This is a guest contribution from Liquid at Freedom 35 Blog. Liquid is an avid investor in the North American financial markets and blogs about financial independence.
I was fortunate enough to start learning about personal finance in my early twenties as I started my career in 2009. The abrupt transition from making no income in college to earning $35,000 a year from my first real job was a pleasantly surprising change of financial pace. It allowed me to move out from my parent’s basement soon after and marked the beginning of my adulthood and independence. But as Ben Parker once said, “with great power comes great responsibility.” Since income is a form of financial power I knew that if I didn’t manage my money well, it could end up costing me big time. So I read some personal finance books and blogs to educate myself on how to save and invest. What I discovered changed my entire perspective about money forever. I use to believe that money was simply a medium of exchange to facilitate economic activity. That’s what they taught us in high school. But now I realize it’s so much more than that.
I’ve discovered that money can be associated with a lot of different implications such as power, prestige, security, well being, authority, and respect. When I track my net worth and witness its upward acceleration year after year I feel tremendous potential! When I earn money I contemplate new options and possibilities. When I spend money I see the influence I create on the people around me. And when I invest money I’m insuring the security of my future lifestyle in retirement. Almost all aspects of society is influenced by money in one way or another. So I really feel like the more I learn about money, the more I understand how the entire world works!
Out of all the different investment strategies I’ve come across, the most compelling and sustainable one for me has always been dividend growth investing. Dividends come from a company’s earnings, so a consistent pattern of increasing dividends from a stock means the underlying company must have a very competitive business model. Unlike capital appreciation which is just paper money until its realized, dividends paid to shareholders are real, immediate, and readily usable. The empirical evidence that stocks with increasing dividends outperform many that don’t lead me to the conclusion that I had to make dividend growth stocks the primary driver of my retirement plan.
Since I started to invest in dividend growth stocks in 2009 I have been able to increase my dividend income each year. I purchased an investment property in 2013 for rental income to diversify my income stream, but I still perceive dividends as my main source of income going into retirement. My medium term goal is to make $22,000 in gross annual passive income in the year 2020.
To better understand the tangible benefits of dividend growth investing I often like to think about my dividend income as a subsidy for my living expenses. To demonstrate this point, we can use a hypothetical example with AT&T Inc. (NYSE:T) which is a large telecommunications company in the U.S. Many people use AT&T as their cell phone provider.
AT&T was in the portfolios of 48 of the hedge funds tracked by Insider Monkey as of December 31, down from 60 at the end of September. Their collective holdings amounted to $3.10 billion at the end of 2015, down from $3.76 billion on September 30. During the current 13F filing period we’re seeing a small push back into AT&T, with eight funds having so far reported taking new positions in the stock during the first quarter, while five have reported closing a position. Paul Marshall and Ian Wace’s Marshall Wace LLP was one of the funds to take a position in AT&T during the quarter, amounting to 98,596 shares on March 31. The examination of AT&T as a phone bill-paying dividend stock continues on the next page.