#24 – Hotlanta, Consumer Prices, Waffle House, And Dividends As Cash For Retirement

Wes Moss [00:00:54]:
Welcome to the show.

Jeff Lloyd [00:00:55]:
Hey, thanks for having me back here.

Wes Moss [00:00:57]:
On this Father’s day.

Jeff Lloyd [00:00:58]:
Happy Father’s Day, Wes.

Wes Moss [00:01:00]:
Nobody cares about Father’s Day. Not in my house. You getting anything?

Jeff Lloyd [00:01:04]:
You know, my wife and daughter are out of town, so I don’t even know if we’re gonna celebrate. Maybe I’ll do a little cookout or something.

Wes Moss [00:01:11]:
Nobody’s home.

Jeff Lloyd [00:01:12]:
Nobody’s home today.

Wes Moss [00:01:13]:
You’re all alone.

Jeff Lloyd [00:01:14]:
Yeah, they’re out on travel.

Wes Moss [00:01:16]:
See what would happen if you did that on Mother’s Day?

Jeff Lloyd [00:01:19]:
I don’t even want to find. I don’t even want to think about it. I don’t even want to know what would happen if I were to skip Mother’s Day.

Wes Moss [00:01:25]:
Yeah, it’s not nearly the fanfare around Father’s Day. The one thing I’ve seen is I get ads for Father’s Day gifts all the time as if I’m gonna buy myself a gift. But that’s the only reason I knew it was Father’s Day today is I keep getting alerts from I wonder, what.

Jeff Lloyd [00:01:44]:
Are the hot Father’s Day gifts? Some, like grilling utensils, some new shirts.

Wes Moss [00:01:49]:
Golf, golf shoes, grill equipment. That’s the only thing that you can. That’s what dad wants.

Jeff Lloyd [00:01:55]:
Grilling and golf, right?

Wes Moss [00:01:56]:
Yeah, grilling, golf.

Jeff Lloyd [00:01:57]:
It’s us open weekend.

Wes Moss [00:01:58]:
That’s right, it is. Well, it’s hot here in Atlanta. It makes me want to go to Michigan. I can’t wait for the cooler. Summers up in Michigan. I check the temperature. Low seventies up there.

Jeff Lloyd [00:02:10]:
Yeah. And we’re approaching hundred. Around 100 in Hotlanta, feels like 100. You get out on the lacrosse or the baseball field and you’re on that artificial turf, it’s even hotter.

Wes Moss [00:02:20]:
It goes up by at least another ten or 15. It really does on turf.

Jeff Lloyd [00:02:23]:
It feels like it.

Wes Moss [00:02:24]:
Speaking of, we’re going to do a show from Michigan this year. Aren’t we?

Jeff Lloyd [00:02:27]:
That’s right. We’re going to do that coming later this summer. That’s right.

Wes Moss [00:02:31]:
Sometime in July. We’ll do a Michigan, let’s do it.

Jeff Lloyd [00:02:36]:
From, live from Michigan in the summer.

Wes Moss [00:02:39]:
Provided we have a great Internet connection.

Jeff Lloyd [00:02:42]:
That’s right.

Wes Moss [00:02:43]:
We’ll see how it goes.

Jeff Lloyd [00:02:43]:
Well, I got to ask one more thing on Father’s day. Proud father of four. I’m a proud father of two.

Wes Moss [00:02:50]:
And I’ve noticed just because it’s summer, having all four kids home and not as scattered, they’re either at a tournament or somewhere, but there’s just more of them in the house at any given time. It just reminds me of the extra chaos. So yes, I have four, so I have two.

Jeff Lloyd [00:03:07]:
Does that mean you get twice the celebration, twice as many presents, twice as much time playing golf?

Wes Moss [00:03:14]:
Is that how that works? I know you and I know that you usually do some sort of inflation. And so speaking of, good morning, welcome to money matters. We’re going to cover the unemployment numbers from last week. We’ll talk about CPI from this week, the inflation numbers we’ve got. There’s the inflation, a three year look back, which I love. I want to talk about that. How about this? Using cash dividends for retirement. That sounds exciting because that’s real life, powerful investment.

Wes Moss [00:03:46]:
I wouldn’t call it research, but I would say perspective. It is some research. So we’ll go back to that. And then my favorite headline of the week, Jeff Floyd. And I know you’ll love this one because this fits. This is. You’re a huge fan. Taylor Swift’s eras tour shows so Taylor Swift’s era tour shows trigger earthquake readings.

Jeff Lloyd [00:04:06]:
At a concert in Scotland, triggered an earthquake in Scotland, picked up on the Richter scale.

