We are living in interesting times and for many, quite taxing times. As I explained in our January 10th blog, every generation has its share of upheaval. The only constant appears to be human nature and we do not learn from history. When Rome was burning, the average person had no idea; they were busy living day-to-day, working to feed and take care of their families.
During these challenging times, it behooves everyone to strive for financial independence, which can be accomplished in 10-to-15 years using the miracle of compound interest. With over 45-years working as a Certified Public Accountant, helping folks start and run businesses, protect their assets, plan for retirement, and pass their estates to their children, grandchildren, and favorite charities, I have seen what works and what does not. Today, the typical investment advice received from brokers, money managers, and the financial planning community writ large, has not changed since I began my career on January 2, 1976. Moreover, much of the curriculum to become a Certified Financial Planner continues to be prepared and highly influenced by the Insurance Industry and Wall Street. In other words, the two major industries that design and sell investment products are training financial planners to sell their products! Furthermore, the Insurance Industry and Wall Street are audit, tax, and consulting clients of the largest CPA Firms. Surely, I can’t be the only one that sees this blatant conflict of interest!
Forget the propaganda: You should NOT invest to create wealth, to diversify, and to minimize risk. In fact, if you purchase an asset that does not provide you with an ongoing and increasing cash flow, you are NOT investing, you are speculating, i.e., you are hoping that someone will come along later, paying you more than you paid for the same asset, also known as “the greater fool theory.” Sometimes it works and sometimes it doesn’t, using this strategy — the greater fool theory — 10-to-15 years goes by quickly and most people will have nothing to show for it.
Albert Einstein was purportedly asked to name the greatest invention in human history; he simply replied, “compound interest.” According to Einstein, “compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn’t... pays it.” The only proven, passive way to take advantage of Einstein’s Law of Compound Interest is to invest in DRIPs — great businesses that have a history of paying and raising dividends each, and every year, through recessions, depressions, war, and stock market crashes — leading to financial independence for life.
Here is how the miracle of compound interest works: If you put $10,000 in a DRIP yielding 5% and the company grows its dividend 10% each year, so that in year number two, you’re earning 5.5%, in year three, you earn 6.05% and so on, you’ll be sitting on well over $5 million at the end of 30 years. And this does not consider any growth in share price! In our January 10th blog, Microsoft Corp (MSFT) share price increased 3.6 times its original cost, when we first recommended it, in just six years.
According to Finance Professors Rubin and Spaht: “For those investors who adopt ten and fifteen year horizons, the dividend investment strategy will lead to financial independence for life. Regardless of the direction of the market, a constant and growing dividend is a never-ending income stream.” At Jeffersonian Group, we are here to help you achieve your goal of financial independence, buy a DRIP a week or every other week or at least monthly. Just get started NOW!
On January 10, 2023, we recommended Medtronic PLC (MDT) at a price/cost of $77.72, with a dividend yield of 3.43%. As of this writing, it is still a strong buy at $87.10, yielding 3.05%. Several readers stated that they had accounts with Charles Schwab and were not able to automatically reinvest the dividends. Schwab does not allow reinvestment with foreign companies. During the Obama Administration, MDT, along with several other U.S. companies, moved their headquarters to Ireland to save taxes. I have always used E*TRADE from Morgan Stanley because they allow automatic reinvestment of dividends of foreign companies listed on U.S. exchanges, whereas Charles Schwab does not.
After you have considered MDT, which is highly recommended (see January 10th blog), the DRIP to focus on for this week is AbbVie Inc. (ABBV); the current price/cost is $145.20 yielding 4.09%. ABBV was created in January 2013 as a spin-off from Abbot Laboratories (ABT), which had paid dividends for over 45-years. ABBV has continued to pay and raise its dividend since spin-off for the past 11 years. During the past five years, ABBV has generated an average annual increase in its dividend of 17.31%. Although technically a Contender, ABBV has “garnered honorary status” as a Dividend King by several commentators.
Remember, you are buying an increasing income stream. Any drop in share price during your reinvestment period (10-to-15 years) is to YOUR benefit, i.e., you end up buying more shares, with your reinvested dividends, at less cost generating a faster growing income stream.
DRIP... DRIP... DRIP... All the way to financial freedom! Control your OWN future . . . Start investing for cash flow today! Before you know it, financial independence will be at your doorstep.
Dum Spiro Spero—While I breathe, I hope.
Slainte mhath,
Robert G. Beard Jr., C.P.A., C.G.M.A., J.D., LL.M.