This Is The Way – Dividend Power Week In Review

This Is The Way

This is the way. For those of you who watch The Mandalorian you are familiar with the saying. The star character often uses the saying when talking to other Mandalorians. I just saw a few episodes last night and thought how the saying fits into the Financial Independence Retire Early or ‘FIRE’ concept. In this context, “this is the way” would refer to earning, saving, and investing to build wealth. In context of the Dividend Power blog, it would refer to not only these three activities but also more focused on dividend growth investing. 

This topic was also in my mind because I have recently started a series called Millionaire Interviews. I have also written extensively about Secret Dividend Millionaires. It sounds the same, but there is a distinction between the two groups. One group tends to have higher income and the other group tends to have lower income. The Millionaire Interviews are about ordinary people building wealth now. The Secret Dividend Millionaires are often only discovered after they have died and donated money to a charity. But there is also commonality in that both groups spent less than they earned, saved at high rates, and invested, which ties into the title of article, this is the way.

Earn More Than You Spend

It all starts with earning money. In order to build wealth, you must earn money and spend less than you earn. It really does not matter if you earn minimum wage or earn six figures. The concept is the same. You must earn enough money to meet your needs and have a delta between your income and expenses in order to have money to invest. 

The majority of people earn the greatest amount of income from their career. If you earn $50,000 per year, then over a 30-year career that comes out to $1,500,000. If you start at $40,000 per year and your pay increases on average about 3% per year, then by year 30 you are earning slightly over $97,000 annually. Your total pay over this time period will be a little over $1,960,000. This is not a small amount. It also shows that you don’t need a six figure salary to become wealthy. You can add to your earnings with a second job or a side gig such as from a blog or hobby that you love. But it is your career that will likely be the greatest source of your income over your lifetime.

Maximize Your Savings

Earning money is not enough. You need to save and save more than the average person. If you maximize the difference between the amount you earn and the amount you spend then you will have saved quite a bit over the course of your life. There are really two parts to saving which are earn more and spend less.

Spending less is difficult but if you have self-control, then this becomes easier. Spending money prudently and wisely means buying things you need and less of the things you want. On the other hand, you need to have some balance. I am not fan of austere living where you use the same coat for four decades and its full of holes. To me that seems a bit extreme. After you spend on the things that you need you can put the rest aside for an emergency fund followed by investing.

How much can you save? Well, let’s say you are saving 20% of your gross income. This is greater than most people but often low for those pursuing the FIRE concept. If we use the example of when you earn $50,000 per year over 30 years, then 20% of that comes to $10,000 annually. This is roughly $833 per month that you can invest, which is a pretty decent amount. Of course, your salary is probably increasing annually. So, if you control your expenses then the percentage you save can grow.

Investing to Build Wealth

Saving is not enough. This is especially true in the low interest rate environment of today. Sure, in the early-1980’s you could get long-term CDs with interest rates in the low teens. But that was many years ago. Today, to build wealth for you and your family and descendent you generally need to invest in stocks or real estate. Many investors are interested in building generational wealth to pass something on to their heirs. For me this means dividend growth investing, which has many advantages, and index investing for my retirement accounts. I have owned rental properties before but today I focus mostly on stock investing.

Investing is all about time value of money. Invest early, reinvest the dividends, and let it compound over time. In this way, your money works for you to build wealth. If you start young enough you may achieve Coast FIRE, which is where you achieve your FI number early and retire. It’s hard and getting to the first $100,000 is often the most difficult part of your path. If you start investing early enough time is more important than the dollar value that you invest per month or your rate of return. A dollar invested early and permitted to compound over time is worth more than the same dollar invested later in life.

Final Thoughts on This is the Way

In my first millionaire interview, Young Dividend talks about when he first started out his dividend income was only about $10 per month. After a while it became $100 per month and then $1,000 per month. It is now over $2,000 per month and heading higher. His net worth recently crossed the $1 million mark. How did he do this? He kept earning, saving, and investing. This is the way.

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Dividend Increases and Reinstatements

Pfizer (PFE) hiked the dividend 2.6% to $0.39 per share from $0.39 per share. This is the 11^th consecutive annual increase. Pfizer is a Dividend Contender.

Cerner (CERN) raised the dividend 22.2% to $0.22 per share from $0.18 per share.

Abbott Laboratories (ABT) increased the dividend 25% to $0.45 per share from $0.36 per share. This is the 49^thstraight yearly increase. Abbot is Dividend Aristocrat and Dividend Champion. Abbott has paid a dividend since 1924.

Computer Service (CSVI) declared a special dividend of $1.00 per share.

Edison International (EIX) hiked the dividend 3.9% to $0.6625 per share from $0.6375 per share. This is the 16^thstraight increase. Edison is a Dividend Contender.

CME Group (CME) declared an annual variable dividend of $2.50 per share.

Packaging Corporation of America (PKG) raised the dividend 26.6% to $1.00 per share from $0.79 per share. This is the 10^thincrease in a row. PKG is a Dividend Contender.

Amerco (UHAL) declared a special dividend of $2.00 per share.

Argan (AGX) declared a special dividend of $1.00 per share.

Bristol-Myers Squib (BMY) increased the dividend 8.9% to $0.49 per share from $0.45 per share. This is the 14^th year in a row the dividend was increased. BMY is a Dividend Contender.

