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PPC Ian

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Dividend Investing For Beginners (My Complete Guide)

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My dividend investing YouTube Channel, PPC Ian, is now 29,000 dividend investors strong! With so many new subscribers and so many videos (198 on the topic of dividend investing spanning a staggering 69 hours and 30 minutes), I have received the same request over and over: "Ian, where do I start? Ian, where can a beginner go?" Of course, one route is to just sit down and watch all 198 videos for 69:29:59 straight, although that is probably not practical for most people! Today’s blog post provides an alternate route for those just getting started, it’s my quick guide to get you up to speed!

Today’s blog post is my "get started here" guide for anyone new to my YouTube channel or dividend investing in general. I hope you find this guide helpful. If you do, the greatest way you can thank me is by heading over to the PPC Ian YouTube channel and subscribing! Let’s get started!

What Are These Dividends?

Dividend Investing Beginner's GuideI’m going to start at a philosophical level. Dividends are, in my opinion, the answer to the everyday person’s problems. I’m talking about feelings of stress, financial worry, and even a lack of "greater purpose" in life. I’m serious. Dividends are a life-changing force that bring a smile to my face each and every day. Dividends are the financial stability that allows us to all breathe a bit more, enjoy life a bit more, and be a little bit less tied to typical "job" income (progressively more so over time). More than that, dividends can bring a great sense of purpose to life.

Technically speaking, dividends are payments that stock shareholders (owners) receive for owning a shares of particular company. Let’s take an example: I own stock in McDonald’s (MCD). It’s my number three favorite dividend stock of all time (check out This YouTube video on MCD to learn more). Each quarter, McDonald’s pays me, as a shareholder, $1.16 for each share I own in the form of a cash dividend. Why do they do this? When you buy stock, you become a shareholder. When you are a shareholder, you are a part owner in a corporation. Dividend companies choose to take a portion of their profits, paying it back to shareholders.

Makes sense, right? After all, what’s the purpose of a company? Ultimately, it’s twofold: 1) Fulfill a greater purpose out there (in the case of McDonald’s, they feed billions) and 2) generate profits for the owners. When you’re a shareholder, you are an owner. Great companies, like McDonald’s, give their owners what they deserve: their cut of the profits. (Going to the philosophical level again, when you buy your first share of stock, you are no longer part of the employee class. You get to graduate to the owner class. Being an owner is the way to go in terms of getting the most out of life, in my humble opinion.)

Why Invest For Dividends?

What if I told you that you can earn money while you sleep? Think about it: Right now, you have to get up early, go to work, and earn money through blood, sweat, and tears to pay for everyday expenses like your cup of Starbucks (SBUX) coffee. What if I told you that some of your expenses (or even all of your expenses) can be completely covered without job income? What if I told you that you can sleep in, go for a long run, and then pursue your hobbies, and still pay for that cup of coffee? That’s what dividends are all about.

When you start investing for dividends, you slowly but surely build up a stream of passive income (dividend income). This is to be contrasted with earned income (job income). Earned income is great, and without earned income it’s impossible to have investment capital for dividend stocks. Also, I truly believe that we are all here to fulfill a purpose. So, I’m not saying that work is bad (I work incredibly hard each and every day). In the modern world, however, work can be bad because so many people are forced to work beyond the laws of time and physics. (Side note: Once all of your expenses are covered by dividends, you are then free to choose any "work" you like including pursuing your hobbies full time. Dividends create true choice in life.)

As I get older, especially now that I have a wife and two amazing children, I realize that time is so limited. I only have so many hours I can work a job. My job income is limited by time. However, if I take some of my job income and invest it in dividend stocks, those dividends turn into a stream of passive income! They work while I sleep, providing passive income. Other than the energy spent to earn my investment capital (through active/job income) and the energy to research and find great dividend stocks, dividends are completely passive (require no/little ongoing effort from me). They just come in, and I can then use them to pay bills.

In the early days those dividends will be small and may only pay for a Starbucks coffee here and there. However, one day, the dividend snowball will become so large that it can pay for ALL living expenses. That’s my personal and ambitious goal, especially living here in the expensive SF Bay Area. You can learn all about my Financial Independence Retire Early goals in This YouTube Video About FIRE.

Dividend Companies Vs. Growth Companies

There is a lot of misinformation out there about dividend companies. A lot of folks believe that it’s an "either/or" proposition when it comes to dividends and growth. A lot of people out there say that dividend companies do not grow. Meaning: You get some cool cash flow via dividend checks, but you sacrifice growth. The same people say that you must buy true growth stocks like Facebook (FB), those that do not pay dividends, to experience growth.

While it is true that some of those pure play tech companies that lack a dividend are growing very quickly, I am here to argue that dividend companies also provide growth: Growth in their revenues, growth in their share prices, and growth in their dividends too (we’ll get more to this later)!

It’s truly NOT an "either/or" proposition. Let’s look at my number one favorite stock of all time, Johnson & Johnson (JNJ), as an example. (By the way, make sure to check out This YouTube Video Where I Explain JNJ In Detail.) Comparing 2018 vs. 2008 (from their annual report, their 10-K):

  • JNJ’s revenue is up 30%.
  • Their net earnings are up 18%.
  • And, their dividend is up a staggering 119% (it has been increased for 56 consecutive years).

Now, the growth for Facebook during the same period has, no doubt, been much more substantial. The point, however, is that it’s not "either/or". Dividends offer a relatively conservative strategy (as compared to growth investing) that offers a component of growth and also cash flow (dividend checks paid out to shareholder, like me).

I Prefer Dividend Stocks To Growth Stocks

At the end of the day, I prefer dividend stocks vs. growth stocks for a few reasons:

  • I will, one day, pay all of my bills with passive income from dividends. Right now, I have the ability to pay a good chunk of my bills with dividends, as I have been investing in such stocks for over 20 years (with the bulk of my portfolio built in the last 10 years). I do not believe in selling shares to pay bills. Why? Stock markets go up and down. What if I need to pay a utility bill and the stock market is way down? In such a situation, growth investors are forced to sell really low. Dividend investors, by contrast, do not need to sell shares. They simply take their dividends and then pay the bills. If one wants true passive income, I do not believe there is a better avenue than dividend stocks.
  • I am a conservative investor. I have tried it all: tech stocks, penny stocks, day trading, and more! At the end of the day, I have found that slow and steady really does win the race. Dividends offer a relatively conservative strategy that I can utilize to build true wealth and cash flow over time. I don’t have to take on the risk of high-flying tech stocks. I simply buy tried and true companies like PepsiCo (PEP). (By the way, make sure to Check Out My YouTube Video on PepsiCo.)
  • I trust companies that pay dividends. When the management team decides to pay a dividend, they show respect to the shareholders (the owners). I truly believe that money sitting around in corporate bank accounts can get wasted on lavish company parties, unnecessary acquisitions, fancy office upgrades, and more. That cash belongs to the shareholders. I trust companies that pay dividends to treat the owners right, and to make smarter choices around their cash management.
  • Dividend investing, in the United States, is relatively tax-efficient. Buying low and selling high (growth investing) can expose one to hefty short-term capital gains taxes (if one needs to sell to pay bills). Qualified dividends, by contrast, are taxed as long-term capital gains. (Check out This YouTube Video To Learn More About Dividends and Taxes.)
  • Dividend investing gives me hope! Life is not always easy (and that is honestly a good thing, since success is so much sweeter that way). With each share of stock that I buy, I am one step closer to covering all of my expenses with passive income. I am always buying dividend stocks (in reasonably small amounts) since I like to stay in the game. That constant buying gives me the confidence and excitement that I am getting to my goal. Dividends are for everyone. They give the everyday person the means to automate income. And, it’s not only the destination that matters. Even $50/Month in Dividend Income starts paying for something! The early success is so motivating!
  • Last, dividend stocks tend to perform well. Certain studies show that dividend stocks (value stocks) tend to outperform growth stocks very long periods of time. Personally, as a Stanford University Computer Science graduate, I know a lot about data. And, I know that data can be used in different ways to tell different stories. So, rather than rely too much on external studies, I just like to run the numbers myself. In this YouTube video, I share how My Stock Portfolio is Beating the S&P 500, with a lot less risk (in my humble opinion).

My Personal Dividend Stock Portfolio

So, you like the strategy and want to see what a typical dividend stock portfolio looks like? I have actually shared My Complete Dividend Stock Portfolio on YouTube. Some fun stats:

  • I own 40 dividend stocks. (I filmed the YouTube video before I owned my newest position of Chubb.)
  • I have been investing for over 20 years, but the bulk of my portfolio has been built in the last 10 years (especially in the last 7 years). A few times in my investing history, I have had to liquidate the lion share of my portfolio to fund a house down payment. I do not envision us moving anytime soon, and I do not anticipate selling my portfolio again. This time, it’s forever and I’m in it to automate all income and cover all expenses!
  • I tend to buy stocks of all sizes: large cap, medium cap, and small cap. I specialize in larger companies since I like those that can stand the test of time without getting pushed around by activist investors and hostile M&A activity (mergers and acquisitions).
  • I have made countless stock market purchase orders. I have placed orders as high as $10,000 and as low as $50. (You can learn all about My Personal Transaction History In This YouTube Video.)
  • My average portfolio current yield is 3.89%. However, this is just my current yield, not yield on cost (a really important topic covered later in this guide and throughout my YouTube channel).

Getting Started With My YouTube Channel

At this time, we’re almost 2,000 words into this guide, and it’s getting really long just like my YouTube videos! I bet your time for a break from reading! To change things up a bit, I want to get you on over to my YouTube Channel, but I first want to give you a quick tour and some hacks.

