The Beauty of A Flexible Income Investing Strategy

In February, I wrote an article titled “Why Boardwalk Pipelines Is An Absolute Steal At $13.” That article was uncharacteristic compared to the high-quality dividend stocks I usually discuss because it involved a highly unique set of circumstances coming together. To summarize the obvious: you had a pipeline that had never lowered its distribution since becoming publicly traded in 2005 suddenly slash its distribution by 81%, from $0.535 to $0.10 quarterly. Because most energy MLPs are held for their ability to return large amounts of cash to unitholders, most long-term investors in this MLP had a “WTF Am I Doing With This Albatross In My Portfolio?” moment, cutting the price of the partnership in half within a single day of trading.

At the time I wrote that article, the thesis was more of an approximation than a precision. I couldn’t, and still can’t, articulate a moment in which … Read the rest of this article!

Roth IRAs for Kids: Half-Century of Compounding

According to Fidelity, 61% of children growing up in households with annual income above $250,000 have a Roth IRA. Sometimes, we have conversations in broader society about the privileges and benefits that accompany being born into wealth, but often the discussion only occurs in a general sense without the pin-pointing of specifics. Well, here’s your specific.

We probably live in a world where I would guess a majority of Americans do not understand what an individual retirement account is. I would guess that maybe a quarter of Americans could tell you that the IRA annual contribution limit is $6,000 or $7,000 if you are over the age of 50.

That is not how America’s wealthy operate. They know that they need to get their kid’s a job, even if is something trivial, so that they can meet the income requirements to fully fund the Roth IRA (they know that the … Read the rest of this article!

The Sequoia Fund vs. Conoco Phillips

For those of you that keep up with your stock market history, you know that the Sequoia Fund was the mutual fund that Warren Buffett recommended investors should choose during his transition period between closing down his privately run partnership and gaining control of Berkshire Hathaway. Investors listening to Buffett would have been well-rewarded for following his advice, as the Sequoia Fund is one of the best performing mutual funds of the past half-century.

But one thing I do want to show you is that active management, even when it is well-earned, does carry consequences. For a moment, let’s hop back in the wayback machine and travel to December 31st, 1981, the first day on which I can find publicly accessible trading data for the company that is now Conoco Phillips.

At that time, an investor could have been mulling two decisions: to invest … Read the rest of this article!

Selling Stocks Online (Ugh, A Bad Idea)

Old people and their stock certificates are great because the physical acts required to cash a stock certificate add some friction to the buy-and-sale process that might make an investor more likely to hold onto their stocks rather than sell them as a knee-jerk reaction.

I was reading Vanguard’s recent Whitepaper on how its investors are buying and selling stocks online more than ever before. In particular, I noted the data point that 41% of Vanguard clients had purchased some security that was then sold online within a year of the ownership position in 2018. In comparison, only 8% of investors in 1960 sold a security that they had purchased during the same year. It is not a perfect comparison since the high costs of purchasing stock in 1960 severely limited the pool of potential stock buyers, but the point remains that being able to sell stocks easily online can … Read the rest of this article!

The Rewards of Truly Patient Dividend Investing

I love this chart.


It shows what happens if you had purchased and reinvested dividends in McDonald’s stock over the past two decades. For most of McDonald’s history, the initial dividend yield was terrible. As you can see in this picture, someone who purchased McDonald’s twenty years ago had to settle for an initial dividend yield of 0.9%. Understandably, a lot of income investors don’t get excited by that.

I mean that: it is understandable. If income is your game, you don’t want to set aside $10,000 to receive what amounts to a little over $8 per month in immediate income. That keeps your car washed for the year.

But yet, there is a subset of companies: IBM, Becton Dickinson, Disney, and Visa, to name a few, that automatically get written off by investors because they do not offer a promising initial dividend yield. Their appeal, though, is how fast … Read the rest of this article!