CoreSite Realty (COR) hiked the dividend 0.8% to $1.23 per share from $1.22 per share. This is the 10^th annual increase in a row. CoreSite is a Dividend Contender.

American Financial Group (AFG) declared a special dividend of $2.00 per share.

Zoetis (ZTS) raised the dividend 25% to $0.25 per share from $0.20 per share. This is the 7^th consecutive annual increase. Zoetis is a Dividend Challenger.

Pentair plc (PNR) increased the dividend 5.3% to $0.20 per share from $0.19 per share. This is the 45^th yearly increase in a row. Pentair is Dividend Aristocrat and Dividend Champion.

Coronavirus Dividend Cuts and Suspensions List

I updated my coronavirus dividend cuts and suspensions list this past Wednesday. The number of companies on the list has risen to 486. We are well over 10% of companies that pay dividends having cut or suspended them since the start of the COVID-19 pandemic. The number of companies on the list continues to rise each week. 

One new company was added to the list in the past week: Crazy Woman Creek Bancorp (CRZY).

I included four companies that I had previously missed. The four companies that I previously missed were Community West Bancshares (CWBC), SandRidge Mississippian Trust I (SDT), Lifetime Brands (LCUT), and First Source (SRCE).

Market Indices

Dow Jones Industrial Averages (DJIA): 30,046 (-0.57%)

NASDAQ: 12,378 (-0.69%)

S&P 500: 3,663 (-0.98%)

Market Valuation

The S&P 500 is trading at a price-to-earnings ratio of 37.1X and the Schiller P/E Ratio is at about 33.5X. These two metrics are down in the past week. Note that the long-term means of these two ratios are 15.8X and 16.7X, respectively. I continue to believe that the market is overvalued at this point. I personally view anything over 30X as overvalued.

S&P 500 PE Ratio

Shiller PE Ratio

Stock Market Volatility – CBOE VIX

The CBOE VIX measuring volatility was up a few points with last week at 23.31 at end of this past week. This is above the long-term average but still a low value. The long-term average is approximately 19 to 20. So, at this point we are just above the long-term average and trending down.

Fear & Greed Index

I also track the Fear & Greed Index. The index is in Extreme Greed at a value of 76 for the third week in a row. However, the index showed some weakening.

There are seven indicators in the index. They are Put and Call Options, Junk Bond Demand, Market Momentum, Market Volatility, Stock Price Strength, Stock Price Breadth, and Safe Haven Demand.

Stock Price Strength is signaling Extreme Greed. The number of stocks hitting 52-week highs compared to those hitting 52-week lows is at the upper end of its range.

Stock Price Breadth is indicating Extreme Greed as the advancing volume is 9.96% more than declining volume on the NYSE.

Put and Call Options are signaling Extreme Greed. Put option volume is lagging call option volume by 63.85%, which is a very low level.

Market Momentum is indicating Extreme Greed. The S&P 500 is 8.35% over its 125-day average. This is on the higher end over the past two years.

Junk Bond Demand is indicating Neutral. Investors are accepting 2.15% yield over investment grade corporate bonds. This is about average over the past two years.

Market Volatility is set at Neutral. The CBOE VIX reading of 23.31 is a neutral reading.

Safe Haven Demand is in Fear. Stocks are still outperforming bonds by 3.49% over the past 20 trading days. But this is close to the weakest outperformance in the past two years indicating that investors are moving away from stocks.

Unemployment Numbers

The number of weekly new unemployment claims were up with last week at 853,000. This is up 137,000 from last week’s revised numbers. After falling below 800,000 for several weeks the new unemployment claims started to trend up three weeks ago. The number went over 800,000 this week suggesting a weakening in the labor market.

For some perspective, one-year ago weekly unemployment claims were only about 237,000. Currently we are 3X – 4X the normal level. The seasonally adjusted insured unemployment rate was 3.8%.

The ten states with the highest unemployment rates were Alaska (6.3), California (6.3), New Mexico (6.1), Nevada (6.0), Hawaii (5.6), Massachusetts (5.1), District of Columbia (5.0), Illinois (5.0), Washington (4.7), and Georgia (4.6). 

Economic News

The Labor Department reported nonfarm productivity increased at a 4.6% annualized rate in the July-September quarter, this followed 10.6% rate of growth in the second quarter. Labor costs fell at a 6.6% rate in the third quarter. The economy expanded at a 33.1% annualized rate in the third quarter, this following a 31.4% pace of contraction in the second quarter. 

The Job Openings and Labor Turnover Survey reported that job openings rose to 6.65 million in October from a revised 6.49 million in September.  Job openings increased in health care and social assistance and state and local government education. Decreases came in the areas of retail trade, accommodation and food services, and finance and insurance.

The U.S. Bureau of Labor Statistics reported the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 % in November on a seasonally adjusted basis after being unchanged in October. The all items index increased 1.2% over the last 12-months before seasonal adjustment. For the month, the index declined 0.1 prior to seasonal adjustment.

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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.

If you want a leading investment research and portfolio management platform with all the fundamental metrics, screens, and analysis tools that you need. Read my Review of Stock Rover. Note that I am an affiliate of Stock Rover.

If you would like notifications as to when my new articles are published, please sign up for my free weekly e-mail. You will receive a free spreadsheet of the Dividend Kings! You will also join thousands of other readers each month!

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