PPC Ian YouTube Channel Guide:

  • If you want to learn my opinion on a particular stock, please search on YouTube for "ppcian + STOCK-TICKER-HERE". For example, "ppcian WMT" will give you My Video on Walmart. (NOTE: My video titles don’t always include the stock ticker, but YouTube’s search functionality is super smart and will return the right ones for you.)
  • If you want to learn about a particular topic, search for "ppcian + TOPIC-HERE". For example, "ppcian MLP" returns My Video on Master Limited Partnerships.
  • Make sure to check out my video descriptions. They always contain a write-up of the video with helpful insights and links. Also, my newer descriptions contain timestamps. I know a lot of you have limited time, and those timestamps come by popular demand. Simply click a timestamp to fast forward to a particular point in the video that is of interest to you.
  • Don’t forget my playlists. If you head on over to My Playlists Tab, you can quickly find my videos broken down by sub-category. The playlist view makes it a lot easier to find what you’re looking for.
  • Head on over to My Videos Tab to see all of my videos in reverse chronological order. Just scroll down to see the older ones.
  • Make sure to read the comments and participate in our thriving dividend investing community. We are 29,000 dividend investors strong and each video contains a multitude of insights in the comments. I personally try to read and respond to most comments. Many of our older discussions will provide a wealth of information to you.
  • One last bonus hack: Here on my blog, check out the tabs at the top. I link to all of my important whitepapers, guides, and spreadsheets right here on my blog! I have published a ton of free spreadsheets, for example, and they’re all conveniently here on my blog. For example, here’s My Yield On Cost Worksheet.

Let’s take a pause now, and please head on over to my YouTube Channel. Hope you find a video or two that you enjoy. When you come back, it will be time to discuss some metrics!

Dividend Investing Metrics

Here’s where it starts getting a bit more technical. I’m not going to get too technical today, since this is a beginner’s guide. I am, however, going to quickly outline the metrics that matter to me when selecting and managing my dividend stocks:

  • Revenue Growth: I like companies that consistently growth their revenue over time.
  • Earnings (and Earnings Per Share) Growth: Again, up and to the right.
  • Gross Margins, Operating Margins, and Net Margins: I prefer companies that have sold margins, since such margins are indicative of a competitive moat in the form of brand and intellectual property. And, great margins give a buffer should the company hit hard times. Of course, some industries are characteristically higher margin (software, for example) than others (utilities, for example).
  • Strong Balance Sheet: I prefer those balance sheets that carry little debt, and positive shareholder’s equity (assets greater than liabilities). With interest rates at historic lows, many companies these days have taken on huge debt to fund share buybacks and acquisitions. These days, it’s a bit tougher to find those rock solid balance sheets, so it’s always refreshing when I find one.
  • Growing Cash Flows: Sometimes, net earnings do not tell the entire story. I like to look at the statement of cash flows to ensure that the business is growing true cash flow over time.
  • Dividend Yield: Calculated as the dividend per share (annually) dividend by share price, I like starting dividend yields that are anywhere between 2% and 8%. Lower than 2% is typically a bit too low for me (won’t provide meaningful cash flow in sufficient time). Above 8% is sometimes indicative of a "yield trap", a company that may not be able to maintain the dividend. Of course, there are always exceptions.
  • Dividend Growth: I like companies that tend to grow their dividend over time. Those companies that grow their dividend get me to financial freedom the fastest because I can buy now and receive more dividend income with each year that passes. Typically, my favorite companies raise their dividend by 7% on average, per year.
  • CAGR (Compound Annual Growth Rate): The CAGR formula helps dividend investors understand the average growth rate of any of the metrics discussed thus far (especially dividends). Just Google CAGR for the formula. Given an ending value, a starting value, and years elapsed, CAGR shows the average amount the given metric has grown per year (on average).
  • Payout Ratio: Calculated as dividends/EPS, payout ratio gives a sense of how much of earnings are going to dividends and how much are being retained. Payout ratios differ by industry. Utilities tend to pay out most (all) of earnings. In general, for a household brand name company like Procter & Gamble (PG) or Kimberly-Clark (KMB), I like payout ratios in the 40-60% range over the long-run.
  • Yield On Cost: There are two ways to calculate yield on cost: Simple Yield on Cost and Yield on Cost With Dividends Reinvested. Since these topics are a bit more involved, I have linked each of the terms in the prior sentence to my YouTube videos explaining them. I love these metrics because they give a sense of how far along I am and how hard my capital is working for me. They literally show me the dividend yield I am receiving (on my purchase price) after holding onto a position for number of years. On Altria (MO), I am now yielding 20% on cost on my first tranche (simple yield on cost). Meaning: For each $100 invested (not counting reinvested dividends), I am yielding $20 per year.
  • Market Capitalization: Simply put, market cap shows how much a company is worth. I like to diversify by all different market caps (one reason I own 40 stocks), so I have exposure to small, medium, and large enterprises. My average market cap tends to skew a bit larger.
  • Dividend Consistency: Since I invest for dividends and dividends alone, I always enjoy understanding how many consecutive years a company has paid dividends and also how many consecutive years a company has increased its dividend. I always apply CAGR calculation to here to understand dividend growth over time, on average.
  • Share Price: Typically, I enjoy buying additional shares of my favorite companies when share prices are down (and the stock is in value territory).
  • PE Ratio: Also known as the Price/Earnings Ratio, this metric gives a sense of value. Lower PE Ratios are good, as they indicate the company is trading at a lower multiple of earnings.

Dividend Growth Investing

Ok, that’s enough with the metrics for today’s beginner’s guide! I want to now take a moment to pay homage to the phrase "Dividend Growth Investing" (notice the word "Growth"). I don’t typically invest in dividend stocks. I invest in dividend GROWTH stocks. Meaning, my companies:

  • Grow their business (revenue, earnings, and cash flow)
  • Grow their dividends over time (dividends are not static but actually grow)

Of course, we already covered why it’s not "either/or" when it comes to dividend stocks vs. growth stocks. I like those that exhibit both! This is so important because those companies that are actually growing have the financial means to grow their dividends. And, those companies that grow their dividends give me a higher yield on cost over time! Meaning: My invested capital progressively works harder for me. I have time on my side, I can wait for the dividends to grow. And, after years have passed by, the compounding of those dividend increases gives me a huge yield on cost!

At the end of the day, dividend growth investing works because of The Miracle of Compound Interest. (Make sure to check out the YouTube video I just liked, to really understand how the math works.) I’m talking about:

  • Corporate revenues and profits growing.
  • Dividends growing over time.
  • Dividends being reinvested to buy more shares (until one chooses to tap into dividends to pay bills.) There’s a key example at the beginning of My Latest Video that goes into this concept in detail.
  • More capital being invested over time.
  • It all compounds tremendously over time!

At the end of the day, I’m throwing a lot at you here. The key insight is that compound interest and time work on your side. Invested capital is important too, but if you have some time until your retirement (or early retirement), that time and the nature of compound interest can get you a lot more cash flow than you would think! Slow and steady wins the race. Dividend investing is for everyone!

Helpful Websites and Tools

On my YouTube channel, I regularly share stock analysis, like My Recent Analysis of United Technologies (UTX) and Raytheon (RTN). Where do I pull the metrics for my analysis?

  • First and foremost, I like to go the actual corporation websites and pull their annual reports (also called 10-Ks). I have to spend some time digging, but I always prefer pulling data direct from the source. Such annual reports offer the most helpful info on the income statement, balance sheet, and statement of cash flows. Worth noting: I also like to follow quarterly reports (10-Qs), but I do not place quite as much weight. I am investing forever, so quarterly fluctuations and results do not matter to me quite as much, as I’m all about the long-term.
  • I also make use of the Nasdaq website. Nasdaq is great for showing dividend per share history over time. If you Google "STOCK-TICKER dividend history", Nasdaq always shows up towards the top.
  • Last, I like to make use of Yahoo! Finance. Yahoo! Finance offers great summarized data, but I always like to verify data just in case.

Now, you may be wondering what’s a great place to get started actually buying dividend stocks? I tend to suggest the following avenues to newer investors: Dividend Reinvestment Plans (check out my YouTube video) and also Large, Established Brokerages (also check out my YouTube video).

The financial industry builds up a lot of data about how commissions can eliminate results. And, that is true for many investors who pay ongoing commissions. Dividend investing tends to be commission-friendly since one buys and holds forever. As such, as long as my buy commissions are less than two percent (and my dividend reinvestment is free or close to it), I do not get too worried about commissions. I actually prefer to pay commissions if I can leverage a really big, reputable, and well-established brokerage firm.

No More Drama

The stock market is full of drama. I’m talking about people literally shouting on the trading floor. I’m talking about stock prices surging and then plummeting. I’m talking about people on TV giving their opinions on how the world is ending! I’m talking about IPO (initial public offerings) in companies that have no promise of earning anything, ever!

Dividend investing erases all the drama. In fact, I do not even care about my aggregate portfolio value, since I never plan to sell. When you buy and hold forever with no plan of selling, it truly is a liberating experience. You free yourself from the worries of stock market fluctuations. (Of course, I do check my portfolio value form time to time just to feed by ego and as an overall signal if the companies I own are doing ok.)

At the end of the day, the only metric I follow closely is my aggregate dividend income. Regardless of the economy, the types of companies I own tend to pay (increasing) dividends over time. Even during a horrible recession, I can watch my dividend checks come in (at increasingly higher levels). And, I can measure the percentage of my expenses covered by such dividends.

Even greater: When the stock market is in the gutter, I can take comfort that new capital (and reinvested dividends) are buying more shares at progressively lower prices. I love a plummeting stock market because it allows me to reach financial freedom faster. Dividend investing really is a drama-free strategy. We all have enough to worry about in our lives, our stock portfolios should not be another cause for concern. Our stock portfolios should be a source of comfort, another stream of income that can work when you cannot (24/7)!

Investing Prudently

This guide would not be complete if I failed to mention risk. Any stock market strategy, including dividend investing, carries some element of risk (especially since the stock market is towards the end of one of the largest bull market runs of all time). A Stock Market Crash could be around the corner.

