell, Omicron

Income as of 11/27/21


 I didn't post last month as I was too busy!  However, this week has been slow at work, so I thought I would post something. 

In October we saw the fallout of "The Great Resignation".  Peo
ple were walking out of their jobs due to an abundance of employers scrambling to fill the gaps caused by a rebounding economy, and the inability of foreigners to take those jobs.  And this of course creates a snowball effect for the companies that lose employees and need to refill those jobs.  I did not partake, although it has been tempting.  I am too close to retirement to start over somewhere, even if they offer more money.  While my work is relatively dangerous, and I am compensated for it, I know it, and I have made it very efficient over the years that the return on time investment is greater than if I worked elsewhere.

I did fill out the FAFSA.  There were no fireworks or open arms.  My daughter's college will review it and send out letters of offers at the end of December.  I don't expect anything.  My company does offer a scholarship for employee's kids, which I filled out the day it dropped, but two things on the questionnaire bothered me.  First was a question on my income and savings, and would I share it.  Really?  Nobody who works at my company should  have to answer a question like that.  The qualification is my child is the daughter of an employee, where everyone is compensated at a certain level or higher.  I clicked "No".  I'm not even sure if that was a good idea, since if I did share, I certainly would not be the highest earner who did.  Maybe I would be higher on the priority list if I did.  I have seen this question before on forms that have nothing to do with being an employee's child.  The next question really blew my mind, though, as I have *NEVER* seen it before.  "Please describe reasons you did not do well in school, i.e. parent with addiction, stress from work or family, etc."  Wow.  That is a consideration?  We all have problems, but they are really going to consider people who submitted their transcript, got C's and D's, because their dad, WHO IS AN EMPLOYEE OF A LARGE TECH COMPANY, has blown all the college money on alcohol, and caused you to get bad grades???????  I answered:  "Due to the pandemic, I was unable to participate in extracurricular activities."  I then talked to a fellow employee whose daughter is studying to become a Marine Biologist.  He also answers "No" on the income/savings question.  She has not received 1 penny from the employee scholarship program.  What I once saw as a sure thing now looks like it is slipping away...

International Paper (IP) and Realty Income (O) split off some of their divisions into other companies, and I received stock for those companies.  I sold them immediately as they did not offer dividends, and counted it as a "bonus dividend" in my records.  Realty Income then proceeded to raise their dividend, International Paper proceeded to say they would cut their dividend.  I sold IP and kept O.  I then took the proceeds from IP, and bought a higher yielding industrial company, Lyondell Basell (LYB).  It is chemicals, not unlike Air Products (APD), which I own.  However, I think they are different enough that it shouldn't be an "all eggs in one basket" situation.  LYB has dropped since I bought it, so the yield is still good for future purchases.


The market dropped quite a bit yesterday, and my net worth felt it, due to the announcement of the Omicron Covid strain.  Apparently deadlier, and easily caught by young people, showing up in South Africa.  I don't know what this will do to my cruise plans in January, but travel and energy related stocks took quite a hit.  The last two strains didn't do much to the market, or to the covid issue (IMO), so I expected the market not to bat an eye.  But it did.  Time will tell what happens next.

With a new session of dual-enrollment (my son will be starting next semester), and two kids participating, and other bills + inflation, I haven't bought much the past two months.  Christmas coming will most likely postpone any big purchases until Jan/Feb.

Dividend Increases & Special Payouts Oct/Nov

  • Hormel Foods (NYSE:HRL) declares $0.26/share quarterly dividend6.1% increase from prior dividend of $0.24.  - This was a bit of a shocker - glad I've been buying Hormel while it has been sitting at a 52 week low.
  • Realty Income (NYSE:O) declares $0.246/share monthly dividend4.2% increase from prior dividend of $0.236. - This was refreshing to see after they spun off their office real estate division (which I sold).  Thanks O!
  • Main Street Capital (NYSE:MAIN) declares $0.215/share monthly dividend2.4% increase from prior dividend of $0.210.  In addition to the regular monthly dividends for Q1'22, the Board of Directors declared a supplemental cash dividend of $0.10 per share payable in December 2021.  - Another surprise, since MAIN was about to miss their increase streak.  Apparently someone is making money in this economy.
  • AbbVie (NYSE:ABBV) declares $1.41/share quarterly dividend8.5% increase from prior dividend of $1.30.  - Very nice!  Thanks ABBV!
    • October/November Purchases/Sales:
      • QYLD - 5
      • ONL - Sold 10 (O's spinoff)
      • O - 5
      • HRL - 0.9011 (this is on DRIP)
      • LYB - 104
      • VZ - 1.5036 (also on DRIP)
      • IP - Sold 192
      • SLVVM - Sold 17 (IP's spinoff)
      • WTRG - 11 (HSA)
      • SO - 8 (HSA)
      • JNJ - 4 (HSA)
      • XEL - 2 (HSA)
      • WEC - 8 (HSA)