Wes Moss [00:04:12]:
And this was out right outside of something like within 4 miles of her show in Edinburgh, Scotland. This is according to the British Geological Society, or survey 90. Almost $100 million economic boost to the city of Edinburgh alone. And the era’s tour set to add an estimated billion pounds, or $1.27 billion to the economy of the United Kingdom. One person, one force of economic and music nature, Taylor Swift boosting the uk economy over a billion dollars for her tour, which is, and I know you’ve been to some of these Taylor swifts, but she’s, the amount of where she’s going is crazy. And I don’t know if these were from last because arrows actually started last year, didn’t it?

Jeff Lloyd [00:05:02]:
Yes, it did. It’s been going on about a year now.

Wes Moss [00:05:05]:
It’s already been doing so these are. Either she’s been there or she’s going there. But it was Miami, New Orleans, Indianapolis, Toronto, Vancouver, London, Paris, Madrid, Zurich, Milan, Germany, Hamburg, Munich. Wow. Vienna. Just. What an economic force. To the tune of a billion dollars.

Wes Moss [00:05:26]:
She’s a billion dollar economic force.

Jeff Lloyd [00:05:28]:
And I’ve still been looking up tickets on Stubhub for, let’s say, New Orleans, which is pretty one. One of the closer concerts she’s going to have to Atlanta. And they’re still like $3,000 a ticket.

Wes Moss [00:05:39]:
Where’s the closest? Where is it?

Jeff Lloyd [00:05:41]:
New Orleans.

Wes Moss [00:05:42]:
Yeah, that’s it.

Jeff Lloyd [00:05:42]:
That is 3000. You know, two to 3000 for a nosebleed.

Wes Moss [00:05:47]:
Wow.

Jeff Lloyd [00:05:47]:
Yeah.

Wes Moss [00:05:48]:
No wonder it’s a.

Jeff Lloyd [00:05:48]:
Prices are still high.

Wes Moss [00:05:49]:
No wonder it’s a billion dollar tour. It’s really. It’s. It is unprecedented. I think it was the. The closest ever was. So it’s 22 countries, 152 dates, 21 months already. The highest grossing concert tour of all time.

Wes Moss [00:06:06]:
Over a billion in revenue. And that’s. In the first eight months, the world’s second highest grossing tour ever was over five years, was only 939 million. That was Elton John, farewell, yellow Brick Road.

Jeff Lloyd [00:06:22]:
How many farewell tours did he actually.

Wes Moss [00:06:24]:
Everybody like farewell.

Jeff Lloyd [00:06:25]:
Every year it was a farewell. Him and Billy Joel’s done a couple.

Wes Moss [00:06:29]:
You know, George Strait. Last time I went to George Strait, it was the last time ever.

Jeff Lloyd [00:06:34]:
And he’s still torn right now.

Wes Moss [00:06:36]:
Chris Stapleton, he’s right back at it. Farewell. Anyway, so let’s. Let’s at least look at inflation here for a minute. The latest inflation number we just got, we were essentially flat for. Well, it was flat, so we had no change from the month to month. And then the year over year dropped down a little bit to 3.3%. So we’re back to.

Wes Moss [00:06:59]:
We’re getting closer to being able to be under 3% year over year. Of course, that’s what the Fed wants. Core index. So if you exclude whoever came up, it makes sense. Volatile, because food prices and energy prices are volatile, and that’s why. But it’s always so funny to take out the staples of life that we have to have. We need energy and we need food.

Jeff Lloyd [00:07:23]:
Well, I wish they would rename it. It says core, which exclude volatile prices like food and energy, but it’s yet.

Wes Moss [00:07:30]:
The most core thing.

Jeff Lloyd [00:07:30]:
There’s like something essential that you need. So, like, change it to, you know, the non volatile CPI or it’s just a misnomer calling it core. So you gotta have those items.

Wes Moss [00:07:41]:
So food in general, even though it doesn’t feel as though it’s gotten a lot better. It’s only up 2.1% across the entire food category over the last year. It’s because we had a whole lot of food inflation prior to that. The, the most recent jumps we’ve seen juices and drinks up about 20% still, year over year. Frank fritters up seven Frankfurters.

Jeff Lloyd [00:08:05]:
That’s your favorite. I feel like that’s your favorite CPI item. Frankfurter. That’s the first thing we look at, Frankfurters.

Wes Moss [00:08:11]:
And I don’t know how to really put it. I always call them Frank fritters, but they’re really frters. Bacon up seven sugar, et cetera. And this is news straight out of this is headlined straight out of the MLA, which is the major league eating tour. Joey Chestnut, six time Nathan hot dog eating champion, banned from the July 4 Nathan’s competition because he’s now, because Nathan’s are actually, they’re meat hot dogs. He now has a deal with impossible foods, which are, I guess they’re vegetable.

Jeff Lloyd [00:08:46]:
Plant based hot dogs, plant based frankfurters. Is that right?