I am literally ready for my stock portfolio value to drop 50%, and I am fine with that! Why? I only invest for dividends, I do not care about short-term portfolio value (I actually get excited when stocks are down since I can buy more value that way), and I do have some cash on the sidelines for emergencies (an emergency fund). Ultimately, you will need to assess your own risk tolerance. (Stock market investing may not be for you if you would be concerned about a 10% portfolio value drop.) And, you will certainly want to consider paying off all debt and creating an emergency fund before beginning any stock market investing.

Dividend investing does carry an element of risk, but quite frankly anything in life worth having carries an element of risk!

Dividend Investing Is For Everyone

I created my YouTube channel, PPC Ian, to share my passion for dividends with the world. PPC Ian is dividend investing for EVERYONE. It’s my firm belief that everyone can start small, go slow and steady, and build a meaningful stream of dividend income. That dividend income can provide great comfort, meaning, and purpose in your life.

Also, along the way, do not forget that your dividend income can also be used to make our world a better place. For example, you could choose to donate a portion of your dividends to charity. Or, you could allow your dividends to buy your own time back so you can do good deeds first-hand. Dividends open up a world of greatness. I wish you tremendous success on your personal dividend investing journey!

DISCLOSURE: I am long McDonalds (MCD), Starbucks (SBUX), PepsiCo (PEP), Chubb (CB), Walmart (WMT), Procter & Gamble (PG), Kimberly-Clark (KMB), Altria (MO), and United Technologies (UTX). I own these stocks in my stock portfolio.

DISCLAIMER: All information and data on my YouTube Channel, blog, email newsletters, white papers, Excel files, and other materials is solely for informational purposes. I make no representations as to the accuracy, completeness, suitability or validity of any information. I will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use. All information is provided AS IS with no warranties, and confers no rights. I will not be responsible for the accuracy of material that is linked on this site.

Because the information herein is based on my personal opinion and experience, it should not be considered professional financial investment advice or tax advice. The ideas and strategies that I provide should never be used without first assessing your own personal/financial situation, or without consulting a financial and/or tax professional. My thoughts and opinions may also change from time to time as I acquire more knowledge. These are, as discussed above, solely my thoughts and opinions. I reserve the right to delete any comments for any reason (abusive in nature, contain profanity, etc.). Your continued reading/use of my YouTube Channel, blog, email newsletters, whitepapers, Excel files, and other materials constitutes your agreement with and acceptance of this disclaimer.

COPYRIGHT: All PPC Ian videos, Excel files, guides, and other content are (c) Copyright IJL Productions LLC. PPC Ian is a registered trademark ™ of IJL Productions LLC.

Dividend Stock Pick

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I truly enjoy a good buying opportunity in the stock market. I invest for dividends, and one day my dividends will cover all of my living expenses. When my favorite stocks go down in share price, my starting dividend yield goes up (in other words, I reach financial freedom faster). Needless to say, I love a good buying opportunity (and these have been very rare in recent years due to the overall lofty stock market).

Dividend Investing For EveryoneLately, I have enjoyed buying shares of my favorite industrial companies, because they have been plagued with lackluster earnings reports and overall macroeconomic issues. Our strong economy and overall bull stock market is in its late stages, in my opinion. A recession and stock market crash is on the horizon, most likely, within the next few years. As leading indicators, some of my favorite industrials are starting to exhibit weakness. This is to be expected, as they are cyclical. Large B2B (business to business) purchases can be delayed, unlike a consumer purchase of Huggies Diapers by contrast.

Regardless of market conditions, I am always averaging into stocks because I am unable to perfectly time the market and I enjoy immediate cash flow. After all, I want the opportunity to tap into my dividend cash flow at any time. I solely invest for cash flow, and do not care about capital appreciation (although I do view long term capital appreciation as a proxy of solid company performance). Some of my favorite industrials are on sale right now and I am buying!

One of my favorites (in fact my #10 favorite dividend stock of all time) is 3M (ticker MMM). Over the past few weeks, I have truly enjoyed averaging into this industrial stock, with a rare 3.44% starting dividend yield and a PE (2019 forward) in the 17.58 range. And, these guys sport a 5-year dividend CAGR (compound annual growth rate) of 11% (although I expect dividend increases to slow a bit over time). I expect to continue adding to my 3M position throughout 2019 as long as the share price remains low.

Everyone knows about my stake in 3M and my latest purchases from my 3M YouTube videos. However, there is another industrial stock that I have owned for years that is also a relative market value right now. (It’s not a top 10 favorite stock like 3M, and is a smaller position, although one I love.) It seems like nobody talks about this stock. It’s a smaller one, but a powerful one from a dividend standpoint (they have increased their dividends for the last 48 years, a track record only surpassed by 10 US companies). I’m talking about Leggett & Platt (LEG).

For those unfamiliar with Leggett & Platt, they produce white label beds, springs, and furniture. When you go to a hotel room or an office, for example, a good portion of the furniture are likely from Leggett & Platt (or at least assembled with Leggett & Platt parts). They are also involved in the automotive, aerospace, wire, rod, fabric, machinery, hydraulic cylinder, and specialty foam industries too. With their recent acquisition of Elite Comfort Solutions, a foam mattress company, Leggett & Platt has truly solidified themselves as a leader in the mattress segment. At the end of the day, everybody needs to sleep and everyone enjoys sleep so much more with a comfortable mattress. I do not see Leggett & Platt’s business going anywhere.

At a high level, there are five key reasons I absolutely love Leggett & Platt right now!

  • Reason 1: Their starting dividend yield is a sweet ($0.40 * 4) / $37.90 = 4.2%, a very solid starting yield in this market.
  • Reason 2: They recently raised their quarterly dividend from $0.38 to $0.40, an increase of 5.3%. Such an increase shows that management is very confident in the business, despite the macroeconomic issues. A shareholder-friendly company, they have increased their dividend for the last 48 years!
    • In the last 5 years, their dividend is up 33% or 5.92% per year on average (CAGR).
  • Reason 3: Looking at the average analyst estimate of $2.47 2019 forward EPS, I get a 2019 forward PE ratio of $37.90 / $2.47 = 15.34.
  • Reason 4: I originally initiated my LEG position at $29.43 per share back in 2013. At $37.90, I feel like we are getting into really low share price territory from a historical perspective. I love purchasing shares in 2019 in the $30s.
  • Reason 5: Dividend payout ratio is reasonable. At $1.6 per year, dividends represent 65% of EPS, providing the company sufficient buffer for the unexpected. (Worth noting: Management does want the payout ratio to reach 50%, meaning dividend growth will likely be a bit slower until the ECS acquisition is fully digested.)

Now, this business does not come without risk. From a size standpoint, their market capitalization is $4.96 billion. Overall in terms of my dividend stock portfolio, Leggett & Platt is one of my smaller positions. I like smaller companies because they provide diversification to the portfolio and have potentially more upside (easier to grow when you are smaller vs. larger). That said, smaller companies can sometimes be more susceptible to competitive forces and adverse M&A activity (hostile takeovers and private equity, for example).

Perhaps more than this, however, I am concerned about foreign competition. While Leggett & Platt has been in business since 1883 and literally invented the bedspring, one must always keep their eyes on lower cost alternatives from overseas in our now global economy. In fact, recent company releases even discuss a foreign "anti-dumping" matter they are currently working on. Due to their large patent portfolio, breadth of capabilities, and multitude of business units, however, I generally believe LEG has staying power.

I’d like to close out today’s dividend stock profile with some interesting metrics from Leggett & Platt’s 2018 annual report:

  1. This is a very high revenue (and lower net margin) business. Net earnings in 2018 were $306 million on $4.270 billion of sales! ($306 / $4,270 = 7.17% net margin)
  2. Revenue growth trends are nice. 2018 is up, in particular due to the ECS acquisition. However, even looking pre-acquisition (2017 vs. 2013) revenue has increased steadily each year and is up 13.4% in total.
  3. Earnings per share are up nicely in the 5-year period. Comparing 2018 vs. 2013, EPS is up 68.66%.
  4. Net cash provided by operating activities is a bit less "up and to the right" as compared to revenue and EPS (it’s a bit more up and down). That said, it has increased by 5.5% over the 5-year period. This will be a key metric to watch in upcoming annual reports.
  5. The balance sheet appears to be well-managed with assets exceeding liabilities (positive shareholder’s equity). It will be important to watch the balance sheet, however, now that the ECS acquisition has been completed. (I hope they pay down debt quickly, over the coming years.)
  6. Their business is very diversified! Following are sales by product line:
    • Bedding Group: 21%
    • Automotive Group: 19%
    • Fabric & Flooring Products Group: 17%
    • Work Furniture Group: 7%
    • Consumer Products Group: 11%
    • Home Furniture Group: 9%
    • Wire Group: 9%
    • Aerospace Products Group: 4%
    • Hydraulic Cylinder Group: 2%
    • Machinery Group: 1%
  7. LEG has a nice Patent and Trademark portfolio. The patents, in particular, create a competitive moat.
    • 1,427 patents issued
    • 598 patents in process
    • 980 trademarks issued
    • 143 trademarks in process
  8. Sales are geographically diverse, although I’d like to see even more international exposure.
    • USA: 63%
    • Europe: 12%
    • China: 12%
    • Canada: 7%
    • Mexico: 4%
    • Other: 2%

While Leggett & Platt will never be a core position in my 40-stock portfolio, I am so proud for it to play a supporting role. That’s why I went ahead and purchased more shares today at $37.90, and I’ll continue to look for opportunities to pick up more shares throughout the year. Ultimately, I believe in their diversified business, I love the exposure to industrials (I tend to be underweight in that sector), and I’m a fan of the 4.2% starting yield!

DISCLOSURE: I am long Leggett & Platt (LEG), 3M (MMM), and Kimberly-Clark (KMB). I own these stocks in my stock portfolio.

DISCLAIMER: All information and data on my YouTube Channel, blog, email newsletters, white papers, Excel files, and other materials is solely for informational purposes. I make no representations as to the accuracy, completeness, suitability or validity of any information. I will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use. All information is provided AS IS with no warranties, and confers no rights. I will not be responsible for the accuracy of material that is linked on this site.

