This is a guest post by Buy, Hold Long. Buy, Hold Long is a blog where smaller and sometimes unusual dividend growth companies are analyzed. His blog was created in late 2016 and shares insights into different investing methods and the story of the author’s net worth over time. Check out Buy, Hold Long and say G’day!

Dividend Definitions

There are a number of publicly listed companies provide what is known as a dividend– a cash payment for being a shareholder of the company. Shares of a company can be bought and sold in different markets. Many people will focus on the appreciation of equities over time, but not today. Rather, we will focus on the dividends paid per year.

Many large companies past the growth stage will pay a dividend. They pay dividends because they don’t necessarily want to put their cash to work in new markets or products and would rather increase shareholder value.

When a company decides to pay a dividend at a certain time, they will nominate how much the dividend will be and when the payment will occur. The holders of these shares will receive that dividend in either a cash payment or in more shares, through a Dividend Reinvestment Plan (commonly known as DRP or DRIP). Most dividends are pay out on a quarterly basis.

Essentially, if you own shares in a company and the company issues dividends, you will receive a portion of profit from the company in the form of cash payments.

Now on to the analysis of dividend yield and dividend growth to determine which is best for long term investing.

Dividend Yield

Dividend yield can be considered as a stocks dividend payment divided by the stocks price. For example, if a company has a current stock price of $100 and pays you a yearly dividend of $2.25 per share, then the dividend yield is 2.25%. Note, dividend yield is a annual rate. As mentioned above, most dividends are paid out quarterly, so care will have to be taken when going from quarterly to annual. This is a simple calculation.  Below is the formula to use to calculate dividend yield:

Let’s do a real life example.  I want to analyze McDonald’s Corp Stock (MCD) to get their dividend yield. We know their last dividend payment per stock owned was $0.94 per quarter. To get the annual dividend payment, multiply $0.94 by 4. The current stock price as of today (March 27th, 2017) is $129.34.

Therefore, our calculation would be:

McDonald’s stock as pays us back 2.907% per year just for owning this stock. One thing that should be noted is that both the stock price and dividend can fluctuate. Not all companies increase their dividends and not all stock prices will go up.

Dividend Pop Quiz

Let’s take a pop quiz, the share price of McDonald’s falls to $115 per share from the current $129.34 per share, but the company decides to keep the current dividend of $0.94 per quarter per share. Does your dividend yield go up or down?

That’s right, it increases. As the price goes down and the dividend payment remains or increases, your yield goes up.

Comparing Companies

The next natural question is what is a good dividend yield? Is 2.907% good or bad for dividend yield? Let’s look at another company to compare. We already looked at McDonald’s (MCD); now let’s analyze Mattel Inc (MAT). Both are well known, respected companies in their field that pay dividends.
McDonald’s, as we have discovered, pay out a dividend yield of 2.907% per share owned. Currently, Mattel pays a dividend of $0.38 per quarter per share and their current share price is $25.16. Uusing the formula from above, we get a dividend yield currently of 6.04%.

So in reality, you would be getting double the cash payments from Mattel through dividends than you would be getting back from McDonald’s, right? While that statement is fundamentally true, the logic is flawed.

It’s important take into consideration dividend growth and the possibilities that they can create in themselves. Also, just because the company is paying a higher dividend, this doesn’t necessarily mean they are more financially sound than companies paying a lower dividend. The money could be borrowed, from a previous year’s cash holding or a company effort to attract more investors.

Let’s dive into dividend growth and see how it affects the analysis.

Dividend Growth

Dividend growth is the concept of a stock that pays a dividend that will continue to grow over time. When a company increases their dividend over time, with dividend growth, it increases your original dividend yield.

Let’s go back to the two companies we looked at earlier, McDonald’s (MCD) and Mattel (MAT). I’ve plotted the annual dividend payments over the past 17 years to show the dividend growth. The blue columns are MCD dividends and the red columns are MAT dividends.

In the year 2000, Mattel had a higher dividend payment and yield than that of McDonald’s. In 2003, the two companies had the same dividend payment. Now, we must remember that the prices of the two companies are vastly different, so while Mattel’s dividend was the same as McDonald’s dividend, Mattel’s yield was a lot higher as the price was lower.