Wes Moss [00:08:51]:
Amazing energy up three seven. Food away. Food away from home is still continues to rise up 4%. And really the big three were admission to sporting events. Still up 22% year over year, maybe in part due to Taylor Swift video discs and other media, which we know that’s essentially, that still hasn’t been updated. Video discs eventually will become streaming, so they’re really measuring streaming. They’re up 20, which makes sense because the big streamers, including Netflix, raised prices this past year. And then we still know that motor vehicle insurance has gone absolutely through the roof.

Wes Moss [00:09:31]:
Up 20% year over year. And the only thing we’ve really seen take a hit are the same categories that seem to always go down, which telephone, hardware and calculators. They just, they always go down in price.

Jeff Lloyd [00:09:44]:
It’s the technology categories that seem like they keep going down each year.

Wes Moss [00:09:49]:
They just keep going down.

Jeff Lloyd [00:09:50]:
Tvs are less expensive than they were a year ago, five years ago.

Wes Moss [00:09:55]:
Toys and dishes and flat again, television’s down again. Television is always down. They just keep getting less and less and less and less expensive. And you get more tv on the wall. For a couple hundred bucks, you can get a great deal.

Jeff Lloyd [00:10:08]:
Do you remember when plasma tvs first came out? I don’t know if it’s 15 or 20 years.

Wes Moss [00:10:15]:
Howard used to spend a lot of time on which plasma to buy and.

Jeff Lloyd [00:10:19]:
I’m just making, it seems like those tvs were five to $10,000 for one. Call it 42 inch tv.

Wes Moss [00:10:26]:
Now you can go to Walmart.

Jeff Lloyd [00:10:27]:
Now you can go pick it up for two to $300, if not cheaper. And they’re bigger, lighter, and better quality.

Wes Moss [00:10:34]:
Now, the apps are already built in on some of the ones I’ve gotten from Walmart. They make it so easy, it’s really credible. I always wonder, there’s no way that these television companies are making money from the product itself. It has to be the services tied to these televisions. Because it’s amazing to me to think this giant box with a screen and a computer in it that is shipped all the way from Asia to get to the United States, how can they put. The box itself looks like it costs $50, and they sell them for $227 at Walmart. It’s a fascinating part of the economy and where I’m most happy, food at home. The one big category that’s really eased.

Wes Moss [00:11:18]:
And I’ve noticed this at the grocery store because I really do pay attention to the prices of apples as a connoisseur. Down 13% year over year, the price of apples, I’ve noticed that, and it’s been nice.

Jeff Lloyd [00:11:34]:
Now, what is the best apple for summer or just any apple? It’s got to be a cold apple. Does it have to be a honey crisp? You’re the connoisseur. What’s the best apple?

Wes Moss [00:11:45]:
You know, I would say that they stay. It doesn’t matter if it’s hot or cold outside. Winter, spring, summer, fall. Still, the number one apple is the crisps pink. If you can get one that’s in top form, the top form crisp pink is the best apple. Winter, spring, summer, fall. No question, no contest.

Jeff Lloyd [00:12:09]:
Okay, I’m writing this down, making a little note for myself next time I’m in the grocery store to check out.

Wes Moss [00:12:14]:
Well, really, I think, is it actually, and it’s the cousin. It’s actually the same apple, which is the pink lady, and it’s really the pink lady that’s technically the better apple. And there’s some sort of sorting process that goes there. But at least we’ve seen some relief at the apple bin.

Jeff Lloyd [00:12:33]:
An apple a day keeps inflation away. Is that right?

Wes Moss [00:12:37]:
Well, it’s helping. It’s helping.

Jeff Lloyd [00:12:38]:
It is helping.

Wes Moss [00:12:39]:
And then we continue to track rents. Right. So we know that shelter has been a huge part of inflation. And we know that shelter, which is the owner equivalent rent, and then rent in general, is in the shelter number that has gotten so much better but still hasn’t fully been baked into the overall CPI number. We know inflation for rents. It’s been negative for the last year or so. It’s down 1% year over year, approximately, so that eventually will continue. I think that’s one of the tailwinds to bring down the rate of inflation.

Wes Moss [00:13:15]:
But when you go back three years and we look at how much we’ve had to endure, it’s the reason people don’t feel good about this economy. And we’re going to do a three year recap on that, which you did a great job on that. We’re going to talk about that when money matters comes back straight ahead. If you’ve ever done a Jane Fonda workout, or if you remember as a kid rocky running the steps, and if Michael Keaton is still mister mom to you, then guess what? It’s officially time to do some retirement planning. It’s wes moss from money matters. Weren’t those the good old days? Well, with a little bit of retirement planning, there are plenty of good days ahead. Schedule an appointment with our team today@yourwealth.com. dot that’s your, yourwealth.com dot.