Because the information herein is based on my personal opinion and experience, it should not be considered professional financial investment advice or tax advice. The ideas and strategies that I provide should never be used without first assessing your own personal/financial situation, or without consulting a financial and/or tax professional. My thoughts and opinions may also change from time to time as I acquire more knowledge. These are, as discussed above, solely my thoughts and opinions. I reserve the right to delete any comments for any reason (abusive in nature, contain profanity, etc.). Your continued reading/use of my YouTube Channel, blog, email newsletters, whitepapers, Excel files, and other materials constitutes your agreement with and acceptance of this disclaimer.

COPYRIGHT: All PPC Ian videos, Excel files, guides, and other content are (c) Copyright IJL Productions LLC. PPC Ian is a registered trademark ™ of IJL Productions LLC.

How I Know Which Dividend Stocks To Buy (At Any Given Time)

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I’m excited to continue sharing my favorite PPC Ian YouTube videos about dividend growth investing, right here on my blog. Today’s installment is an important video all about allocating capital to the stock market. With a portfolio of 38 dividend paying stocks (it was 37 at the time I filmed this video), I have many choices (existing positions) that I could build upon when adding more dollars. Learn how I look at the tradeoffs and make the right decisions!

Let’s Start With My Dividend Investing Video

Now, Let’s Jump Into The Philosophy Behind My Video

I own 37 dividend stocks in my stock portfolio. On any given month, I’m almost always averaging in (buying more shares). How do I know which stock(s) to buy at a given time? How do I invest my hard earned capital in dividend stocks, while looking at things both logically and emotionally? Today’s video shares my very strategy.

Before even starting, it’s important to recognize whether one is looking at a net new portfolio or an established one. While most of today’s video covers the strategy of how I buy stocks for my established dividend portfolio, I also discuss how things would differ for a newer portfolio.

Next, I dive into my personal pillars for success.

Pillar 1: I enjoy setting strategic buy order themes each year. Each January I pick a few stocks that I’ll focus on accumulating any given year. This year (2018), it’s Procter & Gamble and Kimberly Clark. My analysis is based on fundamentals. By setting the theme early in the year, I stay focused and determined. Next year (2019), I’ll be focused on My Core Stocks.

Pillar 2: When I invest in a new position to my established stock portfolio, I go "all in". Meaning: I will start with a small lump sum investment, and then I keep averaging in until my position reaches its desired size (and, at a minimum, my "full size" for a small position). I believe in good housekeeping and dislike 1-off positions in my portfolio.

Pillar 3: I’m always looking out for great investment opportunities. Since I own 37 stocks, several of them are always on sale at any given time. While I like to first focus on pillars 1 and 2, I will buy "on sale" stocks as well, when opportunities present themselves.

Pillar 4: Certain of my stocks fall into trading ranges, more or less. I like to place a small amount of capital in them, each time they hit the bottom of the trading range.

At the end of the day, this strategic framework keeps my investing vey logical and pragmatic. It keeps me focused on doing the right things, avoiding all the noise out there. It also, however, leaves some room for emotion which I think is actually important for dividend growth investors.

Related Dividend Investing YouTube Videos

As mentioned in today’s video, I have quite a few related videos to share with all of you! Following is my long list of related investing videos that you may want to check out.

First, let’s jump into videos that discuss hypothetical scenarios of starting all over again. Following are the ways I would start, if I were hypothetically starting over with different amounts of money!

Also mentioned in today’s video, here’s some info on my personal stock portfolio, on my small, medium, and large/core strategy. Learn about My Personal Asset Allocation.

Each year, I like to set strategic themes for my buy orders (pillar 1 of my strategy). This year, my strategic theme spans Procter & Gamble and Kimberly-Clark. Learn all about my Dividend Investing Strategic Themes for 2018.

While I don’t buy many net new stock positions these days, when I do I’m all in. (In the sense that I will keep buying and averaging in until the position reaches full size.) Here’s a stock I just started buying, General Mills (pillar 2 of my strategy).

While I mainly focus on pillars 1 and 2 of my buy order strategy, I just can’t pass up a good opportunity. I also like to make incremental buy orders of dividend portfolio stocks that are "on sale". This year, I’m Buying Some Southern Corporation.

And, I’m Buying Realty Income Too.

Last, I want to share my recent analysis of Coca-Cola. While I own this stock in my portfolio (and it’s a core position), I won’t be buying more this year. It’s just not "on sale" right now, and it doesn’t fit my strategic pillars. That said, if I were hypothetically starting all over again with a net new portfolio, perhaps things would be different. Here’s My Coca-Cola Dividend Stock Analysis.

Disclosure: I am long Procter & Gamble (PG), Kimberly-Clark (KMB), General Mills (GIS), Southern Company (SO), Realty Income (O), and Coca-Cola (KO). I own these stocks in my portfolio.

Disclaimer: I’m not a licensed investment advisor, and today’s video (and blog post) are just for entertainment and fun. This video (and blog post) are NOT investment advice. Also, I’m not a tax advisor and today’s video (and blog post) are NOT tax advice. Please talk to your licensed investment advisor before making any financial decisions.

All content on my YouTube channel and blog are (c) Copyright IJL Productions LLC.

My Favorite Dividend Stocks For 2018 and Beyond

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It’s been a while since my last blog post! I have been busy at work on my PPC Ian YouTube channel, uploading two new dividend investing videos each week. A lot is happening in the stock market this year, with many of my favorite dividend stocks going on sale, so I thought it would be a great opportunity to share a new blog post about investing. Let’s dive into the dividend stocks I’m personally buying in 2018 (and beyond)!

My Second Favorite Dividend Stock of All Time: PepsiCo (PEP)

PPC Ian Dividends Yield On CostI have literally been waiting years for this stock to go on sale. Thankfully, it recently plummeted to a multi-year low of $97.51 and I am all over it at these levels. With their recent dividend increase of 15%, PEP now pays out $3.71/year (a starting dividend yield of 3.8%. It’s quite rare to experience such a high starting yield for this company, so I’m incredibly excited to be increasing my position right now. And, I hope it goes down more! I love being a dividend investor because I invest for cash flow and don’t really care about capital appreciation. In fact, the further PepsiCo declines, the higher my starting dividend yield (meaning more immediate cash flow).

I love PepsiCo for so many reasons including the following:

  • We all need to eat and drink
  • Diversification of revenue across many different foods and beverages
  • Strong exposure to the growing snack food category
  • Fabulous history of rewarding shareholders via dividends!
  • Products spanning fun for you, better for you, and good for you categories

Want to learn more about PepsiCo and my experience buying this company? Check out my recent YouTube video:

2018 Is Not The Time To Buy Oil Stocks (In My Humble Opinion)

Just a few years ago, oil companies were so out of favor. With OPEC flooding the market with oil and the price per barrel in the gutter, nobody wanted to touch oil companies. I took a contrarian opinion and took positions in supermajors at bargain basement prices. Fast forward to 2018 and the oil companies are doing great (so it’s certainly not the time to by now at inflated prices, in my humble opinion).

Lesson: This is how the stock market works. In fact, I just filmed a video about my experience buying BP at bargain basement prices, achieving a yield on cost upwards of 8% on certain of my lots purchased. You can learn more by watching my YouTube video:

Consumer Non-Cyclical Companies Have No Future

I am seeing history repeat itself here, although this time in the consumer non-cyclical sector. I love consumer non-cyclical stocks, they are the bread and butter of my portfolio. It just so happens that these companies are facing an incredibly rough 2018. PepsiCo is a great example. Others include Procter & Gamble (PG), Kimberly-Clark (KMB), and General Mills (GIS), all three of which I am purchasing in 2018 at bargain basement prices. (And, I believe further downside is in the cards.)

What’s happening here? I believe there are three factors placing pressure on these companies:

  1. With interest rates rising, income minded investors have other options. Dividend-paying stocks are not the only game in town anymore (as bonds become more attractive).
  2. Due to issues of scale, growing pains, and the overall Amazon effect, many of these companies are facing slowing revenue growth. While I believe revenue growth will resume, it could take some time. Fortunately for bargain shoppers like myself, most people cannot wait (especially stock market analysts) and these stocks are facing downward share price pressure.
  3. We are heading into an inflationary environment and the raw cost of producing consumer products is increasing, squeezing margins. Inflation is here, and these companies will need to optimize and innovate to keep high margins. Thankfully, they mostly have high margins to begin with and will weather the storm, in my opinion.

As a long-term dividend income investor (I solely buy stocks for cash flow), I love these types of opportunities, and I’m thankful to buy at progressively lower prices.

Want to learn more about my perspective on consumer non-cyclical companies having no future? Check out my recent YouTube video:

Want to learn more about two of my favorite stocks for 2018, Procter & Gamble and Kimberly-Clark? Check out this YouTube video:

Want to learn about my brand new position in General Mills? Check out this YouTube video:

Worth noting, the starting yields on these three names are really great right now. PG is at 3.94%, KMB is at 3.81%, and GIS is at 4.40%. It does not get much better than that for such world-class consumer non-cyclical stocks, ones that have a history of consistently raising their dividends over the years!

I Love Utilities For Their High Current Yield

To close out today’s post, I want to add a note about utilities (especially regulated electric utilities). I love these types of companies because they are literally government-enforced monopolies (others cannot just come in and compete with them). And, they pay fabulous dividend yields (which are getting progressively better as these stocks face downward pressure).

As with consumer non-cyclical stocks, utilities are facing some pressure in 2018 due to rising interest rates. Utilities tend to carry a lot of debt, so rising rates could place pressure on margins. Moreover, rising rates give income-minded investors other investment opportunities.

That said, this is not the first time utilities have experienced a rising interest rate environment, and I am sure they will weather the storm via innovation and price increases.

