Thinking about pay raises

Have you got­ten a pay raise late­ly?

Probably a bet­ter ques­tion is: are you work­ing at the lev­el you’re capable/trained for, or are you just grate­ful to have a job with ben­e­fits?

I got a pay raise at work. It was good, rel­a­tive­ly speak­ing based on anec­do­tal evi­dence and my own per­son­al obser­va­tions.

Even so, my Elephant’s raise is more than three times the raise I received. Crazy! Where I got a 3% adjust­ment at work, my port­fo­lio is get­ting close to an 11% pay raise this year (and that’s a con­ser­v­a­tive mea­sure­ment).

Better yet, I can expect sim­i­lar results next year. And the year after. And the year after.

It’s all about the raise

Let’s not con­fuse raise with return. I know what my aver­age div­i­dend return is (3%).

I can’t pre­dict the future to know what my port­fo­lio return will be in the future, and I don’t like to spec­u­late. I’m con­fi­dent over the long arc of time the port­fo­lio will rise and that I ben­e­fit by being invest­ed as long as I’m patient. But I’m not talk­ing about guess­es for future expect­ed returns of the port­fo­lio.

I’m talk­ing about the raise to the Elephant’s Paycheck. The port­fo­lio (the Elephant) pro­vides a depend­able & pre­dictable pay­check through div­i­dend pay­ments.

It also pro­vides depend­able and pre­dictable pay­check rais­es.

My sam­ple Elephant’s cur­rent pro­ject­ed raise is 10.9%. The total raise he’s received over the past three years & one month that I’ve been track­ing my sam­ple Elephant’s Paycheck port­fo­lio is 48.95%. (You can see the details of the Elephant’s Paycheck sam­ple port­fo­lio in this Google Spreadsheet and find out more about the method­ol­o­gy by sign­ing up for the free email course that teach­es you the basics of the Elephant’s Paycheck Blueprint.)

That’s much bet­ter than 3% a year. Much bet­ter.

That’s the pow­er of the Elephant’s Paycheck Blueprint.

It gets better

If my employ­er decides not to give rais­es next year, or I get laid off, or am bored and want to do some­thing new, my salary increas­es are at risk.

The Elephant’s Paycheck Blueprint invests in com­pa­nies that have raised their div­i­dend pay­outs every year for at least 25 con­sec­u­tive years. That’s not a guar­an­tee of future rais­es, but… these com­pa­nies have those increas­es built into their oper­at­ing mod­els and incen­tives. It has to be real­ly bad for those div­i­dend rais­es not to hap­pen, or worse, for the div­i­dends to be cut.

Of course, that’s not an impos­si­ble sit­u­a­tion — it hap­pened to a few Dividend Aristocrats in 2008/9 dur­ing the melt­down. That said, 2008/9 was a pret­ty infre­quent sit­u­a­tion. And div­i­dend cuts (and skipped div­i­dend increas­es) most­ly affect­ed finan­cial com­pa­nies (and GE). If you were diver­si­fied you’d quite pos­si­bly still come out ahead over­all, even through that extreme reces­sion and mar­ket drop.

Actual return is a powerful motivator to stick to the Blueprint

I’ve cre­at­ed a met­ric to give a per­spec­tive on what this means for peo­ple invest­ed with the Elephant’s Paycheck Blueprint.

Actual Return.

Brokerages and every­one think in terms of the return based on today’s stock prices. If you look at the sam­ple port­fo­lio, I have this illus­trat­ed right on the front page of the spread­sheet with three items:

1. Original return.
2. Current return.
3. Actual return.

The orig­i­nal return was the per­cent­age div­i­dend return that the port­fo­lio was earn­ing the day it was invest­ed. We invest­ed $60,000 in our sam­ple port­fo­lio for about $1,764 in income. A rate of 2.94%.

The cur­rent return is the return you’d get if you start­ed this port­fo­lio today by invest­ing in the same com­pa­nies at mar­ket prices. The cur­rent return is 2.98%. That’s what most peo­ple would look for to under­stand how their port­fo­lio is doing. The cur­rent port­fo­lio is worth about $88,000 and has about $2,627 in div­i­dends.

The thing is, we did­n’t start with $88,000. We start­ed with $60,000. Because we were dis­ci­plined and kept to our blue­print, that $60,000 now earns $2,627 in div­i­dends. Earning $2,627 in div­i­dends from $60,000 is 4.38%. That’s besides any gain (or loss) in the under­ly­ing val­ue because “the mar­ket” goes up or down.

Remember, the mar­ket going up or down does­n’t affect the Elephant’s Paycheck div­i­dend earn­ings. Those go in one direc­tion only, up until the div­i­dend is reduced (which hap­pens rarely because of the Dividend Aristocrats we invest in).

The Actual Return met­ric that I’ve cre­at­ed is meant to give a sat­is­fy­ing per­spec­tive on the long-term suc­cess of invest­ing with the Elephant’s Paycheck Blueprint. Change your per­spec­tive, change your expe­ri­ence.

Doing your own research

Want to see what sort of rais­es you might get from your Elephant?

Go to your bro­ker­age account and head to the stock research sec­tion where you can look at div­i­dend info. For exam­ple, check out the pub­lic Fidelity stock research pages for P&> or Aflac. Scroll down on either of those pages to the sec­tion titled ‘div­i­dend ana­lyt­ics’. You’ll see a line item called ‘Annualized Dividend’ — read over to the right for the num­ber in the ‘5‑year growth’ col­umn. Both these com­pa­nies have an aver­age annu­al div­i­dend growth of over 6.5% over the past five years.

Again, think of that in terms of the rais­es you’re get­ting at work.

Have you got­ten, on aver­age, over 6.5% a year, each year, over the past five years?

Don’t for­get that growth com­pounds… but that’s the sub­ject for anoth­er post.