Wes Moss [00:14:04]:
This whole slow boil, and that’s the way I think about this, it’s a slow, we’ve been boiled slowly for the last three years. It started three years ago and we’ve had some major impacts. Of course, the overall number is about 17% if you go back to May 3 years ago. So that’s the cumulative number. And the bigger numbers, of course, that we see on over and over and over again because we eat as humans. Food at home, up 20%. Food away from home, 21%. We fill up our light vehicles in our pickup trucks if you’re dad, 20% over the past three years.

Wes Moss [00:14:44]:
And electricity, which is, again, we pay for that every second the lights are on and every second the air conditioner is on in this hot summer, we’re already in here. Atlanta up 26% over the past three years. Then you look at housing, and this is where the shelter numbers are staggering. The good news here is that 80% of America locked in a pretty low mortgage rate if you had a, if you already owned a home. But that’s not everyone, and it certainly doesn’t count those who are trying to buy a home and have been trying to buy a home. In 2021, the median home price was 355 grand. Median home price in America three years ago, $355,000. And of course, interest rates were hyper low.

Wes Moss [00:15:27]:
Mortgage rates were hyper low. That translated to a $1,200 payment for a median home in the United States. Interest was 750. Principal, about 473. So really easy to be a first time home buyer relative to where we are today. Now, median home price over 400. So 407,000, which, I don’t know, maybe the older you are, the more shocking those numbers are. The fact that that’s the median.

Wes Moss [00:15:57]:
That’s, on average, the price of admission in the United States at the middle point. So now we’re up to 407, and we know where mortgage rates are still hovering around seven. Seven plus. So that now translates to a payment of about $2,200 per month for the median home in the United States. That’s just in three years. So now you’ve got a whole thousand dollars more to be able to get into the housing market if you’re a first time buyer. And that’s where we stand. That is the slow pot that has been boiling.

Wes Moss [00:16:31]:
Then you put 20%, 25%, 30% for all the things that we need on a daily basis. And here we sit 36 months into this, and we’ve been worn down, and we feel the impact. And that’s why 56% of Americans feel like we’re in a recession. It still doesn’t explain why over half the country thinks the stock market’s down. And I still don’t understand why most people think that we’re at a. We have a terrible labor market. But that’s what the polls show. Studies.

Wes Moss [00:17:01]:
Surveys. I don’t know if you call that a poll, but yeah.

Jeff Lloyd [00:17:04]:
And just doing the three year comparison for the monthly payment on the median home, comparing now, three years ago, you’re paying 80% more on your. On your monthly payment. Like you said, interest rates. Now they’re hovering around 7%. Three years ago, they were still below the 30 year mortgage. The 30 year mortgage was still below 3%.

Wes Moss [00:17:27]:
And let’s remember again why all this happened. Just this giant ripple. So Covid was like a boulder in a pond. The ripples were just dramatic, and they’ve lasted, and they still haven’t fully. Fully settled back to what we would consider normal. And. But that initial shock, the initial boulder landing in the pond, those were the supply chain disruptions you remember seeing at the ports. Thousands of container ships, a sea of container ships not being able to get into the port, not being able to get it unloaded.

Wes Moss [00:18:00]:
So then you had this huge lack of supply in the United States just before the world unlocked. And then we had this massive demand. So we had a lack of products. We had a massive demand of people who had gotten stimulus money, went out, wanted to buy, and hadn’t bought for a couple of months. Hey, I’ve been really good. I haven’t eaten any sweets for three straight months. I see a cheesecake. I’m going for the cheesecake.

Jeff Lloyd [00:18:25]:
Yeah. And we called that pent up demand. They hadn’t spent money in so long, got some stimulus in, and then couldn’t wait to go out and buy some new products or go on a vacation, which they hadn’t been on.

Wes Moss [00:18:35]:
And I don’t know why I use cheese. I want to take that back cause I don’t like cheesecake. I don’t know why I said cheesecake. I think I just have this visual of the cheesecake factory with the cheesecake and the strawberries. It looks good, but I don’t love cheesecake. Just for the record, you just want.

Jeff Lloyd [00:18:50]:
To go buy some pink lady apples.

Wes Moss [00:18:51]:
Just for the record, I wish I could turn down a quadruple chocolate cake for a pink lady apple. That’s the right choice. That’s the blue zones choice. Jeff Lloyd so we have this very strange supply constraint. Then we had a flood. The dam broke the pent up demand, and we had a flood of consumerism. And then on top of all that, which also contributed to the demand because people had more money. This huge monetary response, federal Reserve buying up assets, injecting liquidity into the system, literally sending out checks, which, unless you were living in it, it’s hard to still, even a few years later, to believe that the government sent big checks to pretty much everybody in the United States.

