QUOTE OF THE DAY

"Now I will tell a strange truth, the reason for which I know not.  When I ceased to pay out more than nine-tenths of my earnings, I managed to get along just as well.  I was not shorter than before.  Also, ere long, did coins come to me more easily than before.   Surely it is a law of the Gods that unto him who keepeth and spendeth not a certain part of all his earnings, shall gold come more easily.  Likewise, him whose purse is empty does gold avoid."-- From "The Richest Man in Babylon" by George S. Clason

WEEK IN REVIEW

We ended the week down a bit in the stock market, but the bright side of that, for me anyway, is my order for Chimera doesn't go through until Tuesday, so I'll be getting more shares at a lower price.  Which also means that I'll be earning a higher yield on more shares of stock, so it's making the buy a little less risky. 

Got a little over a 5% raise from work, nothing to get too excited about but it will add to the amount of money I have to invest going forward.  Starting next month I'll be adding the extra cash to my savings and investment accounts, along with the money I'm saving from using more coupons and rebates on purchases.  So that should help boost the balances in my accounts by the end of the year. 

Got some great news yesterday from the attendant where I buy gas for my car.  He told me the price of gas should be dropping by 26 cents a gallon within the next couple of days, so I'm waiting to fill up.  A drop of 26 cents a gallon should save me considerably on fuel costs.  With the money I'll be saving on gas for my car, I should be able to pay the lower electric bills for my apartment.  This time of year, the electric bills are usually a lot less since I've stopped using the heat and haven't yet had to turn on air conditioning.  My current bill is only $25, only 1/4th the $100 that I normally budget for utilities.

IT COULD BE A GREAT YEAR FOR DIVIDEND INVESTORS

2011 could turn out to be a great year for investors in dividend paying stocks.  According to S & P's Howard Silverblatt, the first 4 months of dividend increases in 2011, have already surpassed total dividend increases for 2010.  Altogether, the 500 largest firms on Wall Street have increased dividend payments by nearly $21 billion so far this year, representing a massive increase in the amount of money companies are willing to part with for the benefit of shareholders. 

With the huge increases in dividends and some dividend stocks already showing terrific overall returns, 2011 could turn out to be one of the best years for dividend investors in a very long time!

IN THE NEWS

In the news this week, Ron Paul wants to create competition for the Federal Reserve by allowing U.S. citizens to use gold in place of the dollar.  I've a feeling that won't really catch on anytime soon, but I do agree with his thinking on the Fed's "monopoly" like control of U.S. currency and would like to see a little more restraint on the free wheeling printing of dollars.

Obama invited Bill and Melinda Gates and Warren Buffett to the Oval Office for a meeting to discuss their charitable giving.  Could it be that he's thinking we might all be in need of some charitable support by the time the Democrats are through spending?

Speaking of Warren Buffett, his company Berkshire Hathaway has done a great deal of selling in the past quarter.  There is speculation it is to raise cash for the incoming investment manager at Geico after the retirement of Lou Simpson at the end of this year.  I think it might just be a move to collect capital gains in an up market.

As for my own trading, I pulled out my original investment in Centerpoint energy (CNP:NYSE) and reinvested it in Invesco Mortgage Capital (IVR:NYSE).  My stake in CNP was up over 28%, so I kept the remaining shares and will continue to draw the dividends on those.  At the same time I'll triple the dividend income I was earning on my investment in CNP by putting the money in IVR shares which currently yield 17.77%.  Like Annaly Capital (NLY:NYSE) I do not consider this a long term holding, it's purely a dividend play as long as interest rates are low.  Since a rising interest rate could drastically affect earnings for REITs, I'll be watching this one closely and move to trade out if interest rates should begin to rise.  Not expecting that to happen anytime soon, so I'll collect the dividends in the mean time.