    Friday, October 1, 2021

    September Slump, finally! QYLD

     As I sit down to write this, I realize that I am being pressured to fill out the FAFSA for my college-bound child as of October 1st.  This is a bit of a landmark moment, as the first of my two children will be leaving, clearing up a some household expenses.  Since she picked the major, and the university, she will be required to pay for her tuition.  She needs to have some "skin in the game" so to speak, so that money is not thrown away.  She was able to reduce her bachelor's degree by one year by taking community college classes (surprisingly, they all transferred).  Senior year is completely dual enrollment with said picked university.  She also qualified for a scholarship that pays for 1/4 of each year's tuition for up to four years (keep that GPA up and take the ACT/SAT).

    Ideally, this is they best way to do it:  Starting Freshman/Sophomore year (easier for homeschooled kids), take general classes with your local community college (College Algebra, a lab science, a general history class (American or World), etc.).  Online seems to be popular, so no worries about how they look to the other kids, and no worrisome interactions (do be careful with lit courses, though, they might end up reading 50 Shades of Grey!).  Try and pick the school you want, make sure they have dual enrollment starting Junior year, and take classes with said school the last 2 years of high school.  Upon graduation, you should have to get a bachelor's in only two years with that school.  I learned with my first, now I need to apply this to my second child.

    Now for the FAFSA - the FAFSA punishes you for saving, and having middle/upper middle class income.  You truly see how this country is made on the backs of these two classes, when you see friends and relatives get free rides thanks to the FAFSA.  Having a taxable brokerage account the size of mine, without putting it into a "can't touch until 65" retirement account, automatically qualifies my daughter to NOT get any college money.  I've taken several faux FAFSA indication tests and they all say that she cannot get any support.  This is how the system punishes the FIRE set, and forces you to play by their rules.  Just like the current infrastructure bill has a clause to get rid of the backdoor ROTH option (this will make things painful if that passes!  I'll explain if it does in a later blog).  You MUST not make too much money, and you MUST put it into a plan that MUST require you to work until 65 years of age (the age determined by the government that you are fit to contribute to the strength of your nation).  And it makes sense from a governing point of view, I get it.  I don't like it, and I don't have to play by those rules.  I will get penalized for not playing by the rules, but I am determined to march to the beat of a different drummer.  As I contemplate taking the FAFSA (one of those F's stands for futility, I'm sure), I'll post if I do.

    I told my daughter that she needs to work on scholarships and writing all her friends and relatives for assistance.  She is also working part time to save up as well.  Who knows, the old man might pass away and she can pay off her loan with dividends sooner than later.  We did open a 529 for her, which does cover dual enrollment tuition (just not other fees), and people can donate to it (gifting up to $15k tax free per year) and she won't have to pay taxes on the funds received.  That coupled with the several writeoffs for college tuition & expenses should help ease some of the financial burden.

    Anyways, after 9 months of my net worth going up, FINALLY it has pulled back thanks to the market slump.  I tried to predict it the last 2 months, because prior, 6 months was the max before a pullback.  I'm actually grateful, and I think it isn't done until earnings season starts in the middle of October.  Now if Q3 earnings are also slumped, this will last until mid November to mid December.  I think that companies have tightened up enough that profits will still hold over and Q4 following will be no exception.  Q1 next year on the other hand will probably be the next slump.  I also hope that it continues to slump, because dividends have not yet caught up to profits, so yields are still low.  Granted I've lost about 10% of my brokerage value, but I can endure a lot more pain to gain better yields.

    This is why I decided to check out QYLD.  QYLD is not a company's stock.  It is an ETF.  I know, ETF is usually a bad word for me, but this ETF is unlike any other ETF I've ever seen.  It doesn't buy stocks.  Yes, that's correct, an ETF that does not buy/sell stocks.  It stands for, well, let me just cut and paste:

    "Global X Funds - Global X NASDAQ 100 Covered Call ETF is an exchange traded fund launched and managed by Global X Management Company LLC. The fund invests in public equity markets of global region. The fund invests directly and through derivatives in stocks of companies operating across diversified sectors. It uses derivatives such as options to create its portfolio. It invests in growth and value stocks of large-cap companies.  Global X Funds - Global X NASDAQ 100 Covered Call ETF was formed on December 11, 2013 and is domiciled in the United States."

