Financial Independence fulfilled by Dividend Growth Investor
“I cannot decide between being a blogger and an accountant. To me they are the same, sort of complementary things. I have modeled my blogging and stock analysis based on what I have done at work, in terms of data gathering, analyzing information, presenting etc. I like talking to smart people online with the blog, and offline in my job.” – Dividend Growth Investor.
Although FIRE (Financial Independent, Retire Early) has a nice ring to it I’ve never really considered myself a FIRE-blogger and to be honest, I really don’t care to be.
I think striving for financial independence (the FI part) is much better and more beneficial in many ways.
Running this blog, I’ve had the good fortune to interact with a number of other investors, bloggers, and entrepreneurs.
I profiled Dividend Growth Investor (DGI) last year, as a follow-up to his initial dreams to be financially independent years before.
With 2020 now in turmoil triggered by the COVID-19 pandemic, I thought it would be good to catch-up with this popular U.S. blogger to see how things have changed since the last article and what’s keeping him up at night (if anything) when it comes to sustaining his financial independence.
Welcome back to the site DGI.
Thanks Mark, it was nice to connect with you again.
The last time you and I talked, you told me you reached your Crossover Point. I have that quote below. Back then, you were rooting per se for a stock market decline. Wow, you got your wish!!
“Well, I hit my crossover point in late 2017/2018. In doing so though, I realized that I enjoy working, and I realized that I enjoy the process of building wealth by making regular investments. I do not like the idea of withdrawing money for living expenses. A job also provides with the ability to contribute regular savings to investments, and root for a stock market decline.”
Has the market changed things for you?
Are you FI (Financially Independent) still or FI working on own terms (FIWOOT)?
I am financially independent Mark – I have been on this path for about 11 – 12 years. The investment income from my portfolio covers my basic expenses (using a 3% rule; using 3% dividend yield on average or for indexing folks using a modification of the 4% rule. I use 3% instead).
(Mark – I don’t think investors should solely rely on a 4% rule either – it doesn’t make much sense).
While financially independent, we both continue to work, and may continue doing so. Flexibility is important to us more than anything else.
For your readers, like you are working towards Mark, I have always strived to be financially independent because I do not want to be in a position to be reliant on a single source for my income. I have worked a lot of hours and late nights with previous employers, and I have been laid off before. To me, FI is about having the financial resources to help me through difficult times, so I do not stress too much.
For many people, these stressful times are now.
I’ve also valued the ability to say “no” to an employer who demands considerable overtime, and move to another position that may not look as prestigious or highly paid, but offers more stability and flexibility.
Lastly, I also want to have some financial security in a world where employers seem to have the upper hand, and in a world where employee loyalty is not really appreciated. Things move fast, and the cushy position you may have today may be gone when a merger comes or your boss leaves. That’s why I view financial independence as my hedge in case something goes wrong financially.
Let’s get to your portfolio. Last time we chatted you owned a number of stocks.
Your “taxable holdings include well-known companies such as Johnson & Johnson, PepsiCo, Altria, etc.” You also had “holdings in a few non-U.S. companies, such as the largest 5 Canadian banks”.
How many stocks do you own now? Further, why dividend stocks at all?
I love dividend growth stocks for many reasons.
I see a growing dividend as an outcome of a business that is successful and generates more income than it knows what to do with. Similar to a frugal individual, a company that is good at capital allocation will generate more money than it knows what to do with. Only a few select companies I am aware of have been able to reinvest all of their profits at high rates of return for decades. Usually, companies with long histories of annual dividend increases tend to grow even with a low amount of reinvestment, mostly due to high returns on invested capital. Many of these companies have strong brands, strong competitive advantages and are leaders in their fields. This allows them to grow earnings and pay growing dividends over time. I believe a rising dividend over time is a by-product of this business success.
I own over 100 individual dividend paying stocks. My goal is to be as equal weighted as possible, but the nature of long-term investing is such that some companies do really well, which pushes them into an overweight position. I have learned that my favorite dividend paying stocks today may not be the best dividend growth stocks over the next 20 years. Also, I have found that some companies that I bought without thinking they were the best end up doing much better than I would have ever predicted. That’s why I try not to state that I have a favorite company. I just buy what I can find every month, using my quantitative screen and applying some qualitative (subjective) criterion.
The companies I may like today may not be a good value 5 years from now if they move up in price, or if something fundamentally changes with them. A lot of the companies I own have been covered extensively on my site.
