Readers of my April fools post chuckled at my spending addiction, where I mentioned how the tax man was preventing me from investing in stocks for almost two months. I recently opened an IRA, and allocated the funds equally in the following six dividend stocks:
Chevron (NYSE:CVX), through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. The company has raised dividends for 25 years in a row, and has a ten year dividend growth rate of 9.60% per year. Currently, this dividend achiever trades at 9 times earnings at yields 3%. Check my analysis of Chevron.
Philip Morris (NYSE:PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products. The company has raised dividends for 4 years in a row. Currently, the stock trades at 18.60 times earnings at yields 3.60%. Check my analysis of Philip Morris.
Johnson & Johnson (NYSE:JNJ), together with its subsidiaries, engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company has raised dividends for 50 years in a row, and has a ten year dividend growth rate of 11.70% per year. Currently, this dividend champion trades at 16.90 times earnings at yields 3%. Check my analysis of Johnson & Johnson.
McDonald’s (NYSE:MCD) franchises and operates McDonald’s restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. The company has raised dividends for 36 years in a row, and has a ten year dividend growth rate of 28.40% per year. Currently, this dividend champion trades at 19.30 times earnings at yields 3%. Check my analysis of McDonald’s .
Kinder Morgan (NYSE:KMI) owns and operates energy transportation and storage assets in the United States and Canada. The company has raised dividends ever since it went public in 2011, yields 3.80% and is projecting to grow them by over 10% per year for the foreseeable future. Check my analysis of Kinder Morgan.
Vodafone (NYSE:VOD) provides mobile telecommunication services worldwide. The company has raised dividends since 1989. Since 2002, the annual dividend in British Pounds has increased from 1.47 pence per share to 9.52 pence per share in 2012. Currently, this international dividend achiever yields around 5%.
The reason why I purchased these companies is because they were attractively valued at the moment, provided decent entry yields and the opportunity for growth in earnings and dividends going forward.
By making this IRA contribution, I was able to reduce my tax due by more than half. The amount I put in that IRA produced an instant tax savings that was equivalent to over one third of its value in taxes. This also made me review my paychecks closer, and I noticed that I pay in taxes an amount that could easily cover 60% of my expenses.
This was the tipping point that made me think about reducing tax expenses, in order to accumulate as much funds in my name, both in taxable and tax-deferred brokerage accounts. Most people do not even realize the amount of taxes they pay each year, because they are automatically withdrawn from their paychecks.
Long-term readers might have sensed the fact that I am a big fan of early retirement. According to my 2013 goals, I discussed how I would be able to retire in five to six years. As a result, I have always discussed that I keep most of my investable assets in taxable brokerage accounts. It made sense for me to only put the bare minimum in tax-deferred accounts such as 401 (k) only to get the company sponsored match.
Since 2009, I have consistently ended up owing money to the government come April 15. What I realized over the past year is that the taxes I end up paying do not provide a specific benefit to myself. These taxes help pay for roads, defense, education and public services, but the payment of them was costing me a lot of money. Just looking at my paychecks I recently realized that I need to make a change. As a result, I am going to contribute the maximum I can in 401 (k) plans and IRA’s, in order to reduce my taxable income. Any tax savings from deferring my spending will be directly realizable to moi, although there are a few obstacles to that.