    So basically, it is an ETF of covered call options.  I don't do options, as I'm not looking to make a quick buck.  I also know there can be risks, (as with all make-money-quick ideas).  But here's the kicker:  It averages an 11-12% yield, and guarantees NO GROWTH, and is managed (probably by a computer).  It is basically an income vehicle with little work on my part.  Now, I like a little growth with my dividends, so I was quite skeptical at first, but the growth + dividends with Hormel (HRL) in my portfolio is pretty petty, although stable and reliable.  QYLD offers no such stability or reliability, but it does offer some nice MONTHLY dividends.  I am cautiously buying into this one with some mad money, because I want to see how it performs in a bear market like September Slump, or perhaps a crash.  I suggest you do massive research before buying into it, and be ready to jump if needed.  Otherwise, it's not bad for a ROTH or HSA side dish.

    My ROTH is fully funded for the year already, and I hope they don't eliminate the backdoor ROTH conversion, as I hope to do this over time.  I'm playing catch up with my HSA, and am using that to invest into lower yielding & stable stocks to keep my portfolio balanced.  Otherwise I'm hanging onto cash at the moment until the slump looks to be over.

    Dividend Increases & Special Payouts

    • Verizon (NYSE:VZ) declares $0.64/share quarterly dividend2% increase from prior dividend of $0.6275.  Best to be expected from a communications company.
    • W. P. Carey (NYSE:WPC) declares $1.052/share quarterly dividend0.2% increase from prior dividend of $1.050.  One of their minor increases throughout the year before the big one.
    • McDonald's (NYSE:MCD) declares $1.38/share quarterly dividend7% increase from prior dividend of $1.29.  Very Nice!
    • September Purchases:
    • XEL - 7 (HSA account)
    • ORI - 18 (HSA Account)
    • That's it.  Maybe late October I'll have some purchases.

    Wednesday, September 1, 2021

    August, Meh

     August was not a particularly notable month.  I guess we need these months to make the notable ones more notable.  My umbrella insurance policy was denied due to my wife hitting a parked car outside my condo (it's not what you'd think, but I won't go into details for her sake) last summer.  We will qualify when it falls off next year.  I was given a third party insurance offer which was about 3x more money until next year which I refused.  I will wait...

    I did open a Roth account.  I guess I am going to use this as part of my tax harvest strategy, for now.  While you can't tax harvest inside a retirement account, you can harvest into one.  So I sold some low yielding losses and bought some higher yielding stock from different companies inside my Roth.  I guess the end goal (someday, a long time from now) would be to move everything into a Roth.  That way all my dividends will be tax free, no matter how much I make.  I suppose I can outline the VERY long path to doing this:

    1. Tax harvest into Roth up to $6k per year ($7k when I hit 50, not that far away).  Repeat ad infinitum or until I run out of money.
    2. When I retire, roll my 401k into a traditional IRA.
    3. When the stock market crashes, roll from my traditional IRA to my Roth IRA up to the top of my current tax bracket.  This rollover will be taxable since you are turning pre-tax retirement money into post-tax retirement money.  I believe there is no limit to doing this, but I don't want to put myself into a higher tax bracket.  Repeat ad infinitum or until I run out of securities in my traditional IRA.
    4. Earn all of my income tax free, regardless of tax bracket.
    The only problem with this, will be selling my high capital gain stocks in my taxable brokerage account to move them to a Roth, like TGT, WPC, or MA.  I will pay so much in taxes just to move them over, it probably won't be worth it.  If I did decide to take the hit, it would be for my kids, which is another topic I need to research.  What happens to these accounts when my wife and I pass into the next life?  This is something for another day, as it is not at the top of my list, but I should explore it soon.

    I did try to open a traditional IRA with my brokerage, and they said I cannot do it because I have a 401k account with my employer.  After a few choice words (cue Muttley's "Rassum Frassum") about my 401k, I decided to look forward to the day I would be free of the shackles of my 401k and be able to control my investments completely.

    I was able to get a big gain in dividends this month.  My wife magically made a big sum of money appear and she invested in some high yields so she could get more money for herself each month.  I also maneuvered my 401k to increase my taxable dividends I receive from my company's stock that I can have in my 401k.  In short, we are now making $910 a month in dividends!