100 stocks? That’s a bundle. Most people would simply not want to own that many individual stocks. So, this brings me to a question about dividend ETFs. I know you’ve covered this subject a few times on your site.
I’ve also covered it on mine:
Top dividend ETFs to earn cash for life.
Dividend growth investing can be made easy owning some of these low-cost dividend ETFs.
Do you own any ETFs and if so, which ones and why?
I do Mark. I own a mutual fund that holds the S&P 500 and a mutual fund on an international-based index in my 401 (k). (Note: 401 (k) is similar to RRSP in Canada; this is a tax-deferred account.)
I am placing a higher emphasis on tax-advantaged accounts, which is why I focus on putting as much as I can in a 401 (k) in my employers’ plan. These are limited to index funds (and some high fee funds too). I view owning the S&P 500 index like a diversified dividend growth stock. In fact, the S&P 500 has raised dividends for 10 years in a row, making it a dividend achiever. This makes index investors closet dividend growth investors!
I disagree that you need to own 3,000 companies for diversification. You can get the same level of diversification with 30 – 60 companies.
In reality, dividend growth investing and indexing are not that different.
(Mark – I believe passive and active investing via dividend paying stocks can live in harmony.)
Both groups of investors buy and hold diversified portfolios of securities, and they try to have low turnover and low costs. The reality is that no one can predict the best performing investment over the next decade. But we can predict that if we keep costs low, and we do not trade too much, we will keep a larger portion of our investment earnings. We can also predict that if you find a strategy that works for your personality, you should stick to it and follow it by putting money in it.
If you are disciplined as an investor and stick to your strategy, you will find success. It doesn’t matter if you invest in dividend stocks, index funds, real estate or even growth stocks. In fact, a high savings rate in the accumulation phase can have a higher impact on your ability to reach your long-term goals than having Warren Buffett style returns.
- If you were ever able to save $4,000 per month earning reasonable 7% annualized returns, it only takes 12 years to become a millionaire. Should you be the next Warren Buffett and you generate 17% returns per year, and save the same $4,000/month, you will become a millionaire in just 9 years.
- If you manage to save a more realistic $1,000 per month but earn an incredible 20% per year, you will become a millionaire in 15 years.
I guess the point of my exercise is a high savings rate will be key to your success in your asset accumulation phase.
The former market bull run was just insane and this COVID-19 pandemic is mind boggling. Has either changed the way you invest?
No. I can’t stress this enough: it is about time in the market and not timing the market.
My research indicates that it is better to invest money when you have it. That way you can take advantage of the full power of compounding. It makes intuitive sense that if you are a dividend investor, the sooner you buy a stock, the sooner you will be eligible to receive dividends from it, right?
Here is my post about dollar cost averaging versus lump sum investing.
I believe if investors get into the habit of investing when they have the money, over time their portfolio will grow considerably due to a combination of many factors:
- Dividend yield
- Growth in earnings per share
- Change in valuation (including buying more shares when markets correct), and
- Reinvested dividends.
So if you buy a stock that grows earnings, and you reinvest those dividends, you will make some money and you will see all-time highs in net worth. It is just how math works. There will be long gut-wrenching bear markets, and economic problems like this one. But, over time, I believe equities are the very best place to be.
You put this on Twitter last summer:
Last question: whether you continue to work or not to supplement your finances what advice does this accountant have for others?
Mark, I would encourage anyone who wants to become FI or FIWOOT as you put it, to identify their goals, and gather as much knowledge as they can in order to identify the best investment strategy that is a good fit for them. The process of acquiring wealth is a simple mathematical formula with a few variables, some within and some outside your control.
I have found that the only major levers within your control are your savings rate, investing in something you understand, your time, and keeping your costs low to minimize and commissions.
If investors can get that stuff right, they will be financially successful.
Thank you for asking me those questions. Let’s talk again in a few more years 😉
Thanks to Dividend Growth Investor for sharing his successful approach to investing.
You can follow his site here and follow his frequent updates on Twitter here.
First time reading this interview and definitely enjoyed it.
Needless to say, I agree on basically everything. The important thing is having a strategy, putting cash aside along the way for investing, reinvest those divs, and let compounding do the heavy lifting.
Thanks Ryan. DGI certainly had a plan and continues to execute well on it.
It is a really good thing when people make their passion and their job the same thing. It allows them to be more involved in their job as they like the work that they have been doing.
