Lazy Man and Money

How to Build Growing Income Streams with Dividend Growth Investing

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This is a guest contribution from Ben Reynolds at Sure Dividend. Sure Dividend uses The 8 Rules of Dividend Investing to build high quality dividend growth portfolios.

Here’s a novel concept… Your investments should pay you money every year. Even better, your investments should pay you more money every year.

There was a time when most investors thought this way – and so did publicly traded companies. The S&P 500’s historical average dividend yield is 4.4%.

But things have changed. Lazy Man at “Let’s Generate Cash” sums the zeitgeist up nicely:

“Sometimes I forget that people once bought stocks to generate cash. Companies would pay out profits to shareholders and shareholders could use that money, to well, buy stuff they need. It was a good little system. I speak of it in the past tense because many companies stopped paying dividends and instead kept the money to grow profits.”

Today, the S&P 500 offers investors a dividend yield of 2.1% – less than half of its historical average. You may be wondering “what happened”?

Why Yields Have Fallen

There are various contributing factors. The primary factor is a change in corporate policy. Share repurchases have dramatically increased. Instead of paying money out to shareholders in the form of dividends, businesses are buying back their own stock.

Don’t get me wrong, share repurchases are beneficial. When you reduce the number of shares outstanding, each share remaining entitles you to a bit more ownership of the business.

Share repurchases are great for managements. That’s because management compensation is often tied to share price increases. Share repurchases help to boost share prices – and trigger incentive packages for management… But they do not put cash into the hands of shareholders.

So that’s what happened.

The good news is, there are still many companies that pay high dividends and increase their dividends every year. This article explains how to invest in these dividend growth stocks to build growing income streams.

Where to Find Dividend Growth Stocks

Dividend growth stocks are companies that:

  • Are still growing
  • And paying dividends

Pretty straightforward, right? They pay growing dividends over time. The best dividend growth stocks increase there dividend payments every year.

The amazing benefits of compounding this creates will be discussed a bit later… For now, here are some places you can quickly find dividend growth stocks:

  1. The Dividend Achievers List: 200+ businesses with 10+ years of consecutive dividend increases
  2. The Dividend Aristocrats List: 50 businesses with 25+ years of consecutive dividend increases
  3. The Dividend Kings List: 15+ businesses with 50+ years of consecutive dividend increases

These are all great places to find high quality businesses with long histories of paying rising dividends.

Dividend Aristocrats in particular have done well for investors. They have outperformed the market by over 3 percentage points year over the last decade.
Source: S&P Dividend Aristocrats Factsheet

The real benefit to owning these businesses is how they increase your dividend income over time.

Investing Monthly & Compounding

You don’t have to be rich to start your dividend growth portfolio, you just have to be consistent. It pays to invest monthly.

Imagine you invest $600 a month into different dividend growth stocks. Now imagine that (on average) you are investing in businesses with 3% yields that increase their dividends by 6% a year. You are also reinvesting your dividends back into the market.

These are very reasonable targets when selecting from the lists discussed earlier.

After 1 year, you will have invested $7,200. Your investment will (on average – remember, the market fluctuates) be worth $7,492. That extra $292 is from both growth in the businesses you invested in, and the dividends they pay.

Now if you stopped saving after year 1 and spent the dividends on random expenses you’d get $225 in extra income every year… But you’d get a 6% raise (on average) every year without having to invest any extra money. The next year, you’d get $238, then $253, and so on. Your investment would keep paying you more every year.

That’s because the underlying businesses in which you invested in keep growing and raising their dividends.

That’s what would happen if you only saved one year and then stopped reinvesting your dividends. If you keep saving and reinvesting your dividends, you’d be a millionaire in 30 years – and would be generating over $30,000 a year in passive income that would still be growing every year.

Ideas To Start Your Portfolio

Here’s how you can start your portfolio.

  • Step 1: Get your budget in order. Start saving, today.
  • Step 2: Open a discount brokerage
  • Step 3: Being investing!

You probably have some questions on step 3. There’s 2 ways to do this. The ‘easy way’, and the ‘cost effective way’.

[Editor’s Note: I’ll give you what I believe is the perfect combination of “easy” and “cost effective” at the end of the article. You don’t want to miss it.]

