Do you remember your first “real” job?
My first job out of college was a huge disappointment.
I landed a position working in the accounting department at a local bank. And I couldn’t wait to roll up my sleeves, work hard and learn as much as I could.
I wasn’t getting paid much. But I thought if I worked hard, I would get regular raises and be given more responsibility.
Eventually, I expected to provide a comfortable living for my family.
