Do you remember your best Monopoly game from the time you were a kid?
I used to love to play Monopoly with my brother and dad. It was so much fun. But, we have grown up and we don’t play Monopoly anymore… The women in my family don’t like that game so we always end up playing Scrabble or some other boring games.
Fortunately, I have found a way to make real money so I can reach early retirement at or before 45 and it kind of reminds me of the best Monopoly game I played when I was a kid.
This strategy is called dividend growth investing. It’s a simple, yet sound strategy of investing my money in the stock market to receive passive income.
Here’s how to do it:
It reminds me of the best Monopoly game I used to play
I was broke when I started the game
When I first started in october 2013, I was in debt (34k$) and had less than 3000$ in savings. And for sure, I had no passive income at all.
Now, without doing anything, I will receive 1000$ per year just to stay put! And this cash will grow at a rate above inflation due to dividend raises. Plus, I have been very aggressive at clearing my debt and I now have approximately 10k$ of debts.
So, with 3000$ in hand in october 2013, I decided to save a little more and in november 2013, I finally bought 200 shares of Jean-Coutu (PJC-a) at 18,49$ per share. Jean-Coutu is a well known Canadian pharmacy. At that time, they had a participation in Rite Aid and they had decided to sell it. With the proceeds, they were to give 0,50$ per share as a special dividend and buy back the quarter of their outstanding shares.
That’s how I first started that dividend growth investing game that reminds me so much of the best Monopoly game I used to play when I was a kid.
My first pick was my best investment
I knew that this would turn out to be a great investment, because Jean-Coutu is a great brand with growing revenue and income, because there are always customers flowing in and out, because they are well established, because they had paid and raised their dividend every year for more than 5 years and because less outstanding share usually means higher price per share ahead (basic supply and demand law).
I wasn’t wrong! My investment was 3698$ plus 10$ in brokerage fees. On december 2nd, 100$ was deposited in my account. It was the special dividend. And then, in february I received my first quarterly dividends of 0,08$ per share or 16$ directly in my brokerage account.
A 17,6% dividend raise!
A little after, the Jean-Coutu board announced that they would raise the dividend again by 17,6% to 0,10$ per share. So, in may, I received 20$!
When was the last time that you received such a raise?
Since then, I received dividends from Jean-Coutu every quarter and do you know how much is worth a share today?
28,21$!!! That’s a 53% gain plus the dividend!!! Now my 200 shares are worth 5642$! I could sell them and cash the profit, but I won’t! I want the cashflow!
Not all my investments are like this one, but that’s how I got hooked!
I then bought shares of Exxon and got a 9,5% raise, Philip Morris, McDonald’s, Wal Mart, Deere, Aflac and so on!! I even bought shares from a REIT paying growing monthly dividends.
Now, every month, a certain amount of money is deposited in my account without me doing anything. I’m getting paid to be an owner, like in that best Monopoly game I used to play!
December 2014 was my greatest month to date. I received 162$ in dividends. That’s money I can spend or that’s money I can reinvest!
Step #1 Don’t spend all your salary
Typically, dividend growth investors save at least 40% of their salary so they can play the best Monopoly game of their life and buy more stocks. This is addictive, trust me! When you see your first check being deposited in your bank account, you feel happy like a kid!
At first, I wasn’t saving a lot. But when I understood the power of this strategy, I found ways to better manage my finance and get money to invest every month.
Step #2 Invest in income generating assets
As a dividend growth investor, I’m only interested in buying shares of high quality companies who have a great competitive advantage and who have the policy of not only paying a dividend but also raising it every year at a rate higher than inflation.
This is one of the best kept secret of Wall Street! Dividend growth is the key!
Lowell Miller, in his book called “The single best investment” summarized it all in one equation :
High quality + High Yield + High Dividend Growth = High Total Return
You can get his book here :
You can find lists of stocks paying growing dividend on my Best resources for dividend growth investors page.
I also suggest that you visit David Fish’s list.
Step #3 Pass Go! Get your dividend!
Like in the best Monopoly game you used to play, every month or every quarter, you’ll pass Go! and get your dividend checks steady as a clock!
You won’t have to do anything except holding your shares. You are now part owner of a public corporation. Employees do all the work for you and you get your part of the cake!
The only work you have to do is to buy shares in the greatest companies out there and wait! Cool huh?!
Step #4 Reinvest the proceeds
When you were playing your best Monopoly game and that someone was hitting your hotel, what was happening?
You were getting paid! Right!?
What were you doing with the money? Were you spending it on Coke and chips? Nope! You were buying other lands, houses and hotels! Why?
To make more money!!!
The same applies here.
In order to reach early retirement and live off my passive income, I will reinvest all my dividends for the 12 next years until I get enough income to fully retire myself from the rat race!!
Step #5 Get a raise!
This is the best part! Not only will I receive dividends, I will also get raises every year at rates higher than inflation.
Not only this will protect my passive income from inflation, but it will also make it grow!
When was the last time your employer gave you such a raise?
Step #6 Pass go again!
Like in your best Monopoly game, once you get the trick, the only thing you have to do is to repeat again and again and again and again…
Playing Monopoly was nice, but playing dividend growth investing is even better because I get real money deposited in my account. That’s money I can spend, that’s money I’ll eventually use to cover my living expenses, that’s money I can reinvest.
I’m slowly building a snowball and this snowball is rolling slowly but surely until I’ll reach retirement!
I am not a professional investor and I won’t fool you. Investing in the stock market is risky. There’s a learning curve and you have to know what to do. Mistakes are expensive.
Like in the best Monopoly game we used to play, a lot can happen!
Recently, I took a 40% loss on one of my holdings because of an “accounting error” that they made. It turned out that the “error” was intentional… The stock took a huge drop and I lost a lot. But since I’m diversified over many stocks, my loss was fully covered by my gains. So I was lucky!
This was a high yielding stock. I bought it with a 8% or 9% dividend paid monthly. I knew that it would be risky by I had decided to bet on it anyway. Stupid me!
That’s a good lesson learned… don’t chase for yield! There are no free lunches in life!
Not all my eggs are in the same basket. I also have a defined benefit pension plan and public pension plans for my retirement so I could afford to “play” that game.
Before taking any important financial decision, take the time to evaluate the risks, improve your skills by learning more and testing, get help from professional investors.
If you want to know more about dividend growth investing, take a look at my getting started page.
Image courtesy of James Barker /FreeDigitalPhotos.net