Three Principles of Dividend Millionaires
Three Principles of Dividend Millionaires and Lewis David Zagor. I want to lead my weekly review by discussing three principles of dividend millionaires. I have written about 10 Secret Dividend Millionaires to date in my weekly reviews. They make for interesting stores. Most were ordinary people like you and me. Although some were eccentric. A few had an aptitude for numbers but not all. One or two were in the financial industry but not all. However, after reading their stories I can distill their success down to three principles of dividend millionaires.
Principle No. 1 – Secret Dividend Millionaires Spent Less Than They Earned.
All the Secret Dividend Millionaires spent less than they earned. This was a consistent fact. They were all frugal and lived simply for the most part. A handful were downright miserly. But as a group the Secret Dividend Millionaires spent less than they earned by a large percentage. If you regularly spend more than you earn then you will increase your debt. The difference between your monthly income and monthly spending must be positive to build wealth. If it is negative then that money must come from somewhere, e.g. high interest rate credit card debt or personal loans. How much should you save? I would say at least 10% of your income as a minimum and preferably more. The Secret Dividend Millionaires tended to save quite a bit above that percentage. The greater the percentage of your income that you save, the easier it will be to build wealth.
Principle No. 2 – Secret Dividend Millionaires Invested Their Savings
All the Secret Dividend Millionaires invested their savings. This too was a consistent fact. Most invested in dividend paying stocks. Many of the stocks qualified as dividend growth stocks, e.g. Dividend Kings and Dividend Aristocrats. Some had investments besides dividend paying stocks including cash, bonds, gold, and real estate. But for the most part the greatest source of their wealth were dividend stocks. It is not sufficient just to follow principle No. 1 to build wealth. Interest rates on safe savings accounts and CDs are very low. Even with the power of compounding it would take an excessive number of years to build wealth. As a final point remember to build your emergency fund before you consider investing.
Principle No. 3 – Secret Dividend Millionaires Reinvested the Dividends
All the Secret Dividend Millionaires reinvested the dividends. They did not need the dividend income during their accumulation phase since they saved more than they earned. Most also had some cash saved that effectively served as an emergency fund, so they did not draw on their income stream. Reinvesting a growing dividend over time leverages the power of compounding. This makes your money work for you. Time is an important component of building wealth. A dollar invested early in life is worth more than a dollar invested later in life extrapolated into the future.
Coronavirus Dividend Cuts and Suspensions List in 2020
I updated my coronavirus dividend cuts and suspensions list this past Wednesday. The number of companies on the list has risen to 307. We are now over 10% of companies that pay dividends having cut or suspended them since the start of the COVID-19 pandemic. Three companies were added to the list this past week. This past week I added RiverNorth Marketplace Lending (RSF), Levi Strauss (LEVI), and Dominion Energy (D).
I will have an article out on Dominion Energy’s (D) dividend cut on Monday. This is a favorite income stock for many investors. The stock has over 77k followers on Seeking Alpha. The yield has typically been over 4% and recently it has been over 5%. But the dividend safety metrics have not been great in the past few years. Additionally, the dividend growth rate has been very low. The company recently exited the natural gas storage and transmission business. The business was sold to Buffett’s Berkshire Hathaway (BRK.B) and (BRK.A) for about $10 billion. Dominion also canceled the Atlantic Coast Pipeline and took charges. So, the dividend cut is expected. But Dominion also adjusted the payout ratio downward to 65%. Check my blog on Monday for my article on Dominion.
Stock Market Volatility – CBOE VIX
The CBOE VIX finished the week where it ended last week. The VIX is still elevated relative to the long-term averages. The long-term average is approximately 19 to 20. In my opinion the VIX increases when we get bad news about new COVID-19 infections in the U.S. It seems to decrease when we get good news about unemployment or a vaccine.
Currently, new infections continue to set daily records in the U.S. I am not of the opinion that the sole cause is due to more testing. The reason is that the positive test rate is trending up in some states. Not to belabor the issue, but the point that I am trying to make is that higher new infections, hospitalizations, and deaths in some states will likely slow the economic recovery and tend to keep the VIX elevated.
I was Surprised, we are Greedy
I have also been tracking the Fear & Greed Index. The current reading is now at 59, which is in Greed. After trending down and staying flat for a few weeks it popped back up. This was surprising. But the underlying sub-indices shows that more stocks are setting 52-week highs and the S&P 500 continues to trend up. Much of this is due to the strength of mega-cap tech stocks that are setting new highs each week. But even tech stocks with smaller market capitalizations are doing well.
The market is overvalued in my opinion. The S&P 500 is trading at a price-to-earnings ratio of 22.8X and the Schiller P/E Ratio is at about 29.9X. These have gone up again since last week.
The U.S. economy continues to chug along and has bounced back from its lows in April and May. That said, there will be headwinds this month with extra unemployment benefits expiring. I’m sure the extra $600 per month helped a lot of people pay rent and bills. There is likely a coronavirus aid bill coming. The House has already passed a bill extending the $600 per month. But the I am not sure that will be the final number and the criteria for qualification may be different.
I am still more pessimistic than optimistic on the pace of recovery. My general sense is that it will be 2021 or possibly even longer to get back to pre-COVID-19 levels for GDP and employment. The downturn was just to severe and too fast. This has created too much uncertainty for many businesses and consumers.
Secret Dividend Millionaires – Lewis David Zagor
In this installment of Secret Dividend Millionaires, I want to talk about Lewis David Zagor. He is probably less well known than most of the Secret Dividend Millionaires. Lewis died at the age of 77 on December 5, 2013. By the time he died he built a good size fortune of $18 million. Despite his wealth he lived in a small rent-controlled apartment in NYC. He was also a hoarder as pictures of his apartment illustrate. He was survived by his third wife. However, this was another case where the Secret Dividend Millionaire did not have a will complicating handling of his estate. Again, this points to the importance of making a will and taking care of your financial paperwork.
Lewis David Zagor was not like some of the other Secret Dividend Millionaires. He was in the U.S. Navy in his youth. Later, he earned a doctorate in business administration and worked on Wall Street. So, Lewis had an advantage compared to most of us. But as the other Secret Dividend Millionaires that I have written about demonstrate, you do not need to work on Wall Street to build wealth. You just need to follow the three principles of the dividend millionaires.
How did Lewis David Zagor build his fortune? He owned stocks, bonds, cash, expensive silverware, and collectibles. I have not been able to find details on the stocks that he owned. But reportedly, he was earning a pretty healthy income stream from the ones that paid dividends. Lewis would go on shopping sprees at Saks Fifth Avenue and also travel based on that income.
The main lesson here is to make sure your will is up to date and your representative or executor knows where it is. Next, living frugally and simply is important for accumulating wealth. Perhaps the extent of scrimping exhibited by Lewis David Zagor was a bit much. But still you must spend less than you earn to build wealth.
Here are my recommendations:
If you are unsure on how to invest in dividend stocks or are just getting started with dividend investing. Take a look at my Review of the Simply Investing Report. I also provide a Review of the Simply Investing Course. Note that I am an affiliate of Simply Investing.
If you are interested in an excellent resource for DIY dividend growth investors. I suggest reading my Review of The Sure Dividend Newsletter. Note that I am an affiliate of Sure Dividend.
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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.