Monday Morning Blog Kickstart: November 28th, 2011

          Shorter roundup this week.  Some interesting events occurred here during the past week, in fact I can almost guarantee you read about them or saw them on the news.  Unfortunately such things tend to cut into what little free time I have left which negatively affects my writing for the blog.  So once again in place of frequent articles from me I provide you with a list of thought provoking posts from the rest and best of the financial blogosphere.

Dividend Growth Investor asks the common question Should you follow Buffett's latest investments? from the perspective of a, surprise, dividend growth investor.

Dividend Mantra spells out his checklist for bailing out at Div-Net in  When To Sell A Dividend Growth Stock

20s Money writes Why Stock Picking Is Nearly Completely Useless , nothing wrong with considering a contrary opinion right?

David Templeton, CFA from Horan Capital Advisors looks for the silver lining in the market's down ward trend in Investor Sentiment Not As Bad As I Expected

Have a great week.

Consumer Culture

          In today’s edition of the Stars and Stripes I came across an opinion piece by a Mr. James Livingston entitled “On Black Friday, spend for your soul.” Mr. Livingston, or more accurately Dr. Livingston, is a professor of history at Rutgers and the author of Against Thrift: Why Consumer Culture is good for the Economy, the Environment, and Your Soul (note: the capitalization choices are his, not mine). The article seeks to be a counterpoint to the annual parade that is “look what we have come to” type articles about Black Friday. Arguing that spending for the sake of “your soul” is a good thing is a tough sell in this economy (and frankly should be in any economy), and from my perspective Dr. Livingston fell short in his attempt to do so.

          Here is an excerpt from the middle of the article (I originally read the article on an Army closed network and have not been able to Google it successfully yet, once I do I will link to it):

Consumer culture is good for your soul. It is a part of leisure, not work. It takes place after hours and is aimed at forming social bonds. Whether you’re purchasing food for a family meal, buying someone a drink or getting in line to buy a gift on Black Friday, you’re spending time and money to create new circuits of feeling among friends and family.

          Setting aside the point that money is not a requirement for creating “circuits of feeling” I find this approach to spending to be remarkably dangerous when it comes to the health of your pocketbook. I read this and see it as just another justification for spending money, without paying attention to cost, for the sake of making yourself happier. You might as well eat for the sake of making yourself happier for the results will be similar: your short-term happiness will be of little value when placed against consumer debt and obesity.

          Livingston, in addition to arguing in favor of the social worth of spending, also says that “consumer culture” type spending is required to get the economy going again. This I find to be a much more reasonable proposition than his first one. The reasoning behind it is simple: consumers go out and purchase products, companies take the revenues and invest them in raises and growth, the workers take the raises and buy more products, and the cycle of capitalism continues on. That is fine however my agreement with the author is mitigated by his insistence that preparing for a future of potential scarcity during a time of capital surplus is a mistake (as evidenced, in his view, by the gluttonous display of spending we saw on Black Friday). Credit card debt is still a very real problem for consumers and there still exists a huge scarcity of general knowledge on the basics of personal finance and money management. In the Army we build training around what we call the Crawl-Walk-Run method: in general the American consumer is not even ready to “Walk” when it comes to managing their money however Livingston wants them to “Run”, which is simply going to set the stage for another panic of the uninformed down the road.

          I’m going to refrain from commenting on this particular sentence: “The obvious, practical solution to our economic problem is instead a redistribution of income that validates more consumer spending, not bigger bonuses on Wall Street.” I will only say that I could easily write a 1,000 word response to it without even mentioning that he used that “R” word that always gets Republicans all up in arms.

          As I write this I think Livingston’s article could actually provide material for at least one or two more posts so at this point I will stop quoting from it. Additionally I want to buy some time to track down a link to it so I can share it in full for all those who want to take a look at it. For now I am going to transition into my very predictable pitch for building a portfolio of dividend growth stocks….