This year, I’m buying Southern Company (SO) at a wonderful 5.21% starting yield. Want to learn more about my position in SO? Make sure to check out this YouTube video:

2018 Is A Great Year For Dividend Investors

I love being a dividend investor because I don’t worry about down markets. In fact, I look forward to them. 2018 is the most exciting year for dividend investors in quite some time, and I’m truly thrilled to be adding to my PEP, PG, KMB, GIS and SO. Are you a dividend investor? Which dividend stocks are you buying in 2018?

Want to learn even more about dividend investing? Make sure to check out my recent blog post about how I Invest For Dividends and Financial Freedom.

Disclosure: I am long PepsiCo (PEP), BP (BP), Procter & Gamble (PG), Kimberly-Clark (KMB), General Mills (GIS), and Southern Company (SO). I own these stocks in my portfolio.

Disclaimer: I’m not a licensed investment advisor, and today’s blog post (and related videos) are just for entertainment and fun. This blog post (and related videos) are NOT investment advice. Also, I’m not a tax advisor and today’s blog post (and related videos) are NOT tax advice. Please talk to your licensed investment advisor before making any financial decisions.

All content on my blog and YouTube channel is © Copyright IJL Productions LLC.

I Invest For Dividends and Financial Freedom

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I have always been obsessed with investments that pay cash flow. I’m talking about investments that pay me regular dividend checks (often in growing amounts) just to hold said companies. There is nothing more exciting in personal finance than when one sees their money working for them, while they sleep!

Check This Out These Are Dividend ChecksOver the last 20+ years, I have personally built a dividend stock portfolio with over 30 positions in world-class companies. My dividend portfolio is driving an increasing stream of passive income that gets larger with each year that passes. Whether we are in a bull market or bear market, I am always averaging into my favorite dividend-paying stocks, building my stream of passive income.

While my blog, PPC Ian, has roots in digital advertising and careers, I am now also spending considerable time sharing my passion for personal finance online. I have mostly accomplished this via my quickly growing PPC Ian YouTube Channel (now over 2,000 subscribers). However, I also want to start sharing some of my personal finance insights here on my blog too. After all, this blog is a reflection of me. At the end of the day, I think you will find that there are so many parallels between digital marketing and investing.

Today’s post introduces my passion for dividend investing. If you’ve been wondering about dividends and my personal strategy, this post is for you! Also, I’m thrilled to share some of my recent videos too.

What Is A Dividend?

Many publicly-traded companies choose to pay dividends. A dividend is a cash distribution from a company. When one buys stock in a company, they are a part owner in said company. Just for being a part owner, one gets a cut of the profits, in the form of cash dividends. Companies that pay dividends take a portion of their net income and literally distribute it to shareholders. Such companies, in my opinion, are shareholder friendly and truly care about their owners.

Many large blue chip companies, like Procter & Gamble (PG) and Kimberly Clark (KMB), pay dividends on a quarterly schedule. And, they have a track record of increasing dividends each year. This is where the real magic happens: One is handsomely rewarded (via an increasing stream of dividend income) for buying and then holding for years (or even decades) on end.

If one holds their shares in a brokerage account, dividends often show up electronically in one’s cash balance, as they are paid out. If one holds stock directly, with a transfer agent, dividends will either be sent in the mail (in the form of a check) or can often be automatically reinvested to buy additional shares of the issuing company.

At the end of the day, dividends are a form of income automation. One can either get a job and work for money (active income) or hold stock and receive dividends for doing nothing (passive income). My journey has been one of saving as much active income as possible and then converting it into passive income. (I save money from my job and then buy dividend-paying stocks, and have been doing so for a very long time.)

While one may think it takes thousands to get started, that’s just not true. In fact, I encourage you to check out my recent video about how I literally counted up loose change that was sitting around doing nothing, and converted it into a dividend stream of $30/year in perpetuity! That $30/year will now always be there, and will grow over time – how inspiring!

What Is Financial Freedom?

What is the end goal of all this income automation? At the end of the day, I aim to achieve the holy grail of dividend investing: financial freedom. This is the precise point where my stream of dividend income covers all of my living expenses.

Many dividend investors live extremely frugally and/or play geo arbitrage (they move to locations geographically that are cheaper) to achieve financial freedom quicker. (If expenses go down, it’s easier to cover said expenses, as less dividend income is required.) I totally respect everyone in the dividend community, and understand why this route is appealing. That being said, this strategy is just not for me. I enjoy living in the expensive San Francisco Bay Area and also enjoy some fancy things. As such, financial freedom will take me a bit longer than other dividend investors, and I am ok with that.

While financial freedom has the potential to totally change one’s life, how do I personally envision my future self? Honestly, not too different from my present self. I still plan on being a family man, blogger/vlogger, commercial real estate developer, digital marketer, and investor (of course). That said, I will likely utilize my freedom to up the bar with our philanthropy, travel a bit more (and cross some destinations off my bucket list), and spend even more time pursuing my passions. I truly believe that one has to stay busy and productive, even once financial freedom is achieved.

At its core, dividend investing is about investing in dividends and not stuff. As mentioned, I do enjoy some of the finer things in life. That said, I also need to keep it in perspective. Financial freedom is goal number one, and I think you’ll enjoy my recent video about this very topic.

Which Companies Pay Dividends?

It just so happens that some of the largest, most stable, and most notable brands in the world pay dividends. It’s a win-win since such blue chip companies tend to reward investors with dividend income while providing incredible stability. I like to think of it as the "sleep at night" factor. I never lose sleep owning dividend companies because (1) I’m in it for the dividends and not capital appreciation (although capital appreciation is a nice bonus) and (2) I’m confident in the long-term prospects of such companies.

Of course, not all dividend companies are great just because they pay dividends. This is where stock analysis comes into the picture. It’s critical to analyze each and every dividend stock candidate thoroughly before it is worthy of buying. That being said, this is the topic of another post, so please stay tuned. (Although, if you want to jump ahead right now, I do have a few videos on my YouTube channel covering fundamental stock analysis in depth.)

In my personal portfolio, I like representation from most major industries and sectors out there. Thankfully, I have found great dividend companies across the board. Following are some of my favorite industries: healthcare, consumer non-cyclical (think: food/beverage and basic goods), industrials, utilities, retail, restaurants, real estate (real estate investment trusts or REITS), technology, energy, transportation, and more.

Also worth noting; Dividends are not just a US-centric thing. Companies from all over the world pay dividends. It’s easy to gain international exposure via (1) US firms that do a large percentage of their business overseas and also (2) via ADRs (American Depository Receipts) where foreign-based firms trade on US stock exchanges.

Which Companies Do I Personally Like?

Want some examples? I’m personally buying Kimberly Clark (KMB) and Procter & Gamble (PG) this year. You may be familiar with Kimberly Clark because they produce such amazing brands as Kleenex tissues and Huggies diapers. You may be familiar with Procter & Gamble because they produce Tide detergent and Gillette razors. Their products are literally throughout my entire house (and most houses in America).

I personally like these companies for 2018 because they are core holdings of mine (positions that I love and I see contributing a strong percentage of future dividend income). Moreover, they appear to be "on sale" right now. While I own over 30 stocks, I only buy a handful at any given time (those that are trading at discounted valuations). In other words: While others are running away, I like to buy. I think you’ll enjoy my new video highlighting my personal investment themes for 2018, with a focus on acquiring more KMB and PG.

How Can One Get Started?

As with anything in life, it all starts with research and education. I’m a swimmer and a runner. In fact, I just swam 3,000 yards the other day (took about one hour of continuous swimming). The first 500 yards were the hardest, as my muscles felt the most fatigue and strain getting warmed up. Then, as endorphins kicked in, the rest was easy. And, I probably could have gone further, but it’s important to pace oneself and conserve power for the next time.

Dividend investing is exactly the same. Those early days will be the most difficult, as one makes mistakes and learns the basics. However, after a while, it becomes reasonably easy. In fact, the biggest challenge experienced by dividend investors is one of patience and persistence. It literally takes decades of converting active income into passive income to reach financial freedom (unless one is starting with a phenomenal base). And, this is why it’s important to "pace oneself", just as in my swimming example.

Dividend investing is not a "set it and forget it" strategy. One is not just going to invest a lump sum of money. Rather, it’s a strategy of dollar cost averaging over time. One will typically buy stock (in small, bite sized quantities) at regular intervals. Because it’s a process, I personally believe it’s always best to get started sooner than later.

If one is interested in getting started, I have found that my video on How To Invest $10,000 is particularly helpful. The most popular dividend video on my YouTube channel, it seems like many investors just starting out have $10,000 seed capital. Learn how I would personally invest my first $10,000 if I were starting all over again in the following video.

Of course, it’s important to note that I’m just sharing my personal strategy here. I cannot comment on anyone else’s situation. At the end of the day, it’s important that each dividend investor develop their own, unique strategy. Thanks for reading, and I hope to see you over on my YouTube channel!

Disclosure: I am long Kimberly-Clark (KMB) and Procter & Gamble (PG). I own both of these stocks in my portfolio.

Disclaimer: I’m not a licensed investment advisor. Today’s blog post and related videos are just for entertainment and fun. This blog post and related videos are NOT investment advice. Please talk to your licensed investment advisor before making any financial decisions.

All content on my blog YouTube channel is (c) Copyright IJL Productions LLC.

Angel Investing: My Experience With SAFE Agreements

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Happy New Year, everybody! Having placed three angel investments during a single year, 2017 was a big year for this investor. While I primarily invest for dividends and cash flow (via dividend-paying stocks and real estate), I now allocate around (but no more than) 10% of my portfolio to higher risk angel investments. While these investments can carry higher risk, they can also provide a massive source of capital that can later be re-deployed in more traditional cash-flow investments. It’s a way of investing in people I know and support, while supercharging my returns. And, I’m at the stage where this strategy (and exposure to risk) makes sense.

Ian Lopuch Carmel CAAs a side note, I recently wrote a blog post on My Angel Investing Strategy. If you have not read it yet, that post provides some great background on my overall angel investing strategy.