As you can see, over time, Mattel’s dividend has fluctuated drastically.  This volatility leads to uncertainty for the shareholder. To add to that point, if you bought the stock in 2000 at a great dividend paying year, you would have been severely disappointed in the following couple years. Mattel cut their dividend in 2001 and 2002!

McDonald’s has continued to grow for many years since the 2000’s. Currently, the dividend yield might be a little low compared to other companies, but it’s growing each and every year.

What if You Had Bought in 2000?

Consider the following: what would your dividend yield today be if you bought in 2000? As I stated, if you bought MCD today you would have a 2.907% dividend yield and if you bought MAT today, you would have a 6.04% dividend yield.

Back to the question, if you bought in 2000, your dividend yield would be 28.5% dividend yield for MCD and only a 11.20% dividend yield for MAT. The conclusion is obvious, dividend growth is a powerful tool to harness in your investment portfolio!

Conclusion

As you can see from this analysis, dividend growth beats dividend yield when you are looking to invest for many years. I am a buy and hold for a very long time type of investor – this style fits my personality greatly.

Even if a stock has a relatively low yield, if there is potential for dividend growth, the potential will outweigh the temporary low yield. This is why so many investors favor low dividend yields with high growth over a volatile high yield with low growth.

Thanks for writing Buy, Hold Long! Buy, Hold Long is a blog where smaller and sometimes unusual dividend growth companies are analyzed. His blog was created in late 2016 and shares insights into different investing methods and the story of the author’s net worth over time. Check out Buy, Hold Long and say G’day!

A few of us took some interest in the freelancing site Fiverr this week without having a plan down to use it and after my previous post of cold calling and Whitelisting arbitrage. In this post, I we’re going to go down to its most minimal actionable level. Brace yourselves, because this entire post is spoon-feeding you exactly what you need to to make passive income via Fiverr Service Arbitrage -a fancy phrase to mean paying someone else to work for you over a cheap freelancer website.

I made a lot of mistakes in Fiverr, whitelisting, outsourcing, and purchasing freelancing work. You’ll learn from my mistakes so you can save a year long struggle of getting things right.

This post is split into four parts, each with their own segment. I ask that if you’ve gotten value from this post to say so below in the comments.

0. SCOPE OF THE WORK & REQUIREMENTS

Fiverr Service Arbitrage can be done can be completely hands off. Depending on your experience on WordPress and your hustle, it does not matter what your level of expertise is for this website builder. Depending on your skill set, you will be outsourcing work to developers for web design services which is completely scale-able. You can assemble a team of people who will spend a few hours to complete their part and profit the rest.

At the end of the day, you will be able to create a website with the core pages a basic site needs as you hand off the website to your client. Given everything you do is based off the work of an individual on Fiverr, charging $250 for the design will net you $200 in profit. If you offer a five-page website, the cost and revenue breakdown is as follows:

• Spend $5 a week for local Craigslist ads in an effort to get a payment of $250 to start the project.
• Next, you’ll spend 2-4 hours with the client collecting all the needed details for the site.
• You will earn $65 off a BlueHost affiliate purchase when you tell your client to purchase a domain and hosting via BlueHost.
• To Install WordPress, you can either use EasyEngine.io to rapidly start using it OR pay someone $20 to install WordPress and a good looking premium theme (2 hours of their time or 5 minutes via installing via EasyEngine.io)
• For $30, you pay someone to fill out the rest of the core pages that you negotiated for the basic website:
  • A home page
  • An about us page
  • A contact us page
  • A product/service page
  • A privacy policy page
    • Any additional pages you can up-sell for $50 per page while charging $5 or $10 for a 1k word article on a website.

At this point, you will have your client’s website completed and will have paid $50 in labor. At this point you deliver the website back to the client. Once you deliver, you need to be front and center explaining what the website has. At this point, the client is eager to get started. Explanation might take an hour and an hour of ‘support’ such as answering questions such as, “What’s my password again?” and “Where’s the Admin Page?”

That is the scope and high level summary of what the rest of the post will touch on. Now, on to the details!

1. COPYWRITING AND CRAIGSLIST

Copywriting is the art of marketing aimed towards creating a sale through the written word. It is also a numbers game. I welcome you to post this SAME ad and see where that gets you – you can also purchase a virtual assistant who can post twice every day to your Craigslist account but you will find the same level of success by offering this to your friends and family off Facebook.