          Have you been watching the market drop the last week or so? While people were getting pepper sprayed at Wal-Mart scrambling for Nintendo Wiis I was scrounging around for un-allocated cash that I could put to use in the market. Like I said back in September if I get to make a choice between purchasing something material that will depreciate or something that has the potential to appreciate and will pay me cash in the meantime in general I will select the latter option. I am not thrifty, I just simply have to prove to myself that the new TV is a better use of my money than shares in a dividend stock in order to make the buy. This doesn’t mean that the new TV never wins, however short of my current one being irreparably broken I am instead going to be looking for cash generating assets to buy.

          So, while Dr. Livingston argues that we need to spend more now and worry less about future scarcity I am going to take the exact opposite approach. I am going to defend myself against future scarcity by setting myself up for future surpluses by building a portfolio focused on generating cash flow through increasing dividend payments. Time is the one unlimited asset that we all have and when combined with compounding it is like turning on the afterburners on an F-15 when it comes to your net worth. Spending more and worrying less about future scarcity will certainly make you feel happier for now but it will also set you up for a life of bad financial habits and will likely cripple your ability to grow your net worth to a level you can comfortably retire on.

Monday Morning Blog Kickstart: November 21st, 2011

Another busy week, this time with no carnival submissions on my part.  Thankfully the other dividend bloggers provided us with plenty of good reading material, such as:

Stock Analysis

Dividend Growth Stocks presents Beckton, Dickinson and Co. (BDX) Dividend Stock Analysis

Dividend Monk presents Diageo (DEO) Dividend Stock Analysis


General Knowledge


Dividend Mantra made some moves and shares them in Recent Buy

Dividend Mantra (doubling up this week) looks for some perspective in Considering The Downside To Early Retirement

Barel Karsan, in a post very suited to today's market, looks at the Odds Required To Time The Market

Dividend Growth Investor provides another useful list in Twelve Income Stocks Boosting Distribution

Buy Life Buffet looks for opportunity in BP Is Back As A Dividend Play

The Dividend Guy looks at risk management in The Ultimate Bulletproof Investing Technique When The Market Goes Bust

Watson Inc asks Are You Your Portfolio's Biggest Enemy?



Have an enjoyable and productive week.

November Stock Purchase: Medtronic (MDT)

          The combination of many long days of work and low amounts of investable cash have kept me pretty inactive this month in terms of buying stocks.  Even so I did manage to occasionally check in on my stock tracker worksheet about once a week in search of dividend growth stocks that were still trading at discounts to their fair values.  After my mid-month deposit to the brokerage account landed I made my move and bought an additional 1/3 position in Medtronic (MDT), giving me a 2/3 position in that company.  I bought it at a little below the 3% yield mark, so the purchase is going to bring down the average yield of the portfolio a bit, but not so much that it significantly deviates from my 3.5% target.  I was attracted by the company's valuation, low FCF payout ratio, and average dividend growth rate for the past decade (although it is less consistent than I would prefer).

          I did see other stocks out there that offered better combinations of dividend yield, dividend growth, and history of dividend increases however most of them were trading at levels above what I had determined to be optimal for me to purchase them at.  On the other hand some of them were trading at prices that met my margin of safety requirements however due to the lack of time I had for analysis this month I looked for even deeper discounts to protect against errors resulting from insufficient research.  I was very close to not making any purchases at all this month however for me monthly purchases are an unofficial goal and only in very rare circumstances do I expect to encounter a market with no worthwhile investments at all. Time will tell how wise a decision this purchase was yet I already know that I will sleep just fine tonight knowing there is a little more MDT sitting in my portfolio.

Related Post: How To Use A Margin Of Safety
Related Post: Three Stocks That I Bought Last Week
Related Post: Six Stocks That I Bought This Week
Related Post: How To Build A Dividend Growth Stock Portfolio

Crazy Market? Relax With Dividend Growth Stocks

          The last time I bought shares in a company was on October 14th when I added Leggett & Platt (LEG) to my portfolio. That was a little over thirty days ago. Since then the market has gone through numerous single day gains and losses that were in the unusually large 2%-3% range. I refrained from additional trades during this time mainly because I was taking the time to build up my cash but also because I wanted see if the market would regain some sanity. Suffice it to say that I don’t think it has. However it was a good case study in the financial and psychological benefits of owning dividend growth stocks during times of market turmoil.