During 2017, two of my angel investments were very early stage ones. Meaning: I invested before an official valuation had even been placed on the company. (Typically, valuations for private companies are assigned during the first big institutional investment of around $6,000,000 or more.) Pre-institutional funding, many startups are choosing to go the SAFE Agreement or Convertible Note route. And, it makes sense because pegging a valuation and partaking in a traditional funding round can be very expensive for the company at such an early stage.

While I’m not an expert by any means, today’s blog post highlights my experience with these types of investments. I want to discuss what they are, how they work, and the pros/cons of investing in these types of early stage investments.

My Angel Investing Video

Before we even start with today’s post, I want to share a recent YouTube video that highlights many of the concepts discussed today. If you prefer video instead of reading, this video will definitely be for you. If you really want to learn these concepts, you may consider watching the video and reading the post!

What Are SAFE Agreements?

SAFE stands for Simple Agreement for Future Equity. Basically, when one invests in a SAFE Agreement, they do not own any equity in the company, yet. However, at some point in the future, the SAFE Agreement will convert into equity.

What Are Convertible Notes?

Convertible Notes are quite similar. A note is a debt instrument. Basically, the investor is lending the company money. Typically, interest rates are very low (the minimum required by law). At some point in the future, the expectation is that the note will be converted into equity. Convertible notes can operate in a very similar manner to SAFE Agreements.

Key Point 1: Get A Sense of Timing

When investing in SAFE Agreements and/or Convertible Notes, it’s critically important to understand timing of the equity conversion event. The whole goal of these investments is the conversion event into equity.

Typically, such instruments will convert into equity at the time of the first big institutional funding event (typically around $6,000,000 or more). As an angel investor, I exclusively invest in people that I know (very well). I get to know the operations of the company, and often become a partner of the company. The closer we are to the perceived equity conversion event, the better. In my modeling, I always add a buffer since conversion typically takes longer than anticipated. As a general rule of thumb, I like SAFE Agreements and Convertible Notes that have a perceived conversion event within the next year.

Worth noting, institutional equity financing sometimes takes longer than expected. I really like instruments that offer a failsafe. Some agreements will have a valuation cap that is used as the equity valuation should there be no equity financing within a specified amount of time. For example: If there’s no equity financing within x number of years, there may be a clause that just converts your SAFE or Convertible Note into equity stock pegged at y valuation. (Side note: Just make sure the valuation seems reasonable, based on all present data available.)

Key Point 2: Understand The Discount

With these types of angel investments, your money is not going to really grow until after the equity conversion event. Once the equity conversion event happens, my expectation is that I will earn several hundred percent (or more) return on investment. Until then, however, my money is essentially tied up.

Being tied up, I always want to get some type of reward. In my experience, this reward comes via the discount factor. Meaning: There will typically be a discount given to early investors at time of the institutional financing event. Let’s say a company raises x million at y per share valuation. If one’s SAFE or Convertible Note has a discount provision, the early investor will receive their equity stake at y per share minus the discount!

This is the reward for investing early, and allows one’s total dollar investment to generate more shares (than if one had waited and invested along side the institutional investor). As a rule of thumb, I expect discount factors to be in the 10% to 25% range, depending on level for risk and anticipated timing of the conversion event. In my experience, this is a reasonable level of return for one year’s time, in a higher risk angel investment.

Key Point 3: Understand The Valuation Cap

Valuation cap sometimes differs based on agreement. I want to offer two scenarios where valuation cap may enter one’s angel investing agreement.

Scenario 1: Runaway Valuation Insurance

Let’s say the perceived valuation of a company right now is quite low. Let’s say you’re getting in very early and it’s only worth a few million dollars or less. However, let’s say that the company grows quickly. By the time the instrument converts over to equity, let’s say hypothetical valuation is $100 million or more. If one’s discount factor is just 10%, one’s instrument will convert over at a $90 million valuation, hardly a good deal for the risk being undertaken! (And, hardly the upside that the investor should experience being an early supporter and advocate.)

Sometimes, valuation caps are used to protect investors in this very scenario. Let’s say there’s a hypothetical $10 million valuation cap. At time of the institutional funding, some agreements read that the conversion valuation is the lesser of (1) the valuation at time of funding minus the discount factor or (2) the valuation cap.

Scenario 2: No Institutional Financing Event

Let’s say several years have passed by without an institutional financing event. Meaning: No company valuation has been pegged. Some agreements read that, at a specified date, the SAFE or Convertible Note will convert into equity at the valuation cap. For this reason, it’s very key that one is comfortable investing at the valuation cap level, based on all information available and all due diligence performed.

Key Point 4: Avoid Buy Out Clauses

Investing in SAFE Agreements and Convertible Notes is risky business. It’s also an incredible amount of work. The goal of the work is getting in early and eventually owning equity for one’s hard work. (Of course, it’s also rewarding investing in those your truly care about.) As such, it’s critical to search such agreements for any potential buy out clause. Meaning: I typically won’t sign anything if the company has the right to simply buy out my agreement for the same amount I invested (plus a nominal interest rate). It’s just not worth my time and risk to invest in such instruments unless I have a very high level of confidence that the equity conversion event will happen.

Key Point 5: Be Prepared For Tied Up Money

Once someone invests in an angel investment, the money is tied up for a very long time. In fact, when I make such investments I assume I will never see the money again. If one is not willing to lose it all, such investments many not be the right fit.

In reality, I have never lost money on an angel investment, and my track record is impeccable. After all, I only invest in people and companies that I know personally. I’m quite picky. That said, I approach each deal with the same philosophy that I will not see my money for a long, long time, if at all. Of course, I never invest money in such instruments that I would need anytime soon (if ever). Building a business is hard work. It takes a long time. It takes even longer for investors to be rewarded.

Key Point 6: Make Sure You Are An Accredited Investor

When it comes to angel investments, there are two general types of offerings. The first class of offerings are under Rule 506(b), meaning the company raising funds is not actually advertising the investment opportunity. These are the types of opportunities that investors, like myself, literally find by reaching out and asking, "Hey, can I invest in your company." The second class of offerings are under Rule 506(c), meaning the company raising funds is able to actively market the investment opportunity. The company can actually reach out (via social media and other means) and advertise the investment opportunity.

Both 506(b) and 506(c) offerings require the investor to be accredited. However, 506(c) offerings require official verification of one’s accredited status (often by a third party service that specializes in such accreditation).

The key point here is to make sure that one is an accredited investor. If one is not, then angel investing is not going to be an option. However, there are a few hacks: (1) Become an "angel investor" by working at a company and earning employee stock options (this has been a hugely valuable strategy in my own career) or (2) start your own company. While it may seem like a bummer, these rules actually help safeguard investors from risk.

Key Point 7: Don’t Forget To Give Back

What’s the point of all this investing and money? At the end of the day, it offers financial freedom and opportunity. It offers the opportunity to pursue one’s dreams! Also, it offers the ability to give back and help others. I love giving back, and even created a website called Lopuch.org to journal our charitable contributions. The more one earns, the greater their responsibility to give back and help others. And, I think you will find that the act of giving back is actually more rewarding than even making the money!

Thanks for reading, and I wish you all the success in the world in your investing and beyond!

Disclaimer: I am not a licensed investment advisor and today’s post is not investment advice. This post is just for fun and entertainment. If you are going to invest in angel investments (or anything else), please consult a licensed financial advisor first.

Angel Investing: My Approach

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Recently, I made two angel investments in startup technology companies, signifying my first angel investments in five years. As someone who is a true dividend growth investor, I tend to be incredibly picky when it comes to early stage opportunities. Typically, I stick to big name blue chip companies that have:

Dock and Water

  • Long track records of raising dividends year-after-year
  • Huge cash on hand, huge cash flow, and very little (or no) debt
  • Competitive moats (barriers to entry) that are almost impossible to overcome
  • Compelling prospects for many decades into the future (my horizon is: never sell)

That being said, I am a Silicon Valley business executive who truly gets excited about early stage companies, especially in the high tech arena. From time-to-time, I’m able to find a great pre-IPO angel opportunity and I’ll go for it. Today, I want to share my personal philosophy on how I approach these types of investments.

Invest In People

At the end of the day, I will only invest in angel companies where I personally know the founder. Small companies can be risky. Small companies oftentimes have to pivot their business strategy. My last angel investment from about 5 years ago is a perfect example of this. I invested in a business that has completely transformed over the years. While the original model had to evolve, the team pulled through and built an incredible, thriving business. In fact, what they have built now is even more exciting than what I ever imagined in the beginning.

With small companies, you are investing in people. It is impossible to invest in a person unless you have a friendship with them. While this can greatly limit your opportunities, it can help you make accurate decisions based on character, intelligence, leadership skills, and sweat equity.

I’m able to quickly filter towards people who are "going places". These are the people I invest in, when the opportunity arises. Build your ability to read people and surround yourself with people that are going places.

Be Patient

It’s a pet peeve of mine that people these days list all of their angel investments on their LinkedIn profiles. I understand if you are a venture capitalist or full time angel investor that this may be important because of your profession. In that case, it makes logical sense to me. However, if your career is somewhere other than venture capital or angel investing, I personally suggest keeping things more confidential. Sure, you may want to list one or two investments, especially if you have taken a large-commitment advisory role or board of directors role.

However, I feel sometimes like people are just investing in a lot of companies to make themselves look more "legit" on LinkedIn. I feel like some of these people are rushing into a lot of investments without exercising patience. Also, they may even be spreading their capital (and time) too thin, without really going big on the investments that matter. This isn’t a popularity contest, this is investing capital for your and your family’s future. The greatest investor around, Warren Buffet, has described his investment strategy as lethargic. He has no problem waiting around for years (or even a decade if he has to) for the right opportunity.

I’m really trying to encourage patience here. There is no rush. There is no need to impress anyone online with your investments. Wait for the right pitch, even if it takes five years (as in my case).