The easy way is investing in an excellent dividend growth ETF. The Dividend Aristocrats ETF (NOBL), the Vanguard Dividend Appreciation ETF (VIG), and the First Trust Value Line Dividend ETF (FVD) are all very good choices.

The downside to all these ETFs is that they have expense ratios – you have to pay every year to invest in them. You also don’t get to select what businesses you want to invest in. The upside is you save a lot of time.

The cost effective way is to select businesses from the 3 lists outlined earlier in this article. I recommend looking for the following:

  1. Businesses you understand well (the Coca-Colas and Procter & Gambles of the world)
  2. Stocks trading below a price-to-earnings ratio of 20 (at most), and preferably under 15
  3. Stocks with long histories of dividend increases every year (I prefer 25+ years)
  4. Stocks with dividend yields above 3%

If you invest in businesses like this every month, over time you will build a well-diversified portfolio of high quality dividend growth stocks trading at fair or better prices.

[Editor’s Note: I highly recommend readers look into Motif Investing which is a perfect combination of easy and cost effective for dividend investing. Read my review here.]

Understand the Psychology of Spending and Overcome it

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The following is a guest post by Tina Roth. She advises about developing positive habits to help you live a rich and financial secure life. Her finance blog was created to inspire people to explore more on frugal living and especially, to help you craft a financial secure life.

Earlier, mistakes were just mistakes. But after the discovery of the subconscious mind, some mistakes came to know as Freudian slips. We commit those mistakes because the subconscious mind compels us, and the conscious mind couldn’t recognize the compulsion.

Psychoanalysts believe such compulsions are behind habits. Many habits including the habit of spending are the results of psychological impulses. The era of globalization has taught us to identify ourselves as consumers, so impulsive spending appears justified.

Habitual spending

But spending out of impulse is financially disastrous. In this article, I discuss the psychological factors that trigger spending, and how to make peace with them.

Imaginary competition

We feel we need to compete with others when we don’t. Imagine your neighbor has bought a Land Rover recently. When you see him driving his new car, a subconscious impulse of competition will kick in. You’ll probably end up buying the latest model of Chrysler.

Big brands are responsible for this. Through advertisement, they create this false sense of competition, so their products get sold. And we end up buying stuff that we either don’t necessarily need or already have the inexpensive replacement. If you could resist advertisement, and ignore others, who show off, your personal finance will stay safe.

Discount offers

It’s a sales hack that forces someone to buy. Behavioral psychologists hold when we see sales pitches like “Save 60%” or “Offered at 50% Discount”, the psychological impulse to buy the so called discounted product triggers. The product that you are buying may not be coming with a discount at all.

How can you get over this impulse?

You need to keep two things in mind. Firstly, the discount may be fake. If a retailer is selling something to you at a price of $200 and claiming to offer you a 50% discount, then the original price of the item is $400. Are other retailers selling the same item at $400? If not, then it was a phony discount only to lure you. Besides, Getting a product at a discounted rate doesn’t mean you are getting it free. You are still spending money. Is the item worth spending buying?

Spending out of boredom

You might find it hard to believe, but it’s true. A lot of people spend money because they are too bored to do other things. This segment of consumers mostly includes females. As a matter of fact, some psychotherapeutic techniques use shopping to alleviate stress.

The best way to overcome spending out of boredom is to do something else instead of shopping when bored or stressed out. Watch movies on Netflix, play with your kids, listen to music. Spending money when you are bored may give you a pleasant experience, but hurts your finances.

Credit cards

Some people attempt to justify spending saying it’s an investment. But that’s always true. One example such example is having an extra credit card.

Some might argue that having more credit cards help to increase the credit score. Well, that’s only partially true. Having more than one card doesn’t increase the score alone. The cardholder needs to keep the credit utilization ratio low, which is possible only if he spends only 10% of the credit limit.

Very few people keep their cards under-utilized, rather they spend money lavishly, which increases their debts and hurt their finances.

Instant gains

A survey was done by a group of psychologists. They gave the surveyees two choices. The surveyees could either receive $50 instantly or wait for a year and then receive $200. Most surveyees went with the former option. This has made the surveyors conclude instant gratification is a basic tendency.