    I did say I would share my proposed retirement budget this month.  It is by no means finished, but with current bills sans children here is what I can expect initially.  I used some numbers from real charges I have today, and some I derived from estimates for retired couples in my location:

    Annual
    Housing$9,809
    Property Tax$807
    Maintenance (estimate)$744
    Repairs (estimate)$744
    Home Insurance$424
    HOA/Water/Sewage/Trash/ Landscaping$4,008
    Phone (wife cell)$660
    Electric$1,560
    Umbrella Insurance$310
    HOA (yes I have 2 HOA fees)$552
    Transportation$7,851
    Fuel (estimate)$800
    Car Insurance$726
    Car Maintenance (estimate)$1,000
    Car Repairs (estimate)$450
    Car taxes & fees$360
    AAA$91
    Travel$4,424
    Health Care$6,719
    Samaritan Health Share$3,360
    Deductibles & Meds - use HSA$3,359
    Groceries & Restaurants$6,303
    Misc$2,282 
    Pets (?)$322
    Hobbies$1,000
    Entertainment$600
    Internet$360

    Total:  $33k a year, or $2750 a month.  That seems conservative, as I also tithe (I should do a blog on tithing vs. offering vs. usury vs. what qualifies for these at some point) so I will still be aiming for $40-50k a year combining my taxable with my 72(t) income.  I can effectively head up to 80k+ (the + being the automatic tax deduction, so closer to 100k) before going from the 12% tax bracket to the 22% tax bracket.  22% is really where I don't want to be when I retire.  The ultimate goal is to live essentially for free and pay no taxes, but I'm not Elon Musk, so realistically I will just aim for everything in my Roth IRA for no taxes, and eliminating as many bills as possible.  Looking forward to Friday's jobs report.

    Dividend Increases & Special Payouts

    • Old Republic (NYSE:ORI) declares $1.50/share special dividendORI you SPOIL me.  With the special $1 dividend payout last January and now this!  One of the best dividend paying stocks I own!  Word on the street is a hedge fund pressured them into this because of all the home sales increasing the home insurance part of closing costs.  Either way, I'll take it!
    • Main Street Capital (NYSE:MAIN) declares $0.21/share monthly dividend2.4% increase from prior dividend of $0.205.  They barely made their dividend streak with this increase.  Not a lot, but they are bringing it back slowly.  My wife was delighted, she owns a big chunk of our MAIN securities and has been waiting for an increase for a long time.
    • August Purchases:
    • Hormel (HRL) 15 
    • Verizon (VZ) 65 
    • McDonald's (MCD) 2 
    • Xcel Energy (XEL) 3
    • W.P. Carey (WPC) 10
    • Omega Health Care (OHI) 19
    • Chevron (CVX) 15
    • QYLD (I'll explain this one next month) 7
    • Main Street Capital (MAIN) 11

    Saturday, July 31, 2021

    Umbrella Insurance Policy

    No, I don't work for an insurance company, but I'm going to mention something to consider if you have

    your home paid off and your taxable brokerage account is growing.  

    One of the few advantages your 401k/IRA has over your taxable accounts (savings/checking/brokerage) is that it is protected against lawsuits.  That means someone could sue you for everything but can't touch those retirement accounts.  So what do you do if you have a decent amount put away and a home?  You could lose it tomorrow in this litigation-happy country.  Or, for a few hundred bucks a year, get an umbrella policy.  

    I'm not a fan of insurance - I know all the insurance companies do is invest your money in dividend stocks, then pay you from the dividends they receive.  That's why I talked my wife out of a term life insurance policy and she put it into dividend stocks.  That's why I pay legal minimum liability insurance on used cars I pay cash for (and can replace if repairs cost too much).  That's why I get the lowest home insurance for my condo.  That's why my kids will keep their driver permits until they leave the house (then they can get a license and pay for their own insurance).

    I'm not a cheapskate, really I'm not.  I just think that money can be used to buy my own "insurance" via dividends instead of lining someone else's pocket.  Heck, I invest in an insurance company for dividends, and they are the only ones who pay bonus dividends (Old Republic ORI).  This is why an umbrella insurance is perfect for someone who doesn't want to waste money on car/home/life insurance.  

    Another option is to start a business/LLC and put everything under it, but then there's business insurance and other costs you would pay anyway.  So, not going that route, here's how this policy can protect your assets, for much less than what you would pay for full protection on your car/house/life:

    • Someone gets hurt on your property (even people you invite over)
    • You cause a fire that damages neighbor's homes (listen up condo people)
    • You crash a boat or RV you rented on vacation
    • Your teenage driver hits a pedestrian
    • Your dog bites someone and you get sued
    • You post a review on Yelp that is negative and you get sued for defamation
    You might say "Hey, I have insurance that covers some of that stuff", but your insurance has limits.  This goes above and beyond those limits up to a million bucks.  Now, my net worth (minus retirement accounts) isn't near that much, but it will keep me from getting my wages garnished after I lose everything else.  And I get to SWAN (sleep well at night).