Cultivate Relationships

The best angel investment opportunities are not open to just anyone. Those that have a good thing going don’t need just anyone’s money. They can be picky. They can choose investors who can add value to the company (and they absolutely should). If you have a friend who is building a unique business, understand how you may be able to add value. Can you do some part time consulting to help them out? Can you offer some advice? Are you willing to be on their board of advisors? Are you willing to be patient, until they are ready for your investment? The best investments take time to cultivate. Don’t be in a hurry. Keep your eye on the long-term. More than anything, be a friend and do the right thing for your friendship.

Focus on Financial Performance

I only invest in angel opportunities that exhibit the following combination of qualities:

  • Strong top-line revenue growth (I will not invest in companies pre-revenue).
  • Reasonably strong earnings (It’s ok for an early stage company to break even or even slightly lose in an effort to reinvest in the business, but it’s not ok to lose a ton of money).
  • Strong assets (Whether the assets be intellectual property, an amazing platform, or even world-class domain names, I like to invest in companies that have tangible value).
  • Willing and able to share financial statements: balance sheet, income statement, cash flows, and other financial documents upon request. (Invest in those teams that are willing to offer transparency.)

Be a Lawyer

I’m proud that my roots are in digital marketing because that profession taught me many skills across disciplines. One area where I feel I am quite strong is the review of legal documents and contracts. When investing in early stage companies, make sure to review all of the documents thoroughly. If something does not look right to you, offer to redline the document yourself (or with the help of your counsel, if you prefer). When it comes to these types of investments, it’s often good to have another pair of eyes as well to make sure all the documents look perfect.

And, don’t feel bad if you missed something. In one investment I just entered, we later found a minor typo. I drafted an amendment and we immediately executed the amendment. (Another reason to invest in people you trust and know.)

Know Where You Stand

As companies raise money, it’s important to understand where you stand. Get your hands on the cap table. The cap table, typically an Excel document, will feature the various rounds of funding, who invested, how many shares each person owns, the valuation at each round of funding, and so much more. This is a living document that you should use for your personal records as well. Angel investments can be illiquid. When the liquidity event comes ten or fifteen years from now, it’s always helpful to have the original cap table so you know your exact level of ownership.

Have A Long-Term Approach

Publicly-traded stocks are liquid. You can buy and sell whenever the market is open. Angel investments are not. Your money could be tied up for an incredibly long time. I approach angel investments with no expectation of getting my money back. I’m not saying this in a negative way. I only invest in companies I truly believe will thrive and flourish. Rather, I’m saying this in the most positive way that I’m a long-term partner. I want to leave my money in the investment as long as possible, so it can keep growing. And, that’s what often happens with illiquid investments anyways.

Get Creative

While I’ve successfully completed a handful of angel investments outside of work, most of my private company investments have come via work. In my earlier career, I made a habit of working for pre-IPO companies on the ascendency. Via my hard work and sweat equity, I was rewarded stock options. These stock options allowed me to eventually own shares in three successful early stage companies (one bought out by private equity for $1.2 bln, one went public, and one had a division acquired for $100 mln with shareholders retaining equity in the rest of the business). These days, I’m a Partner at a commercial real estate firm and plan on building up a real estate portfolio, over time, through hard work and sweat equity. If you don’t have a lot of money to be an angel investor and want to be one, go the employment route. Choose your employers wisely.

That being said, don’t rule out publicly-traded companies. Stock options are still valuable at publicly-traded companies as well, and I lived that scenario first hand as well.

Diversify

On a closing note, I want to reiterate that angel investing is very attractive because it’s the "cool thing". I worry that the allure of it draws people in for the wrong reasons and also convinces them to take undue risk (too much money invested in companies that have not been fully researched and proven). I personally like to diversify and keep these types of investments as a smaller part of my portfolio. Even if one of my investments fails, I can sleep at night knowing that I have diversified wisely.

All this being said, I do want to say that there is something special about investing in people, which brings me back to my first point. Angel investing is unique in that you are really helping make dreams come true for people that are important to you. That is amazing and should be celebrated.

Disclaimer: This blog post is for entertainment purposes only. I am not a licensed investment advisor and this is not investment advice. Please consult your licensed investment advisor before making any investment decisions (including angel investments).

Investment Liquidity Applied To Online Advertising

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Liquidity

I’m completely obsessed with investing, and I also happen to be a marketer. It is no consequence that this investment enthusiast built his career in digital marketing, as these two paradigms live in parallel universes. Best practices and frameworks from investing often apply to online marketing, and vice versa. Today, I’m excited to discuss the investment concept of liquidity and how it is incredibly relevant to all marketers.

What Is Liquidity?

Drake River Bend OR

There are two major asset classes in investing, those that are liquid and those that are illiquid. Liquid assets are easy to buy and sell. Think about well-known, large cap stocks on the NYSE or Nasdaq. You can buy and sell at a moment’s notice, as long as the stock market is open. A perfect example of a liquid stock is Coca Cola (NYSE: KO).

Please note that not all stocks are as liquid as KO. If you transact in small cap companies, especially those traded "over the counter", buy and sell orders can take time to fill. Oftentimes, if you want to sell immediately, you may have to lower your acceptable price to get the order filled. These small caps, in my opinion, are still somewhat liquid, but quite a bit less than KO.

Liquidity Costs You A Premium

As you may expect, liquidity costs a premium. As of 4/12/16 intra-day, KO is trading at $46.67, with a PE ratio of 27.94 and a dividend yield of 2.99%. In other words, Coca Cola stock is expensive right now (although, honestly, not a bad starting yield in this amazing company). Even in a poor-performing stock market, KO (and most comparable blue chips) tend to trade at premium prices. As an investor, you pay for the stability that comes with a liquid asset. You pay for your right to sell at any time. In my opinion, you sometimes suffer lower returns if you only invest in liquid assets. That being said, the vast majority of my personal strategy involves liquid assets and I’m an incredible fan.

What Is Illiquidity?

Now, let’s talk about illiquidity. Illiquid assets are difficult, or sometimes impossible, to buy and sell at a moment’s notice. You may be "stuck" in such assets for years (or even in perpetuity). The classical example of an illiquid asset is real estate, especially when you own fractional interests in a property and are not the key decision-maker. It gets even more illiquid if you’re investing in a development project, one that will be constructed in the future. Investors typically do not experience major cash flow until the property is constructed, rented, and operating like a well-oiled machine.

Let’s look at an example. For those of you into FinTech companies like myself, think Realty Mogul. Realty Mogul offers the ability to own small, fractional interests in real estate investments. Many opportunities on Realty Mogul allow you to participate with $10,000 or $20,000 invested (a big chunk of change, but a low number in the context of real estate investing overall when you’re dealing with multi-million dollar assets).

You become part of the Realty Mogul LLC assigned to the property, and dozens of other investors are pooling their money in tandem with you. Such interests are not traded on an exchange, and you are often committing your money for a number of years (although Realty Mogul offers shorter term opportunities as well).

Typically such investments are considered illiquid. Sure, in theory you could find a buyer for your LLC interest and work with the Realty Mogul team to trade your interest, if you entered into a financial bind. That being said, extracting the true value of your asset would be really difficult. Illiquid assets are all about the long-term. You are really banking on huge value creation over time, and are giving up your ability to access your money for the privilege of potential higher returns (both cash flow and capital appreciation). The benefit of assets that are more illiquid in nature: Returns can be substantially higher than liquid assets.

Liquidity Applies To Capital Appreciation

An important nuance: There are two components of your investment return, capital appreciation and cash flow. Capital appreciation refers to how much value the asset itself gains (you may have heard "buy low, sell high"). Cash flow refers to cash distributions shareholders receive from their investment (often referred to as "dividends").

Illiquid real estate investments can start cash flowing relatively quickly (within a few years). Cash flows can become substantial. When speaking about liquidity and illiquidity, however, I’m mainly focused on the asset itself, the capital appreciation portion of your return. Quite frankly, I’m the type of investor that isn’t as concerned with capital appreciation as I am with cash flow so I truly appreciate the cash flow possibilities with illiquid assets (I’m just not concerned about selling). That, however, is the topic of a completely separate blog post!

The Best Portfolios Have A Balance

In my opinion, the best financial portfolios have a balance of liquid and illiquid assets. The liquid assets can be sold on a moment’s notice if you ever need the money. The liquid assets allow you to survive with a lower cash buffer (emergency fund). This means more money invested! The illiquid assets, in the long run, could boost the returns of your overall portfolio, but you’re locking up money. You’re making a commitment. Diversification, in my opinion, is the key to success.

How Does This All Apply To Online Marketing?

With a name like PPC Ian, you could probably guess that I got started in PPC (or pay per click marketing). I want to leverage the PPC channel within digital marketing as a way to illustrate liquidity and illiquidity in the world of online marketing.

Let’s think about keywords. In many categories these days, the bulk of one’s traffic comes from a concentrated set of keywords. Often referred to as your "head terms", these keywords are incredibly liquid. They provide a ton of traffic, their performance is consistent, and you can buy them and see results instantaneously. Because of their liquidity, head terms cost a premium. CPCs tend to be higher and the competitive landscape is fierce. You’re not going to make a ton of margin on the head terms, but they will provide steady, predictable returns when managed correctly.

Now, let’s think about long tail keywords. The long tail is like the Wild West. You’re buying keywords that may have never been searched before. Your average long tail keyword may only get a few clicks per year. It’s difficult to accurately price such keywords because you don’t have a ton of performance data (other than data from related keywords). That being said, the long tail is less competitive. You’ll often find bargains. The long tail is for the patient investor/marketer looking for increased returns. While the long tail involves more sweat equity, research, and strategy (just like investing in an illiquid real estate asset), the long-term upside is there in the form of higher margins.

The best digital marketing strategies, in my opinion, combine head terms with long tail keywords for a well-balanced portfolio.