Putting a leash on the desires for instant gains is necessary. Or else, one would spend money for frivolous purposes and ignore serious ones. For example, investing in health insurance or life insurance can bring substantial gains in the foreseeable future. But due to the urge for instant gratification, one might spend the money for a trivial purpose.

Budgeting skills

Budgeting may appear like an uncomplicated and simple task, but it can be daunting at times, especially if you don’t know how to budget. Budgeting can make you a prudent and frugal person, who knows his finances, and spend only when it’s necessary to spend.

Shopaholics are known to overspend. The majority of them are either in their 20s or 30s. This is the time in one’s life when he should learn to manage and understand money. Budgeting skills help you to manage your money better. As you create two tabs, one for earning and another for spending, you get to see from which areas, money is coming and how it is flowing out.

You’ll eventually want to stop the outflow and increase the inflow. This drive will replace the urge to spend and turn you into a saver from a spender. Budgeting in your 30s and 40s is very important because this is the time when people earn, try to save and fail.

What do you think of the article? Do you understand the psychology behind spending? Would you follow the tips given here to overcome impulse spending?

Improve Your Health, Improve Your Income: Why Happy People Earn More

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A reader, Ben, sent this as a guest post. I identified with it immediately. I’ve found that as I improve one area of my life, other areas seem to fall in place. It’s one of the main themes at Be Better Now.

We all have that person in our lives we love to hate. They are the ones who have it all. They have the nice house, the beautiful wife and worst of all, they are always smiling. New research is finally indicating what we already know; happy people earn more. Why is it that happy people are not only lucky enough to be happy, they earn more to boot? The reason is that the two go hand in hand. If you want to make more this New Year, try to improve your overall health and happiness, it will have a positive effect on your pocketbook and career as well. These are the six reasons that being happier will help you be more financially successful.

1. You will be more productive

When people are happy, they have much more energy. The reason that depression is called “depression” is because when someone is unhappy, it puts them in a depressive state. That makes everything they do less productive. In fact, a study done at the University of Warwick found that happy people are on average 12% more productive than those who aren’t happy. Being productive will lead you down the path to more opportunities and better career growth.

2. You won’t miss work due to illness

Happier people tend to be more healthy overall. Research at Illinois Wesleyan University found that, on the average, happy people spent 15 days less out sick during the year than those who reported themselves as being “unhappy.” Even more, they lived up to ten years longer than those who were perpetually unhappy. Improve your happiness, improve your health, it really is that easy.

Of course, being happy isn’t always easy. Sometimes we all need some help. Don’t be afraid to see your doctor and get medication if you think it will help. If you get a prescription for what might be best for you, you might save some money by ordering online from 90 Day Meds.

3. You will be more optimistic

There is nothing that can tank any career quicker than a “Negative Nelly”. Being negative about your future, financing, and your chances for success, create a self-fulfilling prophecy. Not only do people who are negative not take the chances necessary to excel, when there are opportunities available, but they also don’t notice them or take advantage of them. Not feeling in control of their own destiny, negative individuals don’t generally rise to the top.

4. You will build better relationships and networks

Any smart businessman knows that being successful is all about networking and business relationships. When someone is happy, they are more likable. That makes others want to be around them. When someone is not fun to be around, they are more likely to be passed up for a promotion, or not invited to hang out on potential networking building opportunities.

Happy people are also more liable to receive better performance reviews and to be viewed favorably by their cohorts and managers. Working better with others, being happy can make you more popular, personally and professionally.

5 You will like yourself more

When you are happy, you are more likely to invest in yourself and believe that you are worthy of good things and praise. Taking care of yourself, happy people are more liable to work out, to take better care of themselves, and to ask for promotions and opportunities believing themselves worthy of them. When you are happier, you are more willing to put yourself, and your own success, above others. That is key to a positive financial future.

6 You will be a part of making things better not worse

We all know that cancer in the office. The employee that is never happy and never has anything positive to say about anyone or anything. It is not helpful to point out a problem unless you are willing to be a part of the solution. If you want to be happier and healthier, it is important not to sit and wallow in what you see wrong, or injustice. Happy people are more willing to work to change those things they don’t agree with or to find resolution instead of finding misery merely talking about it.