Contact EVERY single person, and show them this ad. You could press urgency and say that you’re looking to get a client this week; otherwise, at the end of the week,  you would bump it up to $500. I’ve had cases where someone was told that, beat around the bush, and paid an extra $250 as a “hesitation tax”.

Get a SEO Optimized Website made for $250 right here in Minneapolis!

2. CONNECTING WITH THE CLIENT

Now, let’s say you actually got someone interested. It’s time to get them to agree to give you $250 of their hard earned money. This is a question-based methodology that helps cement your position as someone who can genuinely help them.

Here’s how the story goes. You get a trickle of inquiries once or twice a day if you’re really good or one a week if you’re only posting ads.

For each one you follow the following mindset: you establish yourself as a salesman and an expert before offering your solution and price. First, you need to establish credibility. To show you know the market, ask them STATUS questions where it’s a one word answer to qualify them and understand where they’re at.

Status Questions

Uncover Their Issues

After you ask those, they know that you have some level of competency. The next step is to build rapport while uncovering ISSUES. These are longer form questions where you want them to talk a bit more.

We have a guest post today from Troy who runs a hedge fund in Austraila and blogs about his historical market research.

Everyone talks about the importance of budgeting and cutting down on expenses with regards to getting wealthy. If you think of your life as a business, adhering to a strict budget is akin to rigorous cost control. While it’s important to not wasting money on non-essentials, I believe that we should try to maximize the “revenue” side of our life instead of minimizing the cost side.

Theoretically speaking, you can only cut the costs side down to $0, while you can increase the revenues side infinitely.

As you work, save, and invest over the years, your investment income from real estate or stocks will perhaps one day become greater than your income from your full time job.

That being said, what if you aren’t healthy enough to enjoy your investment income!

I want to share with you an aspect of investing many people don’t talk about: physical and mental health. Investing is ultimately a game of decision making. Your health will impact your decision making capabilities. For example, someone who has poor health will probably become easily frustrated in his/her life. This will result in poor decision making skills when things turn sour.

Instead of making a rational decision about whether to sell an asset when the market turns down, the individual might make an irrational decision based on his/her emotions instead. Living a healthy lifestyle via healthy dining and abundant exercise provides many benefits to investors.

Benefits of Being Healthy

A healthy body is a temple for a healthy mind. Scientific studies show that exercise trains your mind to think quicker and analyze situations in more detail. It also improves your memory – you don’t need to waste time on finding studies/research that you’ve done in the past.

Eating delicious, nutritious food makes you happier by releasing hormones called endorphins. People who are happier are also more optimistic in life. Since the stock market goes up more than it goes down, you need to have an optimistic bullish bias if you are to succeed in the stock market. Perma-pessimists inevitably get killed in stocks.

In addition, investing is a long term game. Warren Buffett said you have to treat your body as if it were the only car you have in your lifetime. You need to change the oil frequently, take it to the repair shop, and run it every once in a while (or else the engine will die).

People who live healthier lifestyles live longer than those who don’t. You can just imagine the final difference in wealth between someone who dies at 65 and someone who dies at 85. The person who dies at 85 benefits from an additional 20 years of compounding!

Investing isn’t all about money. The purpose of money is so that you can have a good quality of life. Healthy living isn’t only beneficial for your investment decision skills, it also leads to a markedly improved quality of life.

My Healthy Lifestyle

My lifestyle revolves around 4 tenets.

1. Eat vegetables/fruits and foods that are high in protein.
2. Exercise regularly.
3. Take a lot of mini-vacations.
4. Wake up early and sleep early.

I recognize that not everyone can follow my lifestyle. Being young and single, I don’t have many of the constraints that other adults have.

I believe in spending modestly but not too modestly. This means I don’t tighten my belt too strictly when it comes to groceries. Although the monetary benefits of having a tight budget are obvious, there is no way to be “cheap” in when trying to live a balanced life and to eat healthy.

Start in the Kitchen

My diet is high on vegetables and protein while low on carbs. In addition, I prefer organic, natural, and low salt foods. I stay away from frozen foods. While a diet rich in carbs such as pasta/bread is definitely cheaper, I don’t eat many carbs because they aren’t the best for me. Here in Sydney, a loaf of wholewheat bread is $3 while a single head of lettuce is $3.50 (Sydney is ridiculously expensive)!