Wes Moss [00:19:38]:
So everybody had more money. It just the world, the consumerism went wild and it just shot prices through the roof. And that’s where the impact took a little while. But all of a sudden, so here we were, so February, remember this? February 2021, inflation was at 1.7, January 1.4. Oh, no big deal. No, inflation is not a big deal. And then, boom, May 2021, up five. Next month, up five, almost and a half, couple months later, just by the end of the year, December, we were at seven.

Wes Moss [00:20:10]:
By that next summer, June of 22, we are at nine. So it went from no inflation, no inflation, no inflation to nine. Almost. What in the world of inflation, almost overnight. And we’ve been scrapping and clawing our way back down to a more normal level. And that, of course, has been the Fed combating all of this inflation. They don’t have a whole lot of things they can do. Their tool is to change interest rates in the United States.

Wes Moss [00:20:42]:
That’s pretty much it. That’s their primary tool. And that’s what they did. They’ve raised rates eleven times. Ratcheting from zero to where we are today. Five and a quarter. Five and a half. And they have stayed put and they are not moving off of that position anytime soon.

Wes Moss [00:20:59]:
The latest inflation report just, we just got this past week, increased the predicted odds of, of a rate cut as fairly likely sometime this fall. But I wouldn’t be surprised at all as the Fed leaves rates right where they are for the entirety of 2024, and we don’t see a rate cut until 2025.

Jeff Lloyd [00:21:16]:
A lot of the predictions at the beginning of the year called for, let’s say, five to seven rate cuts. That changed in March, it changed again. Now they’re predicting maybe one rate cut by the end of the year. But like you said, zero rate cuts are still on the table.

Wes Moss [00:21:35]:
Well, and the dot plot our predictions for next year are full percent. So if that were the case, we’d go from where we are down to call it 4% for Fed’s funds. But I put no stock in any of that. Right. Here we are. A couple of months ago, we’re supposed to have five to seven rate cuts and now we’re maybe at one, probably at zero. And then there’s predictions that we’re going to get five or next year. It’s just, it’s completely, at least they say this, it is completely data dependent.

Wes Moss [00:22:06]:
And if we get inflation back to two, then, yeah, maybe we’ll get a couple of rate cuts. But that’s a long road from 3.3. Not that things aren’t better, but it’s still a long road and a long trajectory. And we cannot put any faith in any forecast beyond across this studio, if you will. That’s about as far as you should go. In other money matters, one of the headlines of the week, Waffle House raises worker pay to a whopping $3 an hour after labor protests and menu prices are going up.

Jeff Lloyd [00:22:46]:
I’m sorry. It’s father’s day. There’s a lot going on in the studio. I thought you just said raises to $3. Can you read that again? I don’t think I heard you.

Wes Moss [00:22:55]:
Clearly you had to go. I didn’t believe this. And I have not been following Waffle House and the issues that they’ve been having when it comes to pay. But this has been a long running issue. Yes, they actually, people get paid less than $3 an hour at Waffle House.

Jeff Lloyd [00:23:11]:
That’s just astounding. We got people around the studio just with jaws dropped right now, and I.

Wes Moss [00:23:16]:
Wanted to figure out what it was. It’s basically, it’s what you would expect. How could a company do that? It really goes back to a culture of tipping. So it’s really, people make their money through tips. Now, you can pay employees less if they’re tip heavy, but the average amount that people get paid per hour with the tips has to at least get to the federal minimum wage at $7.25 an hour. Again, that could be different from state to state. Of course, who knows what it is in the state of California? But, yeah, this has been a long running issue. So this is CEO Joe Rogers the third.

Wes Moss [00:23:59]:
He announced that the base pay would rise to at least $3 an hour starting this month, June 2024, and then will gradually increase to 525 an hour by June of 2026, which is, as you can imagine, that’s a big pay raise, because tips probably won’t go down, though there is some tips fatigue in the United States. In fact, we’ve been. Have we been talking about this, or was it me and Connor Miller on this? Are you tip fatigued at all?

Jeff Lloyd [00:24:27]:
I’m a little, yes, I am tip fatigued everywhere I go. It doesn’t matter. I feel like I’m supposed to tip on my groceries at the grocery store, you know, run my credit card, then they swivel the iPad around and. Would you like to add a tip? It just has gotten out of control. If I place an order to go at a restaurant and I go pick it up myself, am I supposed to tip the normal when you take out takeout order?

Wes Moss [00:24:54]:
Like, I never know what to do there. I never know what to do that one. I usually do 10%, but I have gotten tip fatigue as well. So, one, I’ve stopped doing the full dollar tip on, like, a four dollar thing, and they swivel it around. You bought a bagel. Would you like to tip $1 or $2 or so? I’ve stopped that one, and then I’ve gone to. I usually would tip everybody at a restaurant at least 20%, sometimes 25 if it was great. I’ve gone down to 15.