If you want excel in your career and your life, it is important to be happy. Your mental status is highly correlated to your physical one. Happy people are not only more wealthy, but they also enjoy a better quality of life and live longer. Instead of worrying about putting in overtime and making yourself miserable, focus on happiness this New Year to create change in your life and your finances.

Major Money Mistakes: Things to Avoid When Adopting Your Frugal Way of Living

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The following is guest post by Connor Gray. He is known by his friends and family as Mr Frugal. He loves saving money, and helping others do the same, and writes for a variety of lifestyle and personal finance sites sharing his tips and tricks.

Being frugal is a great way to live. You will find that there are many ways you can save money while still enjoying yourself, providing you with a sense of satisfaction and a realization that you can make big savings when you want to.

However, there are a number of mistakes that you can end up making when you want to be more frugal, and here are six to avoid.

Mistake 1: Buying Inferior Products

When you start living a frugal lifestyle, you will want to spend less when you go to the shops. But while it makes perfect sense to spend less on cheaper products that are not particularly important, such as a cheaper brand of cereal, there are some times when you really should be spending more.

You’ve probably heard the phrase: “Pay peanuts, get monkeys.” Keep this in mind when you make an important purchase.

When you buy a new dishwasher or vacuum cleaner, this is something that you want to last. Quality products last longer. They cost more, but in the long term you save money because you spend less on fixing and replacing them, so know when to spend more to save more.

Mistake 2: Not Getting the Most from Your Existing Possessions

Look after what you have and get the very most out of your existing possessions. Sometimes there are simple ways to protect what you own. They involve spending more at the outset, but they can save you more in the long run.

For example, take the car seat protectors from Shear Comfort. Buying them involves a cost, but you can protect your car seats and keep them in good condition. Then when you come to selling your car, this could help you to get a better price for it.

Sometimes you really do have to spend money to save money, and the trick is knowing where to spend your money.

Mistake 3: Buying Too Much Just Because It’s Cheap

Don’t make the mistake of assuming that just because things are cheap, you can buy more of them.

You may see a great deal on food at the supermarket, and it’s so cheap that you end up buying it because it’s cheap rather than because you need it.

But you’ll either eat something you don’t need, or end up throwing it away. So always ask yourself whether you really need something before you buy it.

Mistake 4: Creating More Problems through DIY

DIY can be a great way to save some money. Doing things yourself rather than hiring someone to do the job for you is very sensible. But there are times when it makes more financial sense to pay for professional services.

Know your abilities because DIY mistakes can be very costly. If you don’t have the skills, don’t attempt to fix everything yourself. You could end up causing more damage, and then you’ll have to pay for a professional as well as paying extra to fix the damage.

Mistake 5: Spending Just Because You Have a Coupon

Coupons can be very attractive, but many people make mistakes when it comes to using them. There is often a need to use the coupon even if you don’t really need the product on offer. You may think that it is an offer too good to refuse, but remember that you will usually be spending money. Again, ask yourself whether you really need the product in the first place.

Mistake 6: Forgetting to Enjoy Yourself

The most common mistake of all is being so frugal that you forget to enjoy yourself. Being frugal is great, and it can be very satisfying. But that does not mean you should stop enjoying life. Treat yourself and your family, know when to spend slightly more on a special event or day out, and don’t miss out on all the fun things in life that involve spending a bit more money.

Save Money and Be Happy

These are all some of the most common mistakes that you can make when attempting to live a more frugal existence. Avoid these and you will spend less and get more enjoyment from your new frugal lifestyle.

The Changing Nature of Jobs and How to Stay Relevant

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According to the Bureau of Labor Statistics between 1978 and 2008, the average American employee aged 18-44 years held 11 different jobs. As the world economy becomes increasingly global, the only certainty in employment is that the nature and structure of the workforce will inevitably continue to change. These changes will bring new opportunities for dynamic careers that provide increased work-life balance and flexibility.

Disappearing Jobs

New automation, production methods and manufacturing technologies will make certain types of jobs redundant. Among these will be manual and routine jobs like retail cashiers, word processing, and any task involving manual handling such as stock and warehouse or factory workers. In a recent example, Ford and Holden motor vehicle manufacturers in Australia notified closures of their domestic manufacturing plants. Impacting thousands of workings the shift in the industry has been quickly realised with the release of the new Ford Mustang, already sold out for 2016.

