The Roots of a Wallet Engineer

Dividend growth investing really resonated with me.  But I wasn't always a dividend growth investor.  Luckily I never went through the early phase of just being an "investor" - buying a hot stock tip from a friend sort of experiment phase.

While still studying at University I bought my first shares as a cash-strapped 4th year.  The lucky pick was $100 worth of KO - Coca-Cola.  Truly an excellent pick if you follow along with dividend growth investing or you're just starting.  Coca-Cola wasn't a calculated purchase, though - I wasn't born a stock investing star - my first pick was a lucky pick.  Maybe it was a foreshadow of the kind of investor I would become.

After a great investing start, the next two purchases were a bit rough to say the least.  Especially my second purchase of NLY.  I bought $100 of Annaly Mortgage Management at $17.88 / share.  It has proceeded to tank - down about 40%.  However, I still keep the stock because the commission to sell it would be about 10% what it's worth now - $70 - and it pays 11% dividends a year which I definitely invest in other stocks like Coca-Cola.

After that I bought LGCY - Legacy Reserves.  It pays about 9-10% dividend.  This next purchase certainly wasn't terrible.  However, LGCY is a dividend stock with some of the growth.  The stock price itself has not grown - I'm actually down 2% - but the dividend has been growing steadily.  There was a period in the recession where dividends didn't grow, but they also did not shrink or get cut.  In a perfect world the stock price and the dividend would both grow.  This is the sweet spot for investors like myself.

With rising dividends and stock prices a dividend growth investor can eventually live off their investment without selling the underlying assets.  Like myself, investors start in an accumulation phase where they invest both new capital as well as the dividend income they receive into dividend growth stocks.  Once this accumulation phase is over, the investor can then live off the dividend stream alone without selling off the main principal.  For example, if you invest $300,000 into these dividend stocks and they pay, on average, 4% you would receive $1,000 per month!  If you keep costs low you can retire!  Easy peasy.  In a traditional retirement scheme you would accumulate a huge lump sum of money and then sell off 4% of it every year until you croak.  The traditional simile is that a "normal" retirement would be like growing a very large tree and then cutting off branches every year and watching it shrink.  On the other hand, dividend growth investing helps you to grow a moderate sized tree and you live off the fruit of the tree instead of cutting off its branches.  If you invest well, the tree will grow too.  Sweet.

At the rate I'm going I will need approximately $1,300 per month for food, housing and other expenses.  That's $15,600 per year or $390,000 invested.  If you want to retire even sooner you can semi-retire and get a side job.  For example, if I make $5,000 per year from side jobs, gifts, part-time work, etc. then my required money becomes ($15,600 - $5,000) $10,600 and m big fat retirement sum needed is only $265,000.  A not insignificant difference of $125,000.  If you throw in taxes it is not much of a wrench as the federal tax rate for the "up to $36,250" bracket is 15%.  But wait, there's more!  Qualified dividends are taxed at 0% if you're in the 15% federal bracket.  At worst, dividends are taxed at 20% and that's if you're in the top of the 39.6% federal bracket.  As a dividend growth investor, follow along as I plan to retire by age 40!

-Wallet Engineer #1


  1. I think you nailed the difference between a "high yield dividend stock" and a "dividend growth stock". My dividend portfolio is slanted toward dividend growth for this reason. Thank you for sharing your story Wallet Engineer

  2. Thanks Income Surfer! I'm glad I learned the difference between "high yield dividend stock" and a "dividend growth" stock early on in my investing career and developed an investing personality around it!

  3. The model of not having to cut the tree as we harvest the fruit is one that appealed to me from an early age. I first got inspired into thinking that this could be a realistic approach from reading about Derek Foster. While he may have since deviated from the approach, it's a goal and objective that still strongly resonates with me today. Best of luck!

    1. I saw a lot of strategies in my beginning research and dividend growth investing really appealed to me, also. The quality of typical dividend growth stocks also helps me sleep at night. I don't ever worry that Coca-Cola or Aflac are going to flop and if they do we buy a a diversified portfolio to counter! If you have patience and tenacity - like myself - it's a winning strategy!