Wes Moss [00:25:24]:
If somebody’s really bad, I’ll go down to 15. Now, if I get bad service at.

Jeff Lloyd [00:25:28]:
A restaurant, 15% is my way of telling them they need to pick it up.

Wes Moss [00:25:32]:
Yeah, but if you read the tips statistics, not everybody leaves tips. It’s like something like 80% leave tips, but not everybody in America does.

Jeff Lloyd [00:25:41]:
I kind of like the european model when tips already included.

Wes Moss [00:25:44]:
It is, but I don’t know. We’re more of incentive based economic system, and we’re, you know, we’re a little different than the Europeans. And I like that model. The question is just, I think we all have tip. We have tip fatigue. We do in the United States.

Jeff Lloyd [00:26:01]:
I do know this.

Wes Moss [00:26:01]:
Next time, we should not have tip fatigue for Waffle House.

Jeff Lloyd [00:26:04]:
Next time I go to Waffle House, bigger tip.

Wes Moss [00:26:06]:
One place my tips are not going down. It’s Waffle House. In fact, I think they might be going up. Listen, I want to get to using dividends as cash for retirement. So for the better part of these three years, we have been talking about the inflation dragon. I have this visual that inflation is a mythical beast. It was frozen in a glacier for 15 years. We had almost no inflation in the United States.

Wes Moss [00:26:35]:
United States. And then that melted may of 2021 and just has been, has wreaked havoc. And that means we’ve all faced this harsh reality, and that’s whopped our dollar purchasing power. That’s why Americans don’t feel great about the economy. One of the few antidotes to inflation is to own assets that inflate along with inflation. And of course, that includes us stocks. It includes real estate, it includes private businesses. But when you’re looking at, let’s just call it the S and P 500, we can look at that as one big dividend stock.

Wes Moss [00:27:13]:
If we’re looking at collectively one big dividend producing machine. And, yeah, we can focus on specific dividend companies, and we can look at indexes like the dividend aristocrat index, but just the S and P 500 alone. That in itself can provide significant dividend income if you’re patient enough to allow it to grow over time. And historically, that dividend growth rate has near been nearly double the us inflation rate over almost any time period you look at. There’s another chart I think you had for today, Jeff, that was.

Jeff Lloyd [00:27:49]:
Yeah, this is going back a study of inflation versus dividend growth over 150 years. So this is going back to 1870. And inflation over that time period has averaged about 2%. Dividend growth has almost doubled that pace, growing at about 3.7%.

Wes Moss [00:28:08]:
So the rate of dividend increases has in itself almost doubled inflation. It’s important to remember that. And we’re income investors here on money matters. The goal of every income investor and dividend investors to be able to generate enough dividend cash flow and other areas through interest. But we’re going to focus on dividends from stocks today to pay for their entire retirement lifespan. But it doesn’t happen overnight. It takes a while to see the real fruits of dividend investing. And I found a great chart on, I believe it’s called just the dividend investor.

Wes Moss [00:28:45]:
That shows how your income from dividends alone could essentially fund a really big part of retirement just from stock dividends. And there is this magical inflection point, too, that happens when your income alone from dividends starts to pay for, maybe it’s 50% of everything, or 75, or if you’re really patient and have done well over time, it pays for 100% of everything you need, and you’re never having to even dip into principal. I think that’s a taller order today. But in order to really make this work, it takes some time. And at some point, you can passively sit there and have the fruits of that income tree that you planted long ago really pay for life. And by the way, if you haven’t planted that income tree, now is a great time to start. More money matters straight ahead. So we’re going to look at this almost overlooked phenomenon of growing dividends, and we’re going to look at a study where we start, and this is just, these are actual numbers for the s and P 500 and actual dividends.

Wes Moss [00:29:51]:
We’re going to go back and start in 1993. So think about this in terms of a 30 year retirement. So we’re starting 1993, putting in a million dollars, and we’re going to look at it until the end of last year. So this is a 30 year span. It’s a real amount of time. So make no mistake, this is not an overnight phenomenon. But here’s how $1 million could have paid you, paid you in retirement, just by spending the dividends. And remember, not all companies always raise dividends.

Wes Moss [00:30:20]:
Of course, we see dividend cuts. That happens, I would say pretty infrequently, but it certainly happens. But more companies raise dividends in any given year than companies that cut dividends. So that’s where you get this growth of the rate of dividends over the course of time. We start with a million dollars the first year, and this one will be. The way we’re looking at this is, I call this the dividend spender. So we start with a million dollars. 1990.

Wes Moss [00:30:47]:
319 94. You take out and only spend the dividends that come from the S and P 500. Now, overall dividends were higher back then, to the tune of about 2.8%. Today we’re closer to 1.4%. So they almost double back in the early nineties. So the cash flow in that first year was about $28,000. The portfolio value actually went down a little bit in that first year, down to about 984,000. The first year didn’t really feel all that great because you had less money.

Wes Moss [00:31:19]:
But the next year, it was a great year for stocks, up about 34%, and the dividend went up about $1,300. So dividends went up about 4.7%, similar to the long term average. So we went up to $29,500. Not bad. And let’s call the dividend spender. Her name is Kathy. Kathy does this every single year. She takes the dividends just from the S and P 500, leaves the rest invested.

Wes Moss [00:31:52]:
And particularly if you go back to that period of time, Kathy has, let’s call it $2,000 a month Social Security, 24,000 a year, and she’d have about $54,000 total just from social and these dividends. So back in the early nineties, that was more than enough to live on. Now today, obviously, that number were more challenged because things are so much more expensive. And over the course of that 30 year period, Kathy got a raise from dividends almost every single year, except for the year 20 00 20 01 20 09 the decreases in zero one and 2000 or 2000? 2001. They weren’t huge. The decrease in the dividends only down two and a half percent and down 3.3%. There was a big drop in zero nine after the financial crisis. Income that had grown for Cathy from that initial 28,000 by the financial crisis, it had grown to $61,000 a year.

Wes Moss [00:32:53]:
That got knocked back to 40%. 8000. And then the rise resumed from there. And that’s where you start to see this long, steady rise of dividends. 56,000 in 1160. 7000 in 20 12. 84,000 in 2014. And by the time we got to 2020, her dividends, again just from the S and P 500, are up to $142,000 per year.

Wes Moss [00:33:22]:
So now she’s getting $10,000 a month just in dividends. And we’re assuming that she’s spending these dividends. So she’s, instead of reinvesting, which obviously the overall value would be higher if you never touched it, and you’re reinvesting. But on average, her dividend income rose over that 30 year period, rose on average by about 5.9% per year. Income started at $28,000 in year one. It grew to about $150,000 by the last year of the study. And what about her initial million dollars? What was that worth at the end? The answer, a little over $10 million. So here, dividends over time paid her a little over 2 million.

Wes Moss [00:34:13]:
So $2,061,000. Over the course of that period of time, and she spent it. So she didn’t reinvest it. Think about how powerful that is. And then in addition to that, have the value be worth just a little over $10 million. That shows you the power of not only the dividend, but again, the rise in the value of companies. And that is both a dividend and growth trajectory over time. Now, any guesses of what? Well, you have the info, so of course you don’t need to guess this.

Wes Moss [00:34:50]:
But here’s the difference. If she did reinvest those dividends, Jeff Floyd, where would that $1 million be at the end of her 30 years?

Mallory Boggs [00:34:58]:
So if she didn’t take any dividends out over that 30 year history going back to the end of 1993, just kept reinvesting those dividends year in, year out, through good times and in bad. Maintain some patience throughout some pretty scary times in the market. You have the.com bubble. You had the great financial crisis. You had Covid, just to name a few. Over that 30 year span, she would have been left with just over $18 million.

Wes Moss [00:35:32]:
Yeah. And I’ve seen this trajectory for, over the past 25 years or so. I’ve been in the investment business. I’ve seen similar trajectories. The reality here is, though, most people need their dividends in retirement. That’s why we save money to begin with. So people need cash flow. It’s interesting.

Wes Moss [00:35:50]:
I’ve seen people, I think this may just be a phenomenon of inflation. And now we’re four years post Covid. I’ve seen people do more and bigger projects. I’ve seen people spending more money this year in general. And part of that is that the market has been good. But a lot of that has been going into real estate. A lot of families I’ve worked with have been spending money on real estate, are now paying for a project that’s now done, that’s taken a year or two. But you’re right.

Wes Moss [00:36:19]:
If you think about how steady the amount is, 3132-3436 over time, and the few times that those dividends went down, they were, they were pretty small. The biggest drop, of course, was from 60,000 down to 48. If you’re looking at the value in the reinvestment example, over time, that’s where you’ve got to have a little bit of an iron stomach. So the million dollars grows to about three and a half. Then it takes a big hit all the way down to 2.2 million. That’s with 20 00 20 01 20 02 year after year markets down, then it goes back up over the next several years, gets to 4 million, then whack 37% for the year of 2007, down to two and a half. So you’ve had a lot of big drops in value. And again, we’re looking just at the S and P 500 here.

Wes Moss [00:37:15]:
It’s one giant dividend producing machine. Now, the yield today is not all that strong, but a lot of that has to do with share buybacks. I’m going to cover that in just a minute. But there’s some really big fluctuations in the overall value on that path to getting, which you get some. Again, the compounding effect here gets tremendous towards the last few years, and that’s part of this phenomenon of why the million turned into about $18 million. Now, the question is, and this is another way of looking at this, there’s another important metric on this chart here, and it shows how much you need to invest in the s and p 500 to get a dollar worth of dividends. Think of this as the opposite of the dividend yield. For example, if you’re paying $25 to get a dollar in dividends, that’s a 4% yield.

