I’m a real dividend growth investor and I will share all my thoughts about the best dividend paying stocks with you. I also read several blogs from other interesting persons with inspiring new ideas about dividend investing. One person, Dividend Mantra, has done a great job in telling others how he works and lives and what to do to boost your private wealth.
Dividend Mantra has also a tough aim: He wants to retire at the age of 40 and tries to live off dividends, debt-free. As of now, he has created a passive income portfolio with around 36 stock holdings and he has only 9 years to achieve this aim. The total value of his freedom fund has risen to a value of around $117,000 as of July 01, 2013 and should result in a $3,500 dividend income over the full year. Dividend Mantra is employed and has a full-time annual salary of around $50,000. He plans to save around 60% of his net income and invests them into stock investments.
Today, I would like to interview this guy who fights for his aims very hard. I really like his work and think you can also benefit from his thoughts and philosophy.
Tom: At the age of 21, you had debt of around $60,000, mostly reasonable to your student loans. What was the main reason for your mind-changing idea to retire at the age of 40 and to give-up a lot of comfort in your life to pay off debt and hike your wealth? What are your main forces to fight for this aim?
Dividend Mantra: Well, actually I peaked with about $26,000 in total debt at the age of 27, which is just about the time I started this journey to fix my finances and hopefully achieve financial independence and early retirement. This debt was almost completely student loan debt. What really blew my mind around this time was that with about $7,000 in total cash to my name I was worth NEGATIVE $19,000. That meant that I was actually worth more as a baby ($0) that couldn't talk or walk than I was as a young man that had 27 years on this planet to earn a living and learn from his mistakes. Obviously, I had not done well here. So this really opened my eyes and made me realize that I had to change my situation. At that point I started to dramatically cut expenses so that I could live below my means and have a surplus of money left over at the end of every month. I knew that in order to reverse my fortunes and put myself in a better situation financially, I had to start saving gobs of money. And since I was somewhat limited on the income side as I work in an industry that doesn't typically pay large six-figure salaries, I knew that the expense side of the equation had to be minimized. This is where I started to learn how to budget and where I really figured out what matters to me: time. I learned that after cutting expenses my happiness started to actually increase because I suddenly felt in control of my situation. Many people equate happiness with spending money. I equate happiness with freedom.
Tom: Your current portfolio has a lot of high-quality dividend paying companies like PepsiCo, Intel, McDonalds or Johnson & Johnson. What are your most important criteria for a stock buy and how many stocks do you like to own at the age of 40?
Dividend Mantra: What I look for in a company is quality. I want to know if this is a company that I can have a reasonably believe will be around in 40 years. Every company that I purchase a stake in I hope to own for the rest of my life. I focus on companies that have large economic "moats". And by that I mean that a company has competitive advantages to protect the "castle", or the business. These advantages usually involve economies of scale, geographical diversification and presence, supply chains, logistics, brand names, high switching costs, R&D, advertising and the like. I really like companies that have a lengthy history of rising profits because of the pricing power they enjoy and then passing on a portion of those rising profits via rising dividends. Of course quality is not to be purchased at any price. I also look at valuation before I buy. I aim to purchase high quality assets for an attractive valuation, meaning less than fair value. If I can buy $1 for $0.90 or less I'll gladly do so, especially if that $1 is expected to compound itself at a robust rate over time. I could write a book about this subject to be honest, but for the sake of brevity that sums up some of my feelings regarding stock purchases. On the topic of holdings, I'd like to own somewhere around 50 individual stock ownership positions by the time I'm 40. I feel this level of diversification will mitigate the chance of income loss via dividend cuts.
Tom: Dividends have a huge impact in your asset growth strategy because you plan to reinvest your income from your investments. 10 Years from now, what do you believe, how big your dividend income can grow to live off dividends if you safe additional $1,000 per month and invest them into dividend stocks?
Dividend Mantra: I am anticipating at least $17,500 in annual dividend income by the time I'm 40. I aim to be conservative in all of my assumptions, so this is probably less than what I'll actually be receiving. With a portfolio size of $500,000 an a portfolio yield of 3.5%, $17,500 would be the annual dividend payout. This level of income is actually a bit more than I spend on an annual basis right now, and I may very well spend less than this once I'm no longer working as there are some costs that are idiosyncratic to working. In addition, I try to invest much more than $1,000 per month. My typical investment habits are on the order of $2,000-$3,000 per month. This type of excess capital is available to me because I live frugally and aim to save about 60% of my net income. So even on a middle class salary, it's possible to invest thousands of dollars per month and become financially independent at a fairly young age, relative to the general population.
Tom: If you have achieved your goal of a financial freedom at the age of 40, what will you do after this time? We all wish that you have additional 40 years or more of fun in your life. Do you plan to quit your job and double your income over the next decade?
Dividend Mantra: There are many, many activities I want to engage in once I'm financially independent. First, I'd like to write even more than I do. Blogging has been something that has become quite a passion of mine, and inspiring others is truly rewarding in ways I can't quite put into words. Having even more time to inspire people is something I quite look forward to. Also, I'm very excited to be able to spend more time with loved ones. Although it seems like that would be easy now, it's actually not with 50+ hours of my waking time spent at work, sleep, my blog, exercise and also trying to fit in some relaxation time. With unlimited free time I'd have more available energy to devote to those I care most about. Physical fitness is something I have a passion for, and it's tough to find time to workout as much as I'd like with my full schedule, so staying healthy is something I also hope to have more time for one day. Travel is also in the mix, but not in the way that many people do - by spending 1-2 weeks a year at a 5-star resort where they serve you luxurious food and cater your every whim. Rather, I'd be much more interested in slow travel where I actually live in a country for a year or more and really immerse myself in the local culture. This way of travel is much cheaper because airfare is spread out over many more months and typically you're living like locals which involves much cheaper accommodations. I'm really a simple man with simple tastes, and I'm easily entertained. Just having more time to sit and read would be very nice to be quite honest. Lastly, I'd like to investigate philanthropy when the time is right.
Thank you very much for your time and thoughts about your inspiring story. We wish you all the best to achieve your goal and will follow your life story.