Monday Morning Blog Kickstart: November 14th, 2011

Another week in Afghanistan is over, marked by yet another weekly roundup.  I'm always game to read someone else's analysis of a stock and this week three excellent entries are available.  Additionally My Own Advisor provided motivation for the rest of us upstarts with his monthly dividend income update.  Read on!

DuPont Analysis For Return On Equity

         DuPont analysis was devised by the company of the same name back in the 1920s in order to better evaluate its return on equity when compared to its competitors. ROE is a measure of how efficiently a company utilizes the capital available to it in order to generate earnings: in other words, how efficiently it uses your money as a shareholder to increase the value of the company. The method breaks down ROE into its many component parts and analyzes three main factors: operating efficiency, asset use efficiency, and financial leverage. By understanding how each of these three factors affects a particular company’s ROE the diligent investor will be better able to compare the value presented by that company’s ROE compared to its competitors in its industry.

Do You Know What You Are Investing In?

          In order to succeed at investing you need to separate your emotions from your money. Too often investors get caught in the trap of thinking that their feelings and desires will somehow influence the fate of their investments as opposed to market forces. Bad investments need to be cut loose from portfolios and good investments held on to with the understanding that the dividing line between good and bad is not personal opinion or instinct but rather the fundamentals of a business, its industry, and the market as a whole at any given time. Many if not all of us have listened to friends and family “cheerlead” for their favorite stock, smiling on the days when it rises and moping on the days when it falls. What is the investment returning to them? What is their exit strategy? How do they actually intend to profit off of the supposed hot tip? Don’t make the same mistake as they did. Stop investing based on hope and feelings and instead invest with a plan based on the realities of a business and its environment.

Monday Morning Blog Kickstart: November 7th, 2011

Operations here have cut into the free time I usually use for researching and writing my posts.  This week has been pretty thin on material but rest assured there are multiple articles in the works; I just need some time to edit and publish them!  Nonetheless the blogosphere continues to produce quality reading material with or without me so I have gathered some of the best here for your viewing pleasure.

I Am The 1%

Through my own hard work in high school I earned a full tuition scholarship to a private college. I graduated as part of the college's honor program summa cum laude with two majors and zero
student loan debt while also participating in ROTC. 

The American taxpayer funded my four years of education in exchange for me serving them for eight.

I have free access to some of the best healthcare in the world because I volunteered to serve in situations that might require me to make use of it. 

As a twenty-four year old platoon leader in Afghanistan I was responsible for the lives of 24 of the best men America has to offer. Now as a battery executive officer I supervise the management of more than $30 million worth of equipment distributed across two Afghan provinces. 

I have a beautiful girlfriend back home that I try to talk with for a few minutes each night; some of my brothers and sisters in arms make do with a letter every couple of weeks. We do this so that the 99% back home are free to spend as much time as they wish with their own families. 

I do not want the wealth of others taken from them and given to me simply because they have more than I do. I earn every dollar of taxpayer money paid to me each day through my own sacrifice and hard work in a combat zone away from friends and family. 

I value the amenities that I have here because I know that others have far less; I do not covet the amenities of those who have more than me. 

I do not enter into mutual agreements and then seek to declare them void because I do not want to hold up my end of the bargain. 

I do not seek relief from hardship that I voluntarily agreed to endure. 

I understand consequences. 

I understand responsibility. 

I understand hard work. 

I understand honor.

I am the 1%.

I am an American Soldier.

Understanding Return on Equity

          Return on Equity (ROE) is one of my four main criteria for evaluating dividend growth stocks. While dividend yield, dividend growth rate, and the payout ratio are all directly related to a company’s dividend its ROE is indicative of how well it turns your investment dollars into cash. All else being equal a company with a high ROE will be more profitable (and a better investment) than one with a low ROE. However as with all things financial ROE does not exist in a vacuum.  In this article, the first of a two part series on ROE, we will look at how to calculate ROE and and understand what it represents in terms of how a company manages invested money.