Typical definition of a dividend aristocrat is a company which has
increased dividends for 25 consecutive years in the nominal terms. We have
inflation every year and if a company continues to perform in the same way, it
should be able to raise dividends in line with the inflation, making it a dividend aristocrat. This is not the case and there are only 62 out of S&P500.
Is it worth investing in dividends aristocrats’ stocks?
Lets have a look for investing $10,000 in dividend aristocrats vs. S&P500 in 2010 until now. I selected a random sample of 15 out of 62 companies. Companies highlighted with red under performing S&P500 fund (all dividends are re-invested in both cases):
I used to focus on cash engines in the past. Just looking at the dividends is not a guarantee of high return. For example, if I invested in ExxonMobil, my nest egg would be lagging S&P500 quite a lot, while missing diversification. “3M Company” is highlighted with red, because it’s just marginally higher S&P500 and such performance does not justify the investment in the single stock.
Perhaps, a portfolio can be created of dividend aristocrats and the ones that have beaten S&P500 over 10-20 years period. This assumes that you can have an account with low fees, as additional 2-3% drag will kill all the advantages.
Over the past 63 years, the S&P 500’s composition has changed dramatically. In 2007, the index’s 50th anniversary, S&P published a list of the 86 companies that remained from the original line-up. That number has steadily declined, and today, only about 60 original members remain.
As original members have dwindled, so has the average tenure of companies in the index. In 1964, the average index tenure of an S&P 500 company was 33 years. As of 2020, tenure shrank to 20 years.
I will certainly think about it. Your views and opinions are very welcome.
I am always on a look to read personal financial blogs. There are a few of them out there. Too many rushing to monetize, consist mainly of referrals, ending up having more advertising than the Super Bowl. The others keep publishing very general information. This make them very boring read to me.
As I am doing my budgeting for the past 10 years. When I read personal finance blogs I can easily tell when expenses or investments are made up (fake). You can see that they are unrealistic, not consistent with stock market movement, incomplete. When I come across an interesting and active blog, which I would read I added to by Blogroll. There is no reciprocity, I use the blogroll as my favorites for financial blogging. Here is an additional source of Early Retirement Blogs.
About 15 years ago financial blogs were new, easily gaining large number of readers. I was re-reading a blog of SmartMoney and one of the prominent bloggers who argued, that using Ben Graham's Formula, Discounted Cash Flow and Capital Asset Pricing Model Amazon shares were significantly overvalued at $33. At the time the personal blogger had about $28K invested. If he bought 850 Amazon shares, his nest egg would be over $2 million today without an additional investment.
About same time I was presented with my first ipod classic. It was the time when Apple devices were still gay and for the first time, I felt what usability looks like. There was no need to explain anything. Something told me that I should invest in this company but I didn’t. If I listened to myself there would be no need to work for money now. I had enough money to buy 10,000 shares at those prices, which is over $3 million today.
How you had hunches which you ignored and later regret?
I have been on the road for financial independence (FI) from 2008, with some tangible steps taken since 2011.
How long will it take me to reach it?
I would like to make some assumptions first:
Assumption one. Our house is not an equity. Counting home equity is only good if you don't plan on living there in retirement.
We are making a lot of irrational decisions by renovating the house to our liking. Significant amount will go in in the next two years’ time (approximately $100,000).
Assumption two. I am planning to invest $2,000 a month. This is after taxes. I assume that this amount will increase in line with the inflation.
Assumption three. I am able to achieve 3% return after the inflation on my investment.
Assumption four. In fifteen years’ time the kids will be out of the house and the mortgage paid. This should lead to annual expenses of $50,000.
Key milestones to achieve Financial Independence:
At four percent withdrawal rate I should be able to get $50K a year. There some potential opportunities but pitfalls too. Let’s see what the journey will bring ahead.
My father retired when he was seventy years old. He actually kept coming to work for free for almost a month, after retirement. This was to make sure that his successor transitioned into the role well. I maybe have a job in my late sixties to do too by keeping my skills up to date. However, I see a lot of people in their early fifties are given a boot at every major crisis.