TIME OFF WORK

Took a couple extra days off work this week.  Just needed some down time, so I went to the Isle of Capri casino in Booneville.  Played the slot machines for a couple of hours, lost $50, but I had a good time.  Decided to go to Sedalia for some shopping at Big Lots.  Didn't find anything there, but I did pick up a nice addition to my Egyptian collection, later in the day, at Hobby Lobby.  So it's been a relaxing weekend overall.

Going forward this week we'll be looking at the GDP report and the report on consumer confidence.  Experts aren't expecting much of either report, so any surprise gains could bode well for stocks.  Also, a great deal of money has been moving out of government bonds lately and the money has to go somewhere.  If a decent percentage is reinvested in the market we could see some additional gains.  I'm looking for the big push, one way or the other, to come after the November elections.  However, we could see movement before the elections as investors factor in expected election results.  Just have to wait and see.

Collected some good dividend payments in the past few weeks, including my last payment for this month from Windstream (WIN: NASDAQ).  They have a current dividend yield of 8.03% on their recent share price of $12.45.  However, I would caution that their current earnings may not support continued payment of such a high dividend.  Right now I'm holding on to the stock since I bought in at a lower price and my yield is closer to 10%, but I am watching it very closely.  If earnings do not pick up I may be selling my position and moving the money elsewhere. 

DON'T COUNT ON OBAMA'S 50 BILLION DOLLAR INFRASTRUCTURE SPENDING TO CREATE JOBS

I've said it before and I'll say it again, there will be no meaningful recovery of the economy without new jobs.  But I wouldn't count on Obama's plan to create new jobs by spending 50 billion dollars on infrastructure.   Creating infrastructure jobs will not directly impact the areas of unemployment among the poorly skilled workers,  those hardest hit by high unemployment.  When current and newly employed skilled workers spend their earnings there may be some residual job creation, but in my opinion it's highly unlikely to have any significant impact on unemployment overall. 

When the State of Missouri received federal funding for road improvements in the last round of stimulus spending, the only thing I saw locally was some street resurfacing and a lot of new roundabouts that were not really needed.  Did it create more jobs locally?  Not that I'm aware of.  It appears that all the work was done by persons already employed by city street and state highway departments.  So I guess it did keep those people working and good for them.  But there was no significant increase in employment and I'm sure it will play out much the same on the national level.

So how will this affect the stock market?  We might see some temporary gains because of additional funds being pumped in to the economy, but it's unlikely to last.  Big infrastructure firms and their shareholders are likely to benefit most of all.  We're also likely to see a severe market correction, as taxpayers who are spooked by runaway government spending and the ever increasing threat of massive new tax increases, tighten down even more on discretionary spending. 

If they want to create jobs, why not invest the 50 billion in partnerships with business owners who have proven track records of starting and building businesses and creating new jobs?  It shouldn't be that difficult to identify 50,000 U.S. businessmen with successful track records, loan each of them $1,000,000 to start new businesses on the condition that they hire at least 20 employees.  This would instantly create a million new jobs.  The business man would benefit as the owner of a new business, the government would benefit by having a chance to reclaim the money loaned out from successful business ventures.  While they may lose some from businesses that fail, it's better than infrastructure spending where there is no repayment at all.  Taxpayers would benefit by having jobs and residual jobs created by increased spending from a million newly employed.  Oh and don't forget, the 50 billion dollar spending package on infrastructure was just the amount proposed to get the program started,  so even more taxpayer dollars would be spent on future projects. 

However, with the type of government and business partnerships I'm proposing, if the first 50 billion in partnerships was successful, then the loan repayments could go toward creating new partnerships between government and business leaders, whereby even more jobs could be created, without additional costs to taxpayers.  Of course it will probably never happen, but wouldn't it make more sense?  As for those who would argue the dire need for infrastructure spending, I couldn't agree with you more.  We definitely need infrastructure spending, but the money for infrastructure could and should come from increased tax revenues due to job creation, not the other way around. 

VICTIM OR BENEFICIARY OF FEAR, IT'S YOUR CHOICE

While the U.S. and the rest of the world may be short on jobs, short on available credit and short on signs of economic recovery, one thing they are not short on is fear.  Fear has become a pervasive part of our national consciousness in relation to the stock market and the economic recovery.  Every day brings some bad news or other that activates yet another panic attack among investors. 