By eating healthy foods I feel better, have more energy, and think more clearly. Sugar-rich foods may provide the body with an immediate boost in energy, but that energy drops precipitously after a few hours. Meanwhile, vegetables and fruits cause energy levels to rise and remain elevated for many hours, after which it declines rather slowly. It is important for an investor to stay sharp at all times.

I find I’m always hungry when I’m investing and working. This is a common problem that many hedge fund managers, traders, and professional investors have (that’s why so many hedge fund managers are overweight).

Eating too many sugary foods or carbs makes you feel bloated and slightly dizzy, thereby worsening your investment decision making skills. That’s why I’ll usually eat fruits while I’m working. Eating while working acts as a good semi-distraction and relieves stress.

While I spend a lot more on groceries than most people, my expenditures are far from extravagant. I cut down on the non-essentials in life to save more money. I don’t eat out (which for a person of my appetite can become ridiculously expensive!)

Another frugal thing I do is I still use an old phone instead of keeping up to date with every iPhone refresh! It’s all a matter of spending the same amount of money but improving your quality of life.

Working Out

In addition, I work out a lot. I lift weights for 50 minutes and run on a treadmill for 20 minutes 5 times a week in my home gym. Science shows that consistent exercise improves your memory and quickens your decision making skills. It also improves your ability to think rationally.

You’ll probably make poor investment decisions after you’ve had a tough day at the office. Working out is a great way to release stress because your body produces more feel-good hormones called endorphins.

Mini-Vacations

I go on a lot of mini-vacations. It doesn’t have to be a big multi-week trip that includes 10+ hour flights (flying to anywhere from Australia takes forever). It might just be a day trip to a remote beach. Getting out in the world has 2 main benefits for investors.

1. It broadens your view of the world! I have gained so much knowledge that aids my investing. For example, I’ve learned a lot about the economies of different states in the U.S. and different countries just by talking to taxi drivers.
2. It does miracles to your body. A vacation is a nice break from everyday life. Certain investments decisions are hard to make because there are too many factors to consider. When I come back from vacation, my thinking becomes a lot more focused. Thus I can more easily strip away the factors that don’t matter and focus on the factors that are important to the particular investment.

Early to bed, Early to Rise!

I wake up early and sleep early (I understand this is hard for adults with kids). Certain studies show that the body starts to regenerate after 9 pm and stops regenerating by 5-6am. However, this regeneration occurs at a much faster rate if you’re sleeping during this time. That’s why I usually sleep from 9:30 pm – 5 am.

“Early to bed, early to rise, makes a man healthy, wealthy, and wise!” – Benjamin Franklin

Conclusion

If you are looking to maximize your returns in the stock market, it might be best to supplement your market research with some gym time and time in the kitchen!

Start trying to get to bed a little earlier and you will reap the benefits!

Troy is an investor who shares his thoughts on stocks, commodities and currencies on the web.

“Would you like to save 5% today by applying for the Target Red Card?”

I’ve been to Target 114 times in the past 2 years and every time I got to the cash register, the cashier said, “Would you like to save 5% today by applying for the Target Red Card?” I always said, “No, not today.” What a big doh I had when I actually realized I was wasting money… a total of $161.87.

Like I said, I’ve been to Target 114 times in the past 2 years, and spent $3,237.36 on those transactions. Each and every time, I was leaving at least 5% on the table. When you hear 5%, you don’t think it’s much. However, when compared to other credit cards, 5% is an insanely good reward for spending money. My main credit card only gives me 1% cash back on all purchases (So, really, I cost myself $129.49).

There are two takeaways from this experience that I want to bring to light: number one, when a person is young, a person should try to build credit as responsibly as possible. By building credit at a young age, that person will be more attractive to borrowers in the future and will be able to take on more debt to finance a company or get a better interest rate on a home in the future. Number two, the amount of savings over a lifetime taking advantages of programs like these can have on a person.

Building Credit

Building credit is huge in today’s world. If a person wants to start a business, invest in real estate, or buy things on credit in the future, they will need to convince a lender to do so. How do we build credit? Simple: open up different lines of credit, be it credit cards, loans (for cars, education, houses, boats, home improvements, etc), lines of credit, and pay them off (by making timely payments). It’s that simple! (Make sure to pay it off on time though!)