Well said. I think that’s the key if you can – find something you love and if you are compensated well for it – even better 🙂
I liked the post, very interesting and well written, I really needed to know about the financial Independence. Very nice 🙂
Now is a difficult time, and I hope that there will be no loss! I love passive income investment because it has got more advantages compared to disadvantages. Dividends are cool.
Dividends are very cool as long as they are paid 🙂
All the best,
I’ve been reading DGI faithfully for at least 10 years. His posts are always rational and well thought out and never strays into fads. His advice on never buying commodity or airline “dividend” stocks is right on- those are certain dividend cuts the moment things go sour
Yes, a bright guy and solid writer. He deserves all the success via the blog he gets 🙂
BTW – enjoyed the all-weather-portfolio thoughts on your site. Will highlight in my next Weekend Reading.
All the best Geoff and thanks for being a supporter of this site.
Thank you for reading Geoff! I am glad you found it helpful!
Hello this was a good interview. I have a similar plan where I want to build wealth with dividend stocks, index funds, and real estate. If you can buy cheap and reap the next bull run it will only benefit you with great net worth. Staying consistent is the hardest part, but if you find margin and automatically invest, I think you can achieve some good success.
Yes, I believe DGI has done very well for himself via a combination of a good job, steady investing and blog income. He has been and remains very disciplined with his money. A big key.
Mark is being humble here – have you seen his chart of dividend income going up and up and up? It is very impressive, and it is just one part of his asset mix too!
I have blogged for 12 years, and I have seen how unreliable blog income is. It is mostly a fun activity that can make some money, but it has been my salary and savings rate that has helped me get ahead. I earn some, but I believe my ability to have low costs and save a high portion of salary to be higher contributors to my financial well-being than anything else. Combined with the ability to have my own strategy, stick to it, and improve over time.
But RUE and Mark’s points is very important here, so I will reiterate it – if you invest regularly and consistently stick to that plan for a period of time, you have a large odds of success stacked in your favor. It doesn’t matter if you invest in dividend stocks, index funds, real estate, even government bonds or GICs. Slow and steady, consistency, low cost and turnover, diversification and patience will help definitely.
Thanks Dgi and Mark, good read as always. While reading it occurred to me that some jobs can be carried into retirement easier then others. An accountant can take in a few clients and continue working from home, while a brick layer can’t. And some, enjoy non paying past times and accept the de-accumulation of savings. For me, 4% is working fine. Great advice, find money to invest early, buy good dividend paying companies, hold, diversify. Most important, Do It Yourself.
Accounting, yes. Financial planning, yes. Lawyer, yes. A few other jobs come to mind as well.
I hope to work as long as I am able but I think in the coming decade (50s) I could see lots of part-time work for me. That is the goal anyhow.
DGI has done well, using some simple advice but putting into action.
All the best Paul, hope all is well.
That is a very good point. I used to work with someone who worked well into their mid 70s, despite having social security, a company pension or two ( they didn’t need to work from a financial perspective). They just enjoyed the social aspect of work, which is something many are all missing in this Covid-19 WFH environment. It would be more difficult to work in a retail store if you are in your 70s.
There is also some logical aspect and some level of critical thinking, and looking at data and supporting information to confirm/deny an opinion. I am more skeptical as a result.
Some accounting positions are very high pressure and high stress however, so you have to be selective. They require working nights and weekends, and leave little for work-life-balance. So you need to find the right job.
But financial independence is a way of hedging things against those risks. It is also important as a hedge in case you cannot find a job.
I personally enjoy diversity of things. I like to spend some time working, some time doing my own thing, and some time doing other things. I would hate if I was just doing investing, or just working. I need variety!
Thank you for your input!
Hey guys. Long time follower of DGI here (10+ years?). Actually one of my inspirations to become a dividend blogger. And one of my early reads when I was building out my dividend stock portfolio. Didn’t know you’re an accountant, FI, and continue to work like me/us. And like/agree with the opening quote. Hmmm. We must be brothers in another universe! Tom
Great stuff Tom. Been a big fan of DGI for many years myself and happy to see the success of his site and more importantly his financial independence goal.
All the best!
Thank you for the kind words Tom. Accounting is a pretty good skill in an investor’s toolkit, isn’t it? I am also a CPA, and I have enjoyed playing with numbers for quite some time. Good luck on your investing journey!
Thank you for the opportunity to be interviewed Mark. It would be interesting to see where we are in 5 – 10 years from now.
Thanks again DGI. I hope you continue to enjoy and have fun with your blog in the coming years. I will follow.