    With inflation rising, evictions starting tomorrow, and crime pretty much all over the place these days, it is good to have SWAN insurance to go with my SWAN stocks.  I like to look at it as retirement insurance - protecting my income.

    I have also been assembling my retirement budget, so I know the bare minimum I will need to survive.  The good news is, my dividend income is almost at that point.  Once I have the bills covered by my taxable account, I can then pursue other things with the money from my 72(t) disbursements (see last month's blog).  That should hold me for 10+ years, then social security will kick in at 62, and there will be a 3rd source of income.  I will attempt to share my budget next month.  "But what about inflation affecting your current budget."  Listen, folks, if inflation is going up by 6%, and I'm getting dividend increases greater than that, I think I can handle it.  Dividends make future budgeting so easy... see if you can pay for today, because then you sure as heck can pay for tomorrow.

    The delta variant is on the rise, and it looks like the vax people are in danger as well (1% of those vaxed have caught it so far).  That coupled with misdiagnosed fall flus and colds will make this an interesting year.  Most businesses will refuse to close, and will prefer to have you sign a waiver and mask up.  I hope this blows over in 3 years when I retire....


    Dividend Increases & Special Payouts

  • Essential Utilities (NYSE:WTRG) declares $0.2682/share quarterly dividend7% increase from prior dividend of $0.2507.  Drink more tap water, use more gas.  Please.

  • July Purchases:

    • Verizon (VZ) - 10
    • Main Street (MAIN) - 3
    • Omega Healthcare (OHI) - 4
    • Chevron (CVX) - 4
    • ONEOK (OKE) - 7
    • Wisconsin Energy (WEC) - 5

    Saturday, July 3, 2021

    Retirement figured out! Target breaks my personal dividend increase record!

     Well, I was going to start a several part blog post about various retirement schemes for the FIRE set, and consider the pros and cons of all of them.  Instead, I found the perfect escape hatch for me in the process, so I will just post about that instead.  After all, it is my blog.  I cleared it with co-workers, discussion groups online, and of course my wife.  It is pretty simple, and although it isn't perfect, it is pretty darn close.  And it is very rare - because it involves 72(t) AND dividends, as opposed to one or the other.

    And let the music commence:

    This does not work for everyone, but it works for me, where my plan was to empty my 401k/Pension and buy dividend stocks in a taxable account.  Unfortunately, at 51, I can’t take out my money all at once without the mandatory 10% penalty and ending up in a higher tax bracket for a year (or 2 years if I bridge December/January withdrawals).

    But what if I could buy all those dividend stocks after my rollover to a traditional IRA, then take out dividends every month (or weekly or annually, my choice) without penalty, and only paying income tax on those dividends, which will keep me in a specific tax bracket during the process?

    What if I could keep my money in those stocks without having to sell them if the market is down, and let it grow with the market, while dividends grow as well?

    Then what if I could change that amount of money during my trip to 59 ½ years old (alas, only one time allowed to change the amount disbursed from the IRA).

    Let me introduce you to the SEPP 72(t).  The method the IRS allows you to remove from your 401k if you are 45, fired in the tech field, and are not economically viable to get another job, yet can’t claim disability.  You have to use it for 5 years, or until 59 ½, whichever is longer.  For me, it will be the longer.  Today, I will show you how I will use this method to my benefit.

     Please utilize it to fit your situation, or at least poke holes in it, because I haven’t found many at all (cons listed at the bottom).

    Mad Fientist’s flowchart (https://www.madfientist.com/how-to-access-retirement-funds-early/), modified by me.  Click on it to expand size.

    1.  I retire at 50 or 51.  Kids are out of the house, debt-free, big purchases paid for.

    2.  I Roll over my 401k and pension into a traditional IRA with my broker.  My broker said they can help with initiating the rollover 2 months before retirement.

    3.  I invest my IRA in the quality dividend stocks I know and love to earn 4% yield on average (I may adjust up to 5-6% depending on the environment and my annual needs).

    4.  I leave some cash in the IRA for the next 3 months of equal disbursements (most dividend stocks are quarterly, so the ball really needs to start rolling after 3 months).  There is room to play with this part, but I don't want to exceed expected dividends on my disbursements expected.