The choice we face as investors is whether to become a victim of fear or learn to benefit from it.  Fear almost inevitably causes an overreaction and it has never been more evident than in the wild swings we've seen recently in the stock market.  One thing you have to do, to avoid becoming a victim of fear, is to decide whether your financial plan and your financial goals are still worth pursuing.  If the answer is yes, and your time horizon is 10 or more years, then why would you be panicked by temporary swings in the market?  Yes we are in a historically disastrous economic state at present, but this too shall pass.  Those who had the intestinal fortitude to invest during the height of the great depression and hold on, found themselves the beneficiaries of some of the greatest wealth building portfolios the world has ever seen. 

I believe we are facing just such a situation today.  While the average Americans day to day life is not as bad as the people who suffered throughout the Great Depression, there are still a great deal of similarities.  So, if you find yourself one of the lucky ones who still has a job and still has a little extra money to invest, now may be a golden opportunity to build the portfolio of a lifetime.  When panic takes hold and most investors flee the market, look at that as an opportunity to pick up great company stocks at bargain basement prices.  The resulting investments could generate untold wealth for you and your loved ones for generations to come.  Instead of being victimized by fear, choose to become a beneficiary instead. 

QUOTE OF THE DAY

"In the confrontation between the stream and the rock, the stream always wins--not through strength, but through persistence." -- Buddha

Being persistence will win out when working towards your financial goals.   

BONDS VS DIVIDEND STOCKS

Just finished reading an interesting article about investing in bonds versus dividend stock investing.  It made some great points about the current state of the bond market.  Not the least of which is the fact that with current bond rates at all time lows, the bond market yields have nowhere to go but up.  As yields rise, bond prices move lower, eating away any gain from the coupon.


On the other hand, dividend stocks make quarterly or annual cash payments similar to bond payouts, but also have unlimited potential for capital appreciation.  They satisfy the two main concerns of most investors by giving them cash to help with rent, groceries and other expenses, while increasing in value over time, helping to raise the value of your portfolio in the process.

What I found most interesting about the article was, of the five dividend stocks recommended for stability and long term gains, I already hold positions in four of the corporations.  The remaining was an energy limited partnership which I do not own shares in, but I do still have shares in 3 other energy partnerships, so it all works out in the end.

Investors this year have pulled billions of dollars out of the stock market and poured their hard earned cash in to bonds.  With the uncertainty in the market, this is certainly an understandable response.  But I firmly believe that the only way for most of us to achieve a secure and comfortable retirement, is to invest in individual stocks. 

While you won't get rich over night, diverting a good portion of your investment portfolio toward dividend paying stocks, will go a long way towards building wealth and helping you sleep better at night.  

THE SMALL INVESTOR BY JIM GARD

I've been reading a great book for people who are new to investing. It's not a new book, but it does a great job of covering all the basics of investing in stocks, bonds and mutual funds. It is very well written and easy for anyone to understand. The book is titled, "The Small Investor" and is written by author Jim Gard. I'm reading the second edition which I picked up at a used book store, but I'm sure it's still available through Amazon or Barnes and Noble.

Along with covering all the basics of investing, the book also explains why the small investor actually has an advantage in some ways in the marketplace. It tells you how to work with professionals such as investment counselors, brokers, money managers, and others whose services you may or may not need. It's not a get rich quick scheme, but it can help you make a personal plan that gives you your best shot at a reliable return on your investments, with manageable risks.

I highly recommend the book for beginning investors.