  4. I made a similar mistake with one of my first stock purchases. The stock tanked shortly after I bought it & I still hold on to it because the shares are worth around $50 and it would cost me $10 to dump them. Thankfully I've gotten a little smarter about what and how much of something I buy since then!

    1. I definitely agree! Experience is an excellent teacher, but the price can be very steep. I'm glad I continue learning and researching - because I know from experience that I'm not a perfect investor.

  5. I'm so impressed that you're able to keep costs that low. I'd love to hear more about your approaches there.

    Great analogy with the tree as well. Dividend investors have an interesting niche, for sure.

    1. Hi Done by Forty! Thanks for taking the time to comment.
      I actually just started logging my monthly budget over at Wallet Engineers starting with my March expenditures published today!
      Keeping housing low is a big step! I've never lived alone, which causes housing to drop a bit. I recently moved to a more expensive town for a new job and I now have two roommates. Consider renting or buying something smaller - less space means less furniture to buy, less utilities to pay, less maintenance, less time spent cleaning - it's endless. Free up your life!

      Furthermore, I rarely eat out and set a budget for how much I'm going to spend rather than how many times I'll eat out.
      Next, I very rarely buy new clothes. Thrift shopping in rich suburbs works out well. I bought my jeans at the Levi's Black Friday for almost half price and I still have them - that was two years ago! Hang expensive sweaters and jeans out to dry on a rack or on the washer itself instead of using the dryer - you'll save money and increase the life of the garment! And, as far as my generation is concerned you can wear your pants more than once without washing them - apparently it used to be a thing to wash jeans after one wearing. Winning.

      When you go grocery shopping, use a list. Always! I buy a lot of things like beans, rice, pasta, etc and all store brand - no need for coupons there! The most expensive thing I eat is cereal, which I eat a lot of. You can add steel-cut oats to your cereal to lower the price and make it more heart healthy! When I make tacos I use a lot of "filler" - black beans, onions, poblano peppers - mmm. Poblano peppers are much less expensive than bell peppers, FYI. You can usually buy a pound of Poblanos for the price of one bell pepper. Eat leftovers. Have healthy snacks like apples and bananas in plain sight - they're very inexpensive!

      As far as my vehicle, I drive a reliable old (1999) car. Low miles considering the year. I change the oil myself. I use friends and family to troubleshoot it if it does have a problem. You can buy parts from the junkyard and swap them out. Personally, I don't ever plan to buy a car on credit. Cars are a dump of money, bleh. Car insurance and maintenance are still less expensive than a new car payment and that's only if I have trouble with my car.

      My hobbies have moderate to high initial costs, but zero or low recurring costs. For example, I own a very expensive computer than I use often, but it requires no additional cost except electricity and (not necessarily) additional software. With the cost of electricity, it's cheaper than running on a per hour basis. I used to have a rock climbing membership which was $400 a year... that's 100-150 rock climbing times for $400. Do the math :) Board games - buy them once, they last forever. Even better would be something like hiking, visiting art galleries, bird watching.

      Cell phones - contracts are a waste of money. You can get a plan through somebody like Zact or Republic wireless for super duper cheap. If you don't use data it's in the $20 a month neighborhood. $40 or so if you use data. A far cry from the $70-$100 a month.

      Also, make sure you auto-deduct any investments, savings, bills, etc. from your paycheck. If you need to, spend money in cash. You'll be much more reluctant to spend your hard-earned money when you're forking over real, tangible money. If you're confident with your spending, you can use cash-back credit card rewards to save money, too.

      I'm out of ideas for now, stop by our site, browse for awhile and post a reply or use the Contact Us form to get in touch! Thanks!

  6. Great job Wallet Engineer! I wanted to hit the homerun and get rich quick when I first started investing. I don't like to spend money, so keep expenses lowish has never been a large issue for me.

    Good luck to you in your retire by 40 plans!

  7. Thanks for the well wishes I.L.G., it's always nice to see others who invest and keep expenses low to know I'm not totally crazed.


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