New Jobs That Didn’t Exist

At the same time, developments in science and technology will transform existing industries, creating new business models and new types of jobs. The shift in the working landscape has changed at a rapid rate in the last ten years, new jobs have been created that previously didn’t exist like social media managers, app developers and even chief listeners.

For example, Paul Minton graduated from college with a math major, but was unable to find a job. He took a 3 month course in computer programming and data analysis, and was able to get a 6-figure salary as a data analyst for a web startup in San Francisco.

Like Minton, up to 70% of students are training for jobs that soon won’t exist. The main drivers for change are automation, globalisation and collaboration. So which industries are going to provide the careers of the future?

How Will Employment Look in the Future?

The World and Employment Social Outlook 2015 (WESO) predict that employment in private sector services, accommodation and restaurants will increase rapidly the next 4 years. Service-based industries can keep costs low while charging premium, including business and administrative services, & real estate. More than ? of jobs worldwide in 2015 are linked to global supply chains for goods and services either consumed or further processed in other countries.

The International Labour Organisation reveal that employment relationships are becoming less secure, only 25% of workers worldwide having stable, full-time employment, 75% are employed in temporary work, informal and own account work, paid family work, and this trend is increasing.

Recent statistics show that the average worker stays in a job for 4.4 years. To position yourself for successful successive careers, you’ll want to match your skills growth to the fastest growing industries.

Technology is creating new ways of working. We are increasingly able to accumulate, store, manage and extract value from data. As technology becomes cheaper, multifunctional and easier to use, observes that workers will become more mobile, working over distance, on more flexible working arrangements, with increased connectedness* – with workers being available at any time. In the EU mobile working styles will give workers more autonomy and flexibility to combine work and family life.

In Australia, Tom Caesar has embraced the changing nature of business by driving his marketing efforts predominantly online. “Combining Marketing and Technology into a single department was an obvious decision as our business grew. When marketing is separated from technology it fails.”

“My IT and marketing staff are a single team, using technology to create multiple points of contact with clients, which is what clients want. Drawing data from the Customer Relationship Management system, we focus our marketing where it’s most effective. We’re having to adapt all the time, a recent example is where we have begun talking to our customers in terms of repayment values, not interest rates because it’s easier and more practical to understand”

This strategy has created exponential growth for the rapidly scaling South Australian loan writer, resulting in a doubling of the number of full-time employees in just 12 months.

Staying Relevant In the Midst of Change

Creating a dynamic career path will mean acquiring the skills relevant for the future of the industry you’ve chosen. This will inevitably mean getting tech savvy in some way. A friend of mine has been a Project Manager for 10 years, and during this time, her role has evolved in efficiency and in delivery time as expectations change with new technology. She’s created and defined her role by developing new skills, whilst moving through several international companies.

Rather than focusing on a particular job description, you’ll be focused on developing a core set of transferable skills that you enjoy. Whilst making sure you’re keeping up with popular technology used for communication and the business of your industry is essential, it may be just as important to focus on broader skills like cross-cultural competency and computational thinking.

One thing that machines will not be able to replicate is the ‘human’ side of being human. I recently watched a TED Talks video in which Harvard Business School psychologist Amy Cuddy observes that the most foremost in a potential employer’s mind on first meeting a prospective candidate is whether that person can be trusted. Focusing on the social skills which will enable others to perceive you as a warm and trustworthy will go further to improve your chances of securing the right career than even the highest grades or technical skills.

LinkedIn now has a ‘skills’ feature so you can research which skills are trending in your industry, and understand what employers are looking for. Remember though, your attitude is the key to getting a good job.

Business is changing so fast that employers often need to hire people before their eventual role within the company is fully outlined. So employers aren’t necessarily looking for someone with the skills and experience you’ll eventually need, they’re looking for someone who has aptitude, enthusiasm, independence and teamwork ability. If you’ve got one outstanding skill that your employer needs, and you’re willing to learn and be flexible, you’re likely to get that new position.

* RAND Corporation’s Report on Global and Societal Trends to 2030 on Employment and the Changing Labour Market