33% RETURN ON MY EMERGENCY FUND

When times are tough, like they have been for the past year or so, you have to look for every way you can to increase your personal earnings. My sister emailed me today with a great offer from one of her banks. For each person she refers to the bank who opens a free checking and savings account, she gets $25 added to her account and the person she refers gets $50 added to their checking and $50 to savings. You have to agree to online banking, but otherwise there are few restrictions to the offer. I decided to take $300 from my emergency cash reserve in my passbook savings and open a checking and savings account with her bank. In addition to the $100 they pay within 3 days of opening the accounts, I'll also receive double the going interest rate on savings for the next 6 months. So I'll actually be making more than a 33% return on my original investment. This is money I keep close at hand that has been earning very little interest. Now I'll be able to make a quick $100 and earn twice the interest on any money I deposit into this account for the next 6 months.

O.K., so maybe you're saying it's only $100, but I'll be doing next to nothing to earn it! If you start thinking of ways to increase your income without increasing the amount of physical labor you personally perform, that's when you truly begin to do what rich people do. When you get good enough at doing what rich people do, you eventually become one of the rich people.

HAPPY INDEPENDENCE DAY!

Wanted to wish everyone a happy Independence Day! In keeping with the theme, part of my celebration included placing an order to purchase more share of General Mills (GIS). While celebrating America's Independence I'm also working toward my goal of financial independence. Stocks are down, but far from out, so I figure now is a good time to pick up additional shares in some quality corporations.

FREE STOCKS!

I mentioned this ploy in a recent post about updates to my stock portfolio, but I thought it would be good to go over it again. Two of the stocks I sold recently had went up considerably since my initial investment. Instead of closing out my entire position in both stocks, I only withdrew the amount of my initial investment. In other words, I took out the entire amount of money I had invested in each stock and kept the remaining shares. Which means I am still a shareholder, still drawing dividends on both stocks, but none of my money is invested in either one. Free stocks!!!

No matter how good or how bad these shares perform in the future, it's nice to know that I'm risking none of my hard earned money. If they keep paying dividends and keep increasing in value, fantastic! If they eventually halt dividends and go completely under, I've lost none of my own money. In the mean time I benefit from any future dividend payments, which I'll take in cash and redeploy elsewhere. What's really exciting to me is that this process can be repeated over and over. I could eventually own several stocks, drawing untold amounts in dividend income, that I have none of my own money tied up in!

I've known about this tactic for quite some time, just never put it into practice until now. While I probably won't make a habit of selling stakes in winning positions, it's good to have one more tool for the wealth building process. It's really true, the more you learn about stocks and investing, the easier it is to make money.

CONFESSIONS OF A BUSINESS NEWS JUNKY

Hi, my name is Bill and I'm a business news junky. I used to zone out for hours in front of a leading cable business news channel. I was addicted and it nearly destroyed my life, or at least my discipline towards investing. I got caught up in "Breaking News" and speculating on how it would affect my investments. It lead to lots of unwarranted anxiety and some bad investment moves.

So what is the lesson here? The lesson is reacting to "news" from financial media outlets is a loser's game. Most likely this information is only "news" to you. If you see something on one of the business news channels or read it on one of the major financial publications, chances are millions of others have read it too, or knew about it even before it hit the news media. It's ridiculous to think that something you read or hear from the financial media gives you a leg up in the information game. More than likely, the stock is already reflecting the information by the time you decide to move on the "news". It's a mistake to get chased out of stocks because of a single news event that the media trumpets as being important. chances are, that news event is some trivial piece of information whose primary value is to fill printed space or air time.

Don't fall in to the trap of becoming a business news junky. Better to avoid overexposure to daily business news and concentrate more on the long term prospects of your investments.

PRICE TO EARNINGS OR RETURN ON EQUITY?

When researching new stocks, a lot of people start with price to earnings valuation to help determine whether or not a stock is a good buy. While this is not necessarily a bad thing and hopefully not the only thing used to determine value, I've found that I come out better by starting with return on equity. While I also review long term debt, earnings per share and yes, price to earnings, I've found that stocks with a good record of ROE usually make good long term investments. I've read that Warren Buffett also considers return on equity as one of the primary considerations with his stock picks, so I think I'm in pretty good company on this one.

Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. It pays to invest in companies that generate profits more efficiently than their rivals. ROE can help investors distinguish between companies that are profit creators and those that are profit burners. Then again, ROE might not tell the whole story about a company, and therefore mus be used carefully. A steadily increasing ROE is a hint that management is giving shareholders more for their money, which is represented by shareholders' equity. Simply put, ROE indicates know how well management is employing the investors' capital invested in the company. Think of ROE as a handy tool for identifying industry leaders. High ROE's can signal unrecognized value potential, so long as you know where the ratio's numbers are coming from.

AS STOCK PRICES FALL, THE YIELD ALSO RISES

As much as I hate to see the balances in my investment accounts drop when stock prices decline, I always try to keep in mind that yields on dividend paying stocks go up as their prices fall. Some say this is only a temporary slow down and the market will take off again soon, while others are predicting another 50% drop in stocks. Either way, it could present level headed dividend investors with great opportunities to pick up bargain priced shares and increase their overall dividend yields.

Say for example you have a $20 stock paying a dividend of $1 per year, that works out to a 5% return on your investment. Not bad really, but if that stock drops in price by 50%, or to $10 per share and still maintains the same $1 dividend, then the dividend yield jumps to 10%! This actually happened to one of my stocks during the last downturn and I was quick to take advantage of the lower stock price to double the number of shares I owned. The greatest thing about that is, now that the share price has returned to near it's former high, I'm still earning a 10% return on the shares I purchased at the lower price, not to mention a sizable unrealized capital gain.

This time around I'm in a lot better position to take advantage of another downturn than I was in 2007 and 2008. While my income is lower, I do have a job with a steady income. My personal debt is nearly all paid off and I've managed to build up a cash surplus. So when opportunities present themselves, I'll be able to move quickly a pick up some terrific deals on solid dividend stocks for both my investment accounts.

For my most recent moves, I'm adding RAI to my regular stock account and JNJ to my IRA account. Reynolds American Inc (RAI) carries a dividend of $3.60 per share which represents a yield of 6.74% on their closing share price of $53.40. Johnson & Johnson (JNJ) currently pays a dividend of $2.16 per share, for a yield of 3.38%. Both companies have more than sufficient earnings to maintain their current dividend payouts and should make great additions to my investment accounts going forward. I'll definitely be looking to add additional shares of both stocks should their share prices drop with the rest of the stock market.

STOCK MARKET DROP, DISASTER OR OPPORTUNITY?

We had a wild ride in the stock market last week, to say the least. While the U.S. government and others try to figure out exactly what caused the big plunge on Thursday, investors are left to wonder whether they should stick with stocks or sell, sell, sell. My personal investments ended the week down by 10%. While I don't like to see lower balances in my investment accounts, I do like to see lower stock prices on some of my favorite dividend stocks. So I'm looking for buying opportunities.

I've put in orders to buy more shares of AFLAC (AFL) and Astrazeneca (AZN) for my IRA account. Also put in an order to buy more shares of AZN for my regular investment account. I currently hold 27 different dividend paying stocks in my regular investment account and am looking to take that back up to 30. Haven't found any new stocks that I'm interested in yet, but when I do, I'll be sure to keep my readers informed.

Got a great dividend payout from CPL the Brazilian utility company! Will probably add to my stake in this great company. I've done very well with them since my initial investment. Also looking forward to the big payout this coming week from my holdings in energy limited partnerships. Haven't decided what to do with the money yet, so I'll leave it in my money market account for the time being.

Had dinner at my favorite Chinese restaurant the other night and my fortune cookie said, "You can look forward to many rich rewards in the coming year." I took it as a sign, I'm looking forward to a prosperous year ahead.

J.P. MORGAN'S STRONG EARNINGS, AT WHAT COST?

J. P. Morgan posted surprisingly strong earnings, beating out most analyst's estimates. However, as a former credit card holder, I would have to question their business tactics, along with several other bank card issuers. I am a former customer because the interest on my credit card accounts soared to astronomical rates, even though my income and credit score remained basically the same. I also had a perfect credit record with both accounts, always paid over the minimum, never went over the limit and never made a late payment. None of this mattered to them apparently. Because when I called to inquire about the rate increase, they basically told me I could accept the increase or cancel my card. I cancelled both cards and will never do business with them again.