    5.  I file for a 72(t) (file early to get equal disbursements each month) using this amortization table to determine how much I *must* take out each year: https://www.bankrate.com/retirement/calculators/72-t-distribution-calculator/  I suggest a tax advisor setting this up, as if you take out too much or too little, you will get the early penalty.  Keep in mind the “Reasonable Interest Rate” is 120% of the Fed’s mid-term rate.  Right now the rate is low, so in 3-4 years, it will hopefully bounce up for more money per year.  Fed’s midterm rates can be kept track of here:  https://www.pbgc.gov/prac/interest/historical-applicable-mid-term-rates  You get to choose from the previous 2 months which rate you want to use (optimally the higher of the two – and even better if you wait for a good one).

    6.  The amount I withdraw each month, is equal to or less than the amount of dividends I receive that month.  That way I don’t need to sell my holdings in a down market, like most people need to do.  Since some months may pay more than others, you will need to have that cash on hand in your IRA I talked about in step 4.  As long as dividends exceed your disbursements, and they eventually
    will, this shouldn't be a problem.

    7.  Keep an eye on midterm rates once starting the SEPP cycle.  As your IRA weight and dividends increase over time, you get one opportunity to change the amount, so you can upgrade once during your 72(t) “lockdown”.  Adjust accordingly to stay in the tax bracket you want (https://taxfoundation.org/publications/federal-tax-rates-and-tax-brackets/).  You can always use HSA until 65 to hide money, and of course, charitable contributions, which can be tricky with the standard deduction already eliminating your taxable income.  Please consult a tax expert for your specific situation.

    8.  I continue to live off these SEPP disbursements and my taxable dividend account with my brokerage combined income until 59 ½.  At that point I have other options.  At 72 I have to start taking money out… even if I don’t need to.  

    Pros:
    • I avoid the 10% withdrawal penalty.  You can do this plan without the SEPP so you have no limitations, and just pay the penalty when you need money, it’s not a big deal sometimes, and I may consider it, so that way I can take out more as my dividends increase, it will depend how much money I need and how much is in my IRA at age 51.
    • I never deplete my IRA holdings as long as I receive more dividends than I need to pay out per the IRS.  My IRA is untouched until 65, it grows, and dividends increase, which makes it grow more as I reinvest.
    • My money is safe from lawsuits in an IRA.  This means I don’t have to run a business with ROBS, start an LLC, etc.  I might want to get an umbrella insurance policy for my non-IRA holdings and house.  Best rule is not to flaunt your wealth, as you become a target.  ROBS or an LLC are good if you want to write off your house and expenses (like Musk does).
    • I avoid market volatility (as dividends do).  Since most people sell their securities to fund a 72(t), I am living off the dividends of my securities, and not at the whim of the value of my securities.

    Cons:    

    • The amount is FIXED, and except in the case of hardship, that is ALL I can take out.  However I think I figured out a way to work the system with my health share to get money out for medical purposes from my IRA/HSA.
    • Excess dividends (due to inevitable increases) I can’t pull out, but I can reinvest them in my IRA, which gives me more when I hit 59 1/2.
    • Jumping to the next tax bracket (in case the brackets change), a nice problem to have if you have a lot in your 401k/SERP to allow for a large SEPP disbursement, but depending on your situation, you might be able to use your one time change to actually *lower* your disbursements.  Externally I could just liquidate a few underperforming dividend generating shares, or donate a lot to charity.

    This works anytime you leave your company: retirement, fired, quit, etc.  While I am not yet ready to live with a lower income (kids need to leave the nest first), it is nice to know this is available to help pay the bills between jobs as layoffs can happen.  You might be able to do it right now... there's a lot of people out there with larger 401ks than me.

     The step my wife and I are working on now is being mentally ready for retirement.  This means strengthening relationships (family and friends), planning for lifestyle changes, possible health scenarios, not tying personal worth to a job, etc.  I suggest anyone retiring to prepare for the psychology as well!  There’s books, read ‘em!

    Please comment if you see a hole in my plan.

    And now back to my regularly scheduled blog :)


    Inflation is increasing.  My personal portfolio is on a Bull streak, smashing the previous record of 7 months of increases.  That isn't good.  
    That means stock prices keep going up, and yields are going down.  So I am taking a breather this month, and for the foreseeable future, from buying too much.  I will continue to increase my Verizon holdings to match the others for diversity, then bring up some of the laggards.  Meanwhile, I will work on the condo for the last remodel and some outdoor furniture, and pay down debts incurred from this.  With my 72(t) plan, I'm feeling a lot better about my retirement income, and surprisingly, my 401k (which I still dislike, and the company that manages it).

    The Great Reopening is in full swing, and the market has it already built in.  Target, now a major player in the consumer discretionary sector, increased their dividend by 32.4%!!  That beats Abbott from before.  Truly a beautiful sight!  Imagine getting a raise like that from work without a promo or job change.  No, I can't imagine it either.