A New Framework For Something You Already Know

While most people reading this blog know all about head terms and long tail keywords, I’m hoping today’s investment framework of liquidity and illiquidity is new to many. In your career, it’s not only about what you do but how you think about what you do (and how you explain it). I’m hoping today’s framework gives you a new perspective on the amazing things we do as marketers, and a new way of explaining your work in your next big presentation! Also, I’m striving to build excitement around investing in general, as it’s a personal passion of mine, one that is directly related to your career as a marketer!

Disclaimer: I’m long Coca Cola (NYSE: KO)
Disclaimer: This is not investment advice. Today’s blog post is just for entertainment purposes. Please connect with your investment advice professional before making any investment decisions.

Business Lessons Learned From The Oil Market

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Before I even get started on today’s post, I want to add the disclaimer that this post is meant to be unbiased, and free of politics. As many of you know, I am an investor and follow many different markets and sectors. It just so happens that the oil market has been incredibly volatile this year, making it a superb business case study. As someone who has been following the oil market closely, today’s post extrapolates some business lessons that I have personally learned from the volatility.

Lesson 1: Never Count On The Status Quo

Price of Crude Oil From Nasdaq

As a technology executive of many years, I have lived this lesson a multitude of times. With the price of oil declining from $100 to the mid-$40s literally overnight, this extreme volatility in an old world sector reminds all of us to never rest on our laurels. Business is dynamic and we need to be prepared for anything.

Knowing that my world can change at any minute, I’m a huge fan of strategic scenario planning. In the moment, it’s too late to formulate your strategy to a major disruption. That’s why I like to plan out all possible business cases ahead of time, having a complete strategy for each. I ask myself: "What would I do if XYZ were to happen tomorrow?" To the extent possible, I also pre-plan and do the work required for each scenario, giving me a head start should I ever have to react to a major disruption.

Lesson 2: Never Underestimate Your Competition

The root of the big decline in oil prices? Many suggest that OPEC decided to ramp up production and flood the market with a surplus of oil. The hypothesis behind their move? They wanted to corner their market, and force some of the higher cost oil frackers out of business. OPEC knows that their aggregate cost of production is a lot lower than some of their newer fracker competitors, and wanted to drive the price to a level where frackers would be unprofitable.

While this may seem like an aggressive, unfriendly move, that is business people. In fact, this reminds me of the classic Amazon strategy in technology. Amazon is known for running low margins to corner markets and grow their business. They are willing to experience some short-term pain in favor of long-term margin and defensibility.

Never underestimate your competition. In your scenario planning (see Lesson 1 above), always consider the aggressive, corner cases. Plan for the day your competition tries to drive you out of the market, and build your proactive and reactive strategies in advance.

Lesson 3: Be Ready To Jump On Great Opportunities

As you may expect, the prices of oil stocks have plummeted. They got to a point a few weeks ago where many investors thought they would never recover. Those buying oil stocks felt in their gut a deep anxiety when executing trade orders. In my experience, this is exactly the moment it’s ideal to purchase shares. The takeaway: Change and volatility often creates opportunity. Be ready for that opportunity and remember to scenario plan for opportunity, in addition to catastrophe.

I’d like to add a disclaimer here that this is not meant to be a politically-charged article and I’m neither in-favor nor against oil and oil stocks for the purpose of this article. I’m merely looking at a sector and extrapolating insights. Although, in full disclosure, I must admit that I do personally own several oil and oil-related companies, and did execute some purchase orders during the lows a few weeks back.

Lesson 4: Run A Tight Balance Sheet

Leverage is a really fascinating concept. In good times, it can do so much to accelerate your growth. In bad times, it can destroy your business. With interest rates at historic lows for many years now, I wanted to offer a reminder to be mindful of your leverage. While interest rates are low for now, they will not always be that way. Carrying enormous debt on your balance sheet certainly doesn’t help when your profits plummet for a sustained period. It hurts even more if your debt needs to be refinanced at higher interest rates in coming years (while your business is suffering).

Will oil prices recover? In my opinion, absolutely. How long will it take? Probably a long time. In analyzing the oil players in the market, I tend to gravitate towards those with very healthy balance sheets and away from those with too much debt. Remember this lesson in good times and bad. You never know when your world will turn upside down and you certainly don’t want to worry about a huge amount of debt when it does.

Don’t use debt? This lesson also applies to tech startups that are not yet turning a profit. Always protect your cash reserves because you may not be able to get more funding during the next downturn.

Lesson 5: Fight On!

Despite the very challenging market, a key oil executive at a super major mentioned that they will not be cutting their dividend. This very bold statement put investors at ease during a rather volatile time. The key lesson here is one of the fearless leader. As a leader, you need to be prepared for anything. If you are mindful of the lessons above (especially around scenario planning and leverage), you can buy yourself a huge amount of confidence, no matter what crazy situation you face. Companies need strong, bold leaders. Be one and always fight on!

Disclosure: Holding long positions on various oil and oil-related companies.
Image of oil price © Nasdaq – http://www.nasdaq.com/markets/crude-oil.aspx?timeframe=18m

Don’t Own Stocks? You Should (With Loyal3)

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This blog is all about careers in marketing. Why then, do I spend so much time on personal finance? First and foremost, I love personal finance. Second, I believe personal finance is key to your career (it’s a great topic to discuss with executives) and your longevity (invest wisely now and you could retire while still a relatively young marketing professional). I’m truly excited to introduce Loyal3 today, a disruptive game-changer.

What is Loyal3?

Invest

Loyal3 is an SIPC member stock broker that makes investing accessible to everyone (including you). Ever want to buy an individual stock but don’t want to pay commissions? Loyal3 charges no commissions by batching your order with others (they execute fewer trades this way), and receiving compensation from companies. Brands pay Loyal3 because smaller, loyal shareholders mean less volatility in share price and consumer brand loyalty. (Hmmm… Wait a minute, I think I have been drinking more Starbucks since I started purchasing SBUX via Loyal3. Loyal3, you got me!)

Ever want to buy stock but don’t have enough money to buy a single share (especially for more expensive issues like GOOG and AAPL)? Loyal3 allows you to buy fractional shares, starting at a minimum investment of $10 per trade. Ever want to buy stocks, but don’t know where to start? Loyal3 offers only the biggest and best brands (about 50 stocks are offered for purchase. (While some may see this as limiting, I see it as pure clarity. I’m personally all about the big brands that pay big, growing dividends. Maybe it’s because I’m a marketer and truly admire a great brand…)

In other words, Loyal3 removes all barriers that have ever kept you from owning individual stocks. In my opinion, no business professional should say, "I don’t own individual stocks", with this cool new invention called Loyal3.

Loyal3 also offers the ability for small investors to participate in IPOs. I wanted to call this out because it’s incredibly cool, but didn’t want it to be the focus of today’s post because I prefer a brand-driven, long-term strategy. (Many are in IPOs for a quick gain, only to sell the issue later.)

PPC Ian’s Personal Loyal3 Strategy

So how am I personally leveraging Loyal3? As a long-time investor and finance enthusiast, you may be thinking, "PPC Ian probably already has a broker. Does he really need another one?" My answer is, "Yes and yes!" Here’s why:

I can buy via credit card and earn rewards points. You read that correctly: Loyal3 allows investors to purchase stock commission-free via credit card. Due to the rewards points, not only am I avoiding commissions, but I’m essentially being compensated to buy stock in my favorite brands. Loyal3 limits credit card-based trades to $50, however you can execute as many as you like. I’m actually in the platform buying stock almost every single day, sometimes multiple times in one day. (I see this transaction size limit as another benefit, see my later point about dollar cost averaging.)

Before we move on, two incredibly important points about credit cards. First, always pay your balance in full each and every month. Leverage your card for points, but do it responsibly. You don’t want to go into debt to buy stock. If you’re in debt already, pay your debt off first.

Second, please don’t use Loyal3 as a churn-and-burn platform. I have read some blog posts about how some individuals are buying stock via credit card and then selling as quickly as possible. They are using Loyal3 to hit their spend thresholds to achieve sign-on bonuses for credit cards. I feel like this type of activity is against the charter of Loyal3 (creating loyal shareholders) and is a deceptive practice that could hurt this cool, little brokerage. Get those points, but only do it if you’re a real, long-term investor and plan on holding your stock. Let’s do the right thing here so this credit card option is around for a long, long time (for those of us who use it responsibly).

As hinted at above, another big aspect of my Loyal3 strategy is dollar cost averaging. It’s difficult (impossible perhaps) to accurately predict the future of the overall stock market, and individual stocks too. Dollar cost averaging is all about risk mitigation. With no commissions to hold you back, I like to buy many smaller lots on a very frequent, recurring basis. Odds are, I will be buying when prices are high, medium, and low (my favorite scenario). It’s the average that matters, and I’m not going to buy the absolute market top in one big lot this way. Moreover, dollar cost averaging creates discipline. I’m buying rain or shine. This is possible with traditional Internet-based discount brokerages on perhaps a weekly or monthly basis, but definitely not a daily basis, at least given the size of my investing budget. (The fees would be way too high Asa percentage of my dollars invested.)

The final pillar of my Loyal3 strategy is one of simplicity and record keeping. In other accounts, I already own some of the stocks that Loyal3 offers. I was very close doubling down and setting up some recurring buys in Loyal3 as well. However, I then realized the record keeping would get too intense: (Recurring) buys of the same stock across different brokerage accounts. I concluded to simply focus on stocks I wanted to own anyway, but didn’t already have in other accounts. Why not keep things easy on myself? While I don’t plan on selling, I’m very much an advocate of impeccable records.

In sum, I’m really excited about Loyal3. I guess I’m a finance geek at heart, with new innovations like Lending Club and Loyal3 topping my list of favorite inventions in the last few years. Now, combine a Loyal3 strategy (stocks) with a Lending Club strategy (loans), and you’ve got a really rockin’ portfolio strategy!

Disclaimer: Long SBUX
Disclaimer: I’m not a financial advisor. This is not investment advice. This is for entertainment purposes only. Please contact your financial advisor before making any investment decisions.
Image of invest © iStockPhoto – frankpeters