In all fairness, they are not the only card issuers to employ these type of tactics and I've eliminated most of my credit card accounts for that very reason. Kudos to Capital One and Juniper for showing some consideration for good customers! They are the only two companies whose credit cards I continue to carry.

So when I say "earnings at what cost", I'd like to point out that while these companies may increase earnings in the short term by gouging customers who are unable to pay off their cards and are forced to pay exorbitant interest rates, in the long term these same companies will hurt future earnings by losing business from some of their better customers. I sure wouldn't rush to invest any of my money in any of these businesses.

PART OF THE WEALTH BUILDING PROCESS

Recently I wrote about wealth building as being simply a process. Basically you first learn to turn your savings into more money and then you simply repeat the process over and over until you are wealthy. I sometimes forget that this type of thinking is lost on most of the people I work with.

I found myself a bit put out recently, when a couple of my co-workers were not as excited about a story I shared with them, about the sale I'd made of some rebuilt computers. One went so far as to comment, "Interesting story, " while rolling her eyes to express her true lack of interest.

O.K., so rebuilding 3 junked computers, and reselling them to double my money is of little interest to anyone but me. Maybe I am a little boring at times. What I didn't convey along with the story is what really excited me about the project. And that is, the fact that I doubled my money doing something I like to do. Although I have no formal training in computers and software, I have always been fascinated with solving programming conflicts and hardware malfunctions. What is even more exciting to me is that I always learn something new each time I repair another computer. This time around I learned how to fabricate a hard drive cage when I was unable to find a replacement part and I also took a computer that showed no signs of life and restored it to perfect working order.

But I guess the real point here is that if I were more concerned with telling a story that would catch and hold someones interest, I should make sure to point out the real reason behind my excitement. The fact that I doubled my money in less than a month is exciting enough, but the real story is that this is money that goes straight to my investment program. So not only did the investment double in one month, but the initial investment and the profit from that investment have been converted to dividend paying stocks. Now I will keep earning money off those 3 computers indefinitely! So what started out as a ho-hum story about making a few bucks, becomes a story about creating a cash machine that keeps churning out income year after year. It's almost like creating something from nothing. I took 3 junk computers, of no use to anyone and turned them back into useful products. The money I earned, plus my initial investment are now hard at work earning me even more money, but with no further physical effort on my part.

It's all part of the process of building wealth. You learn to make money and then you put it to work, so eventually, you don't have to work anymore.

WILL DOW BREAK 11,000?

The Dow ended higher today, but failed to break the 11,000 mark. I think it's more a matter of when the Dow breaks 11,000 than if it will. I'm pretty sure we'll see the Dow break the 11,000 mark and wouldn't be surprised to see it happen as soon as tomorrow. I still think we'll see a drop in the market around the middle of the year (June or July) but it's quite possible that may not happen. We'll have to wait and see.

Got a couple more annual reports in the mail today. I already wrote about my opinion on executive compensation being out of hand. If anyone has any doubts about this being the case, they only need to review their annual reports and consider how much space is taken up detailing executive compensation and how little space in detailing company business.

On a brighter note, the rise in the market has been a nice boost to both my investment accounts. I saw some decent increases in share prices in my portfolios. Especially recently added shares of BPT. While I purchased BPT for their dividend payouts, it's nice to see such a dramatic increase in price in such a short time.

Also happy to report that my earned income is on the rise. My most recent check from my new job is getting a lot closer to my old take home pay. A promotion and subsequent raise in pay helped in that regard. We've also seen an increase in business, which means I've been able to work extra hours as well.

While there is a lot of uncertainty going forward, in regards to recent government legislation and looming tax increases, I'm beginning to feel a bit better about future prospects for my retirement. Just got to roll with the punches.