In my post related to my 2014 goals and objectives, I shared with readers my roadmap to financial independence by 2018. Currently, the goal is to have more than two-thirds of expenses to be covered by dividends. I believe that a 100% coverage of expenses by dividends by 2018 is very doable, as long as existing companies I own manage to raise dividends by 6%-7% per year on average and I manage to reinvest distributions at 3%-4%. As I had mentioned earlier, most of my contributions are now going into tax-deferred accounts, in order to create a tax-free buffer for the excess dividend income I will be generating.
The road to financial independence is very exciting and liberating. I find it really liberating to check every quarter how much of my expenses is being covered by my dividend income. Ever since I converted to Dividend Growth Investing in late 2007 and early 2008, my dividend income has been increasing exponentially. This is a result of my plan to retire early.
So for the past seven or so years, I have been focusing on several levers within my control, in order to achieve financial independence. The levers include saving a lot, finding ways to earn extra money, investing my hard-earned money in the best values at the moment, and focusing my attention on researching companies and continuously increasing my knowledge about investing matters. The most difficult part of the journey, however, is the job situation, which has resulted in increased levels of stress for the past several years. The pay has been decent, but the increase in level of responsibilities has exceeded the level of income growth by a large factor. It is very difficult to keep producing and keeping up to those high expectations and stress, when you are also so close to the finish line. The problem is that the finish line is about five years down the road. I find it difficult to endure the daily grind that leads to the dividend crossover point. I do not believe that it is healthy to sit in a cubicle for 60 hours on a slow week while getting stressed out over impossible deadlines.
This means I still need to keep motivated enough, and work harder, before getting to the promised land. I find it tough to keep up with the daily grind, which is why I try to motivate myself to perform, because the daily grind is a major source of capital for my financial independence.
I motivate myself by consistently trying to save a large portion every month, in order to put it to work, and have the asset base to generate more dividends.
I motivate myself by searching for quality companies at bargain prices, and researching their business models in order to determine whether they can be sustainable engines of dividend growth for the foreseeable future.
I motivate myself by charting my dividend income over time, and visualizing the point in time when expenses will be more than covered by dividends by a nice factor of 1.3 to 1.5.
The types of dividend growth stocks that will pay for my retirement, provide me with consistent raises include:
- Philip Morris (PM) makes cigarettes and other tobacco products. The company has managed to increase dividends for 6 years in a row and currently sells for 17.10 times forward earnings and yields 4.30%. Check my analysis of PMI.
- PepsiCo (PEP) is a global food and beverage company. This dividend champion has managed to increase dividends for 42 years in a row, and over the past decade has managed to boost them by 13.70%/year. Currently PEP stock is trading at 19.40 times forward earning and yields 3%. Check my analysis of PepsiCo.
- Exxon Mobil (XOM) explores and produces for crude oil and natural gas. This dividend champion has managed to increase dividends for 32 years in a row and has managed to boost them by 9.60% a year over the past decade. Currently XOM stock is trading at 13 times forward earning and yields 2.70%. Check my analysis of Exxon Mobil.
- Johnson & Johnson (JNJ) researches, develops and sells various products in the healthcare field worldwide. This dividend champion has managed to increase dividends for 52 years in a row, and over the past decade has managed to boost them by 10.80% a year. Currently JNJ stock is trading at 17.30 times forward earning and yields 2.80%. Check my analysis of Johnson & Johnson.
- General Mills (GIS) makes branded consumer foods in the United States and internationally. This dividend achiever has managed to increase dividends for 11 years in a row, and over the past decade has managed to boost them by 9.90% a year. Currently GIS stock is trading at 19.10 times forward earning and yields 3%. Check my analysis of General Mills.
Reaching your goals takes time, which is the one commodity we can never buy back. On the bright side, of course, once you reach the point of your goals, you will only have to deal with the rest of life’s challenges.
So how do you stay motivated on your road to financial independence?
Long PM, PEP, XOM, JNJ, GIS