Improving my Credit Score

Credit scoring companies recommend having more than 12 open accounts at a given time to obtain a favorable score. While this has a low impact on your score, it is still something lenders will consider. I only have 3 currently, which is one of the reasons I finally applied for the Target Credit Card.

In addition to opening another account, my utilization will decrease. Credit scoring companies recommend keeping utilization under 30% if possible. I usually never have to worry about being utilized more than 30%, but there are times when it creeps up to 50% if I’m doing a project or an unexpected expense needs to be paid.

For number two, my lifetime savings will increase by a few thousand dollars. As mentioned above, in 2 years, I spent $3,237.36 at Target and would have saved at least $161.87 through their rewards program. Let’s extrapolate that over 5 years, 10 years, and 30 years.

A savings of almost $5,000!?!? That’s not even considering any investing I could do with these savings over those 30 years!

Conclusion

To sum up, I was stupid for the past two years and missed out on $161.87. Going forward, I will be able to save 5% at Target and as time goes on, this will help me in my pursuit of financial freedom.

What other rewards cards should I be taking advantage of? Home Depot and possibly Costco are next on my list.

Erik

Currently, I am reading Money Master the Game by Tony Robbins and it is a fantastic book(I’m excited to keep reading and be able to provide you with a book review in the coming days). In chapter 4, he is discussing asset allocation and interviews many top money managers.

One of the money managers Tony interviews in MONEY is Ray Dalio, Chairman and Chief Investment Officer of Bridgewater Associates, a hedge fund which has $160 billion in assets under management. Bridgewater Associates has two main funds, the Pure Alpha fund and the All Weather fund, both of which have made investors very happy over the past 25 years (so happy that Bridgewater had to stop taking on new clients as they became too big).

Ray Dalio

Ray Dalio is becoming a role model of mine. He is constantly asking himself, “What don’t I know, and what should I do about it?”and looking to find the answers. Ray Dalio put together a presentation on the economy: How the Economic Machine Works, and it was very beneficial for my understanding of, well, how the economy works. I want to share it with you; I have attached the YouTube video later down in the post. First, a picture of Tony Robbins and some key points and takeaways.

Main Points from the Video

Some key points and takeaways to watch out for in the video:

• There are three things that drive the economic machine:
  • Productivity Growth
  • The Short-Term Debt Cycle
  • The Long-Term Debt Cycle
• A market is all buyers and sellers of a certain market
• The economy is the sum of all transactions in all markets
• The central bank of a government control credit.
  • The central bank can modify interest rates and print money.
  • Credit is the most important part of the economy.
• The cycle of economic growth is as follows:
  • Income -> Borrowing -> Spending -> Productivity -> Income
• Productivity matters most in the long term
• Credit matters most in the short term
• Short-term credit cycles last 5-8 years, while long-term credit cycles last 75-100 years
• Anytime you borrow, you create a cycle
• Spending drives pricing,
  • If spending increases and prices rise, inflation occurs and the central bank can step in raise interest rates.
  • If spending decreases and prices fall, deflation occurs and the central bank can lower interest rates or print money.
• Debt burden is very important to be aware of when assessing the health of an economy.
  • If debt burden is high, individuals or corporations will have to divert income to debt repayment which will result in less spending, which will result in less income for others, which will result in less wealth, which will result in less credit, which will lead to less income, and so on and so forth.
    • If prices decrease and deflation occurs as a result, this is what is commonly referred to as a “depression”.
• After a “depression” starts, deleveraging occurs, i.e. debt burden reduction.
  • There are a few ways to accomplish this:
    • Cut Spending – this will lead to less income and possibly bring on deflation
    • Reduce Debt – through defaults or restructuring, will possibly bring on deflation
    • Redistribute Wealth – leads to less growth and stability, will possibly bring on deflation.
    • Print Money – Use new money to buy assets, this will only help those who hold assets and will possibly bring on inflation.
• It is a central bank’s job to balance deflation and inflation.
  • Spending is what matters most in inflation
• 3 Rules of Thumb
  • Don’t have debt rise faster than income
    • Debt will crush you
  • Don’t have income rise faster than productivity
    • You will become less competitive
  • Do all you can to raise productivity
    • Productivity is what matters most in the long run

How the Economic Machine Works

For more information, visit www.economicprinciples.org.

Did this increase your understanding of the economy? Are videos like these helpful to your understanding of things in general, or how do you prefer to learn?

Erik