Wal-tirement

“How the King of Retail has Revolutionized Paying for Retirement and How to get in from the Very Beginning and How ‘Wal-tirement’ Could Help you save your retirement.”

Simply put, they are talking about DRIPs! (Dividend Reinvestment Plans) Should you pay attention?  Is this really the solution to America’s retirement crisis?  Can it help replace Social Security, 401(k)s, IRAs, pension plans, and the like?

A new teaser hitting would-be investor e-mail inboxes across the internet is a craftily constructed advertisement by Dan Ferris over at Stansbury & Associates.  “Dubbed “Wal-tirement” by our analysts, this program is completely separate from the government and has nothing to do with the ups and downs of Wall Street, but it’s got an unbelievable track record” directly quoted from the teaser.

The term “wal-tirement” probably caught your attention right linking the retail giant Walmart and retirement.  So does this mean we are supposed to buy Walmart in our long term portfolios?  In short no, this isn’t what Ferris is suggesting.  Did Walmart come up with some new revolutionary strategy for retirement planning?  “You see, the incredible thing about “Wal-tirement” is that the payouts have ALWAYS GONE UP—every single year. No matter what.”  Wow what is it?  Can it really make 401(k)s and social security obsolete?  Anyone can make these two plans obsolete by carefully taking control of their financial future.

After carefully digging through the Ferris teaser for “wal-tirement” he is actually talking about DRIPs (Dividend Reinvestment Plan).  Its not a new concept that Ferris is pitching, he’s just called it something catchy to get your attention.

But should you be looking at DRIPs as a long term investment strategy?  You sure should.  DRIPs are a way for investors to purchase stock directly from a public company and reinvest any dividends paid to purchase more stock of that company WITHOUT having to go through a broker.  DRIPs are basically the same with any company, but some details of each may be different.  A company may offer a discount to market for purchasing its common stock.

DRIP programs can be good for both company and investor.  Depending on what program you go with, it provides the ability for a company to increases its long term shareholder base, hopefully providing for a more long term stable share price.  For investors, you may be able to buy stock at some sort of discount to market.  You can have a certain amount of money going toward your DRIP such as $50 or $100 a month, continually building and growing.

Going with a DRIP program also limits you somewhat.  Normally you can only purchase shares on certain dates or times of the year.  For example, some program may only let you invest at the end of the month or once a quarter.  So if your trying to time your purchase based on current stock price, you may not have much choice.

Below are examples of some stocks that have proven to be stable paying out fairly high yields, these are only examples.

SymbolCompany NameAnnualized DividendDividend YieldCurrent Price
TAT&T

1.72

5.97%

28.81

KMPKinder Morgan Energy Partners L.P.

4.64

5.91%

78.51

MOAltria Group

1.64

5.66%

29

MWEMarkwest Energy Partners L.P.

2.92

5.45%

53.55

EPDEnterprise Products Partners L.P.

2.45

5.33%

45.94

RAIReynolds American

2.24

5.33%

42.02

VZVerizon

2

5.30%

37.7

LMTLockheed Martin

4

5.04%

79.38

DUKDuke Energy

1

4.81%

20.77

SXLSunoco Logistics Partners L.P.

4.96

4.72%

105.19

OKSOneok Partners L.P.

2.38

4.67%

50.92

DLRDigital Realty Trust

2.72

4.34%

62.69

PMPhilip Morris International

3.08

4.04%

76.25

BMYBristol-Myers Squibb

1.32

3.99%

33.05

KMBKimberly-Clark

2.8

3.92%

71.49

When selecting companies for long term dividend investing or selecting a DRIP, you would go about it as you would selecting any long term growth stock.   You must consider the long term stability of the company and its ability to continue to pay dividends over time.  This is where growth comes in.  A company with a long history of paying dividends may be the place to start.  Anything else would start to become more speculation then real research.  How is the company’s cash position?  Is the industry its in a high growth industry?  Of course, you want to see the value of your stock go up also.   In a nutshell think of it as selecting stocks that you would want to hold forever.

Also keep in mind dividends that are reinvested for the most part are still considered income for tax purposes.  But that’s an issue for your accountant.

Below is a very simple chart showing what can happen with a DRIP program over a 20 year period based on fairly conservative estimates.  We have selected a fictitious stock priced at $26 we are expecting our stock price to average a 1% yearly increase.  We will be starting out with $1,000 and doing a monthly contribution of $50.  We are expecting this stock to average a 3% yield over the 20 years.   We are not taking any taxes into consideration.  Of course calculating these scenarios are more complex than this but it gives you an idea of what can happen when you find a good company to go with.

Year

Start Balance

Contrib

Growth

Dividends

Reinvested

End Balance

1

1,000.00

600.00

10.00

30.00

30.00

1,640.00

2

1,640.00

600.00

16.40

49.20

49.20

2,305.60

3

2,305.60

600.00

23.06

69.17

69.17

2,997.82

4

2,997.82

600.00

29.98

89.93

89.93

3,717.74

5

3,717.74

600.00

37.18

111.53

111.53

4,466.45

6

4,466.45

600.00

44.66

133.99

133.99

5,245.10

7

5,245.10

600.00

52.45

157.35

157.35

6,054.91

8

6,054.91

600.00

60.55

181.65

181.65

6,897.10

9

6,897.10

600.00

68.97

206.91

206.91

7,772.99

10

7,772.99

600.00

77.73

233.19

233.19

8,683.91

11

8,683.91

600.00

86.84

260.52

260.52

9,631.26

12

9,631.26

600.00

96.31

288.94

288.94

10,616.52

13

10,616.52

600.00

106.17

318.50

318.50

11,641.18

14

11,641.18

600.00

116.41

349.24

349.24

12,706.82

15

12,706.82

600.00

127.07

381.20

381.20

13,815.10

16

13,815.10

600.00

138.15

414.45

414.45

14,967.70

17

14,967.70

600.00

149.68

449.03

449.03

16,166.41

18

16,166.41

600.00

161.66

484.99

484.99

17,413.06

19

17,413.06

600.00

174.13

522.39

522.39

18,709.59

20

18,709.59

600.00

187.10

561.29

561.29

20,057.97

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