Pursuit of Excellence

http://www.fool.com/investing/2016/12/05/3-top-dividend-aristocrats-to-buy-in-december.aspx

Income investors know how important consistent growth in payouts can be, and the dividend stocks that you’ll find among the Dividend Aristocrats are among the best in the business at providing dividend growth. With requirements of at least a quarter-century of annual payout increases, Dividend Aristocrats prove their success through good times and bad. Let’s take a closer look at why Medtronic (NYSE:MDT), 3M (NYSE:MMM), and Enbridge (NYSE:ENB) are among the top Dividend Aristocrats to buy this month. Meditronic had a rough 2^nd quarter, and its revenue fell $110 million short of estimates. Despite this quarter, this company has recently received approval for the 1^st artificial pancreas. Having raised its dividend in 39 consecutive years and averaged a compound dividend growth rate of 18% over that span, Medtronic does a good job of rewarding its shareholders. Yet with a payout ratio of just 40%, there’s plenty of coverage for this dividend to head higher. Smart income investors would be wise to give Medtronic a closer look. 3M is a recommended buy as a dividend aristocrat because of the company’s been increasing its dividend for 58 consecutive years. With earnings growth targets of as much 11% annually between now and 2020, 3M is setting its sights high to maximize its prospects going forward.  Finally, the author recommends Endbridge due to its average compound dividend growth of 10.6% over the past two decades. What’s even more impressive than this history is that the company is in the process of an enormous expansion program that will make it one of the largest energy infrastructure in North America. I recommend looking at these stocks’ financials, and their 5 year to 10 year charts. Decide if these stocks are a part of your long-term portfolio or midterm portfolio.  In my opinion a mid-term portfolio should have a 20-year decision point. If it’s a part of your long-term portfolio, then hold forever barring unforeseen circumstances.
http://www.investopedia.com/advisor-network/articles/120816/how-income-taxed-differently-wealth

Due to the content of this article, I’ll be quoting heavily from it. Many people use the words income, rich and wealth interchangeably. These words are often used in conversations with professional athletes and high-income professions such as doctors and attorneys. Investopedia defines ultra-high net worth individuals (UHNWI) as people with investable assets of at least $30 million, excluding personal assets and property such as a primary residence, collectibles and consumer durables. I define wealth as having investable accounts that will not run out in your lifetime. Simply having income does not mean that you also have significant wealth. I’ll focus on taxes and retirement savings to show what I mean.

The author clearly distinguishes the difference between income tax and wealth tax (long term capital gains tax). The author shows your normal income tax table, which you can view at www.irs.gov.  The author shows the difference in these types of taxes with this example:

Let’s say your job pays you $500,000 and you pay the highest earned income rate (marginal tax rate of 39.6%). It was nice that your contract said that you would be guaranteed $500,000, but due to the tax bite, you only net $317,000. Now, if your income came from the wealth tax (long-term capital gains), it would be taxed at 20%. You would gain $83,000.

There is also a difference between retirement savings and retirement wealth. Your 401k or IRA isn’t retirement wealth. In most cases, they represent accounts that will be used to create retirement income for as long as there is money in the account. Money with a high probability of running out is not wealth. In contrast, if pensions don’t default, they won’t run out of money. However, 401(k)s and IRAs don’t have those guarantees. In fact, I have not found a non-certified financial planner professional that has a plan to turn IRAs into lifetime retirement income

If you have $1 million in retirement balance that you use for income, you don’t have wealth. Traditional IRA and 401(k) balances have never been taxed. That means that if you pull out $50,000, you will pay $5,684 in income tax on $50,000. If you withdrew the whole thing, you’d pay $356,875, only being able to spend $643,125. These numbers don’t include state taxes and other applicable taxes and fees.

If you need are interested in creating a budget, then contact me for a financial checkup in the contact me section.

For this week, I’ve included The 2008 Financial Crisis: Crash Course Economics #12 from CrashCourse YouTube channel.

“If you think you know it all, you’re a fool for sure; real survivors learn wisdom from others.” Proverbs 28:26 MSG