    My annual dividend income is officially in the lowest U.S. income tax bracket.

    Dividend Increases & Special Payouts
    Uh, yeah..
    June Purchases:
    FAST     3
    VZ         15
    ABT        9
    That's all folks

    Tuesday, June 1, 2021

    AT&T is out, Verizon is in, Rule of 72

     

    What Happened? 

    AT&T announced a restructuring plan.  It announced a merger with its TimeWarner assets with Discovery to create a new streaming company.  Sounds good, right?  AT&T sheds TimeWarner, and a merger, what could go wrong?  The stock went up 4%.  Then people read the fine print:  

    "Attractive dividend – resized to account for the distribution of WarnerMedia to AT&T shareholders. After close and subject to AT&T Board approval, AT&T expects an annual dividend payout ratio of 40% to 43% on anticipated free cash flow1 of $20 billion plus."

    Doing the math on the new payout ratio, you get FCF payout from $15B to $8B.  I did not sell on the news right away.  I wanted to make sure this was correct.  Basically, you will get a piece of the new TimeWarner spinoff, and AT&T stock with a 4% yield as opposed to the current 6% yield.  Now if you are looking for value and capital gains, it is not so bad of a deal.  If you can handle a 2-3% cut to your income, then keep it.  However, this goes against my golden DGI rule:

    "If a dividend is cut, sell."

    I don't want a piece of a company that doesn't pay a dividend (TimeWarnerDisco spinoff), I don't want to own a media company (I owned AT&T before it bought TimeWarner), and I want the best in the communications market.  Now I didn't own AT&T because of its growth, but I did own it for its high dividend yield and free cash flow.  However the market is saturated, and there are better players out there, like Verizon.

    Verizon isn't looking to become a media giant, and my son has owned them for a few years to his profit.  I am not a big fan of this sector as it is, because it is saturated, but I might as well hold something a little more stable and safe. 

    I did sign up for after hours trading, and seeing the direction it was going the next day as the institutions  were continuing to rotate out, I made my biggest sell-off ever.  What was the damage?

    Well, since the stock was essentially flat, I was in the red for $800 after the first day drop.  However, I had collected $900 in dividends over the past 4 years I owned it.  I netted $100, which is pretty pathetic for a 4 year investment.  However, I can tax harvest (my first this year) for -800 on my taxes (-3k is the limit every year), which helps reduce my taxes, and still walk away with a net profit, which is the fun of tax loopholes.

    Do you own it?  Should you sell?  It depends on your situation.  If you show a profit (however minor), and benefit from tax harvesting, why not?  The $11k I received from selling I dropped into OHI, OKE, and a small amount into Verizon.  This increased my monthly dividends by $1, so I actually made out, but those two former stocks are the riskiest in my low-risk portfolio.  So we will see how things progress.

    Meanwhile, I learned about the Rule of 72.  Just a fun little metric to look at.  I always try to figure out how long it takes for a dividend stock to pay for itself.  Typically a 5% yield that never changes should pay itself off in 20 years.  However, stocks go up, and yields increase.  So it should theoretically be less than 20 years.  

    This is typically covered in my Equity Cost column in my holdings spreadsheet (see holdings in the menu).  I take what I paid for it, minus the gains in the stock since then, minus the dividends received.  Once this number goes negative, the stock has paid for itself.

    Rule of 72 is better, because you take into account the stock market growth rate (and this numerator changes from 69-75 depending on yield).  I am going to try and fine-tune it a bit more, since it initially applies to interest rates, but it can be converted to handle stocks.  However, it can be far from accurate.  See below.

    I have been doing this for 4-5 years.  I already have 3 stocks that have paid for themselves.  My lowest yielder, MasterCard, which has increased in capital gains value at an insane rate, paid for itself first.  Rule of 72 calculates it wouldn't pay for itself until 73 years from now!  My other two, QCOM and TGT had such huge growth in short amounts of time, they also met their equity cost in less than 16 and 18 years, respectively.  

    So, it might need some fine-tuning, but it is a good metric for the slower stocks, to give me an idea on when they should pay for themselves, and I should always aim for less than 20 years.  Now this also makes me wonder if I should cash out fast growers like Target (tripled value) to my initial investment, and reinvest the excess into something higher than my yield on cost (YOC), is another matter.  I'll expound more on this next month...

    Dividend Increases & Special Payouts

    None!  Target is expected to have a massive increase in August, we will see...

    May Purchases: (not much!)