Wes Moss [00:38:09]:
At the beginning of the exercise, Cathy was getting an almost 3% dividend yield. Today, it’s closer to one and a half. Now, that is not an insurmountable issue. First of all, you can always go and find other areas in the marketplace that have higher dividends. That’s one way to do it. But a big part of why the percentage yield has dropped is due to companies accelerating something else with their cash, and that’s stock buybacks. Instead, let’s say, of paying $100 out in dividends. It’s not uncommon to see a company payout $50 and spend another $50 buying back their stock.

Wes Moss [00:38:49]:
And that has gotten more and more and more popular over the last 10, 15, 20 years. And that’s why we’ve seen the overall dividend yield percentage come down for the market in general. Now, the buyback really is another way of returning value to shareholders, because it decreases the company’s overall share count. And then if that happens, you get a lower denominator and you boost earnings per share. So it is a way to increase the long term value of a company stock. But that shifted from an environment where it was almost all cash payout. Today, it’s very much a balance between cash payouts and share buybacks. Do some perspective.

Wes Moss [00:39:32]:
Back in 1993, total share buybacks to the S and p 500, only around $30 billion. 2003, it had grown to $150 billion in 2022. Companies spent almost, say almost a trillion dollars on buying back their stock. $922 billion spent in 2022 to buy back stock, reduce the share count to increase earnings. And companies are doing that with the money they’re bringing in from profits, in large part. So if you’re restarting what Cathy was able to do for 1993 for 30 straight years, you may be saying, well, Wes, the yields are so much lower today, I would say that from a nominal perspective, it’s true, but companies are still. The earning and earnings power from this group of companies in the S and P 500 is, again, better than it’s been, far exceeds where it was ten years ago, 20 years ago, et cetera. But we do need to account for that share buyback.

Wes Moss [00:40:35]:
So maybe it’s not just living off the dividends. Perhaps it’s living off the dividend plus a little bit of the corpus along the way, knowing that you’re getting a value rise over time because of share buybacks.

Jeff Lloyd [00:40:50]:
Yeah, and one of the things that I don’t.

Wes Moss [00:40:52]:
We’ve ever talked about that here on the show.

Mallory Boggs [00:40:53]:
No, we haven’t. But one of the things that we have talked about on the show, and I’m just looking at it now, over 30 years, her original investment of $1 million. That first year, she got about $28,000. So that’s a 2.8% dividend yield. If she’s taking that money out, not reinvesting, that’s a 2.8% dividend yield. 30 years later, she’s getting about $150,000 on the original $1 million investment. So that’s about a 15% dividend yield on that original $1 million. So we’ve.

Wes Moss [00:41:33]:
That is yield at cost. So that’s what Jeff, I love that calculation. That’s another way, I think, to kind of get some discipline around dividend investing is to start calculating your yield at original cost. And that’s why today’s 2% yielders may not sound like a lot. You hold it long enough, and you get dividend increases. That can turn into a five, a six, a 10% yield on what you originally paid. The math here you’re doing is that by the time 2023 hits, she’s getting 150,721 on her original $1 million. That’s 15.1%.

Wes Moss [00:42:18]:
And that’s the yield at cost. It grows. It should grow over time as long as the company is growing dividends, or the group of stocks, in this case, the S and P 500, is continuing to increase dividends. Over time. Talk about an antidote to inflation. This is a big part of it and I think it’s an important lesson here on a Sunday morning. Thank you so much for tuning in here on this Father’s day. Happy Father’s day to all the dads listening.

Wes Moss [00:42:47]:
Thanks for tuning in. You can find Jeff Lloyd. You can find me easy to do so@yourwealth.com. right there on the homepage there’s a start a conversation. Those emails come straight to Jeff, myself and our team and we’re here to help with that. I hope you have a wonderful rest of your day.

Mallory Boggs [00:43:13]:
This is provided as a resource for informational purposes and is not to be viewed as investment advice or recommendations. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. The mention of any company is provided to you for informational purposes and as an example only, and is not to be considered investment advice or recommendation or an endorsement of any particular company. Past performance is not indicative of future results. Investing involves risk, including possible loss of principal. There is no guarantee offered that investment return, yield or performance will be achieved. The information provided is strictly an opinion and for informational purposes only, and it is not known whether the strategies will be successful. There are many aspects and criteria that must be examined and considered before investing.

Mallory Boggs [00:44:01]:
This information is not intended to and should not form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment tax, estate or financial planning considerations or decisions. Investment decisions should not be made solely based on information contained herein.