Dear DTA,
My goal is to survive retirement. But if you are a realist, you’ll know we all end up in the same place at the end of retirement. It would just be nice to be able to pay the bills along the way.
-Lou F.
Hey, Lou.
Thanks so much for writing in. Your readership is appreciated, as is your realism.
With that practicality and pragmatism in mind, I’m going to share some valuable information that I think will serve you and your goal well.
I have essentially the same goal as you.
However, my “retirement” is decades long.
I’ll explain how that works.
I figured, like you, we’re all going to end up in the same place, so it makes sense to enjoy the ride as much as possible.
And I can’t enjoy that ride when I’m spending most of my waking hours at a day job that isn’t best aligned with my values, happiness, and purpose.
So I decided to circumvent the traditional dynamic where people rely on a paycheck to pay their bills.
The plan I came up with was to live below my means and invest my excess capital into high-quality dividend growth stocks.
Most of the dividend growth stocks I’ve targeted for long-term investment can be found on David Fish’s Dividend Champions, Contenders, and Challengers list.
I realized that if I could cover my bills with passive investment income, I wouldn’t need a job anymore.
Well, the plan worked.
I quit my day job at 32.
And I became financially independent at 33 years old.
Maybe the craziest part of it is that I started this whole thing off completely broke in my late 20s.
It’s a journey I explore and recount in my Early Retirement Blueprint – a guide that can help almost anyone retire early.
My financial independence is underpinned by the five-figure and growing dividend income my FIRE Fund – a real-life and real-money dividend growth stock portfolio – generates on my behalf.
That portfolio is chock-full of wonderful businesses.
The likes of Johnson & Johnson (JNJ), McDonald’s Corporation (MCD), and Apple Inc. (AAPL) can be found in my personal portfolio.
See, the world requires certain products and/or services.
Medicine, food, and technology are all ubiquitous for good reason.
It’s hard to live without this stuff.
So why not profit from that?
Indeed, these companies are so prolific at generating profit, they end up with more money than they can reasonably use. And so they share a good chunk of that profit with their shareholders.
That’s the dividends. And as their profit grows, so do the dividend payments.
And boy, do those dividends grow.
Johnson & Johnson, for example has been increasing its dividend to shareholders for over 55 consecutive years.
That kind of track record doesn’t happen by accident.
High-quality dividend growth stocks typically have both the wherewithal for and commitment to growing dividend income.
That plays right into being able to pay the bills through a long, happy, and successful retirement.
Look, nothing in life is guaranteed.
But it’s unlikely that wonderful businesses like these are going to fail.
The necessity, enjoyment, and global consumption of their products and/or services practically ensures that. If anything, all of that adds up to ever-growing profit (which should mean ever-growing dividend income).
I’m betting my decades-long retirement on that.
You say you want to be able to pay your bills.
Well, a dividend dollar spends just like any other dollar.
Actually, it spends even better.
Dividends are typically taxed at a lower rate than a job dollar. And it’s far easier to collect a dollar from a stock than a job.
I don’t have to do anything to collect my dividends. No clock for punching in. No boss. No phone number to call. No email to check.
There’s no ongoing effort whatsoever to collecting dividend income.
It just doesn’t get much better than that.
Of course, it’s a bit more complicated than just saving up a few bucks and randomly buying stocks off of Mr. Fish’s CCC list.
You should be doing your due diligence before you invest. Looking at fundamentals, competitive advantages, and risks is part of being an intelligent investor.
And perhaps just as important, you also want to make sure you ha
ve a firm grasp on valuation and how that will impact your investment both over the short term and long term.
Fortunately, we’ve got you covered on both points, Lou.
Fellow contributor Dave Van Knapp penned a great educational series on dividend growth investing, which can educate both novice and experienced investors alike on how the strategy works, why it’s so great, and how to successfully implement it.
That series can be explored via his Dividend Growth Investing Lessons.
And then if/when you find yourself ready to put some capital to work, I personally take the time each Sunday to highlight a compelling long-term investment idea for dividend growth investors.
These are high-quality dividend growth stocks that appear to be undervalued (priced less than intrinsic value) at the time of publication.
Those ideas are shared with the community at large through the Undervalued Dividend Growth Stock of the Week series.
This response your email is designed to be a quick primer on what can work, because growing dividends have worked for many investors for many, many decades.
But it would behoove you to look through the resources linked. These are free resources that can greatly aid you in achieving your goal.
There’s nothing stopping you, Lou.
So get started today.
I wish you luck and success.
Jason Fieber
Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.
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