    -322
    OHI 150
    OKE 50
    VZ 35
    QCOM 4
    ABT 2
    CVX 3


    Saturday, May 1, 2021

    More Fun with Dick & Jane, Oh Hello OHI, Biden's Plans for Dividends

     Well the experiment with my Fidelity "Roth" 401k was a bust.  Because it is a 401k, and not an IRA, it is beholden to the withdrawal rules.  Therefore I quickly changed to a pre-tax 401k, still holding at 5% of my income to be matched by my employer.  After doing the math, and checking on an article by the "Mad Fientist" It still makes sense to take advantage of matching.  Even though I still think I could make more with my $100, the math shows that after early withdrawal penalties and taxes, my matched $100 would come out at $135.  This is assuming the ETFs that Fidelity uses do not increase or decrease over the next 3-4 years.  The key here is if you are married, you don't want to make more than 80k a year in retirement, otherwise you jump from 12% in taxes to 22%!  So I choose pre-tax now, withdraw enough after I retire each year to take me to 80k, then invest it.  It may take me awhile, I have quite a chunk in there (I wish it were otherwise).  For now, the pre-tax works.


    Well, it is happening.  I am running out of good companies with good yields, and I am overbought on the companies that do.  However, after studying Justin Law's list of Dividend Contenders, Champions, and Aristocrats, I did find one... Omega Healthcare (OHI).  It is a REIT, and it caters to nursing homes, retirement homes, and senior living.  Some things about this REIT that caught my eye:

    • They are funded mostly by Medicare and Medicaid (80-90%).  While this can be affected by politics, it won't the next 4+ years with Biden at the helm. 
    • It survived the Pandemic.  Surprisingly, this management team not only survived, but recovered, and also took advantage to buy up other senior housing REIT units.  Impressive!  Also, Uncle Sam didn't stop payment during the pandemic either.  Seniors were affected the most, so this speak a lot to their management being on top of things.
    • It has 16 years of increased dividends, so on its way to being an Aristocrat someday.
    • Sports a 7%+ yield.
    • It helps me spread out my weights.  I was overbought on some stocks, now I can buy more of them.  The only drawback is that REITs are now king in my portfolio, not consumer staples.  I will work on that, but right now consumer staples are highly priced due to success during the pandemic (yes, they are still cool).
    I bought 2 lots this week.  Yep, my first time buying in "lots" (a bundle of 100 shares).  No waiting to be grouped with another lot as my purchases usually go, they were bought almost immediately.  They have their earnings next week, so we will see if I made a good call.  Now I have 29 stocks.  Only one to go, right Creed?

    Biden announced a proposed increase in capital gains tax.  At first glance, I would say "so what, doesn't affect me.  I'm keeping my stocks forever.  Plus, I'm not even that rich."  Yeah, but what will the big money do?  They have nowhere else to put their cash, so they might just cash out their capital gains now, and put it into dividend stocks.  And what will that do???  Decrease yields.  When will the Dems learn that when you increase taxes on the big guys, it just hurts the little guy.  Like when they increase taxes on corporations, it only decreases headcount, increases automation, and leftover costs get passed right on to the consumer.  Biden Hood "Robbing the rich to give to the poor" does not work.  For now I will be watching carefully, and investing in higher yields assuming they will dry up.  If Biden was smart, he would raise returns in municipal bonds so the wall street bros will go there instead of dividend stocks.  Let's cross our fingers.


    On the plus side, I hit another benchmark, now making 800+ a month on dividends ($825 actually).  That comes to $191 a week, $27 a day.  Over a dollar an hour!  Catching up to you Buffett!  :P  Close to making 10k a year... I should hit that in the next 1-2 months.







    Dividend Increases & Special Payouts
    • Procter & Gamble (NYSE:PG) declares $0.8698/share quarterly dividend10% increase from prior dividend of $0.7907 Fantastic increase from a consumer staple stock!  PG is kicking butt and taking names, but with increased production and transportation costs, and the reopening of the economy, this may be the peak for awhile.
    • Southern CO (NYSE:SO) declares $0.66/share quarterly dividend3.1% increase from prior dividend of $0.64. I expect this to be better going forward, now that their nuclear plant is finished.  C'mon hot summers!
    • Johnson & Johnson (NYSE:JNJ) declares $1.06/share quarterly dividend5% increase from prior dividend of $1.01.  Despite Covid setbacks, JNJ takes a licking and keeps on ticking!
    • Chevron (NYSE:CVX) declares $1.34/share quarterly dividend3.9% increase from prior dividend of $1.29.  I expect Chevron & AT&T to benefit from the "Rich Rotation".  I see better raises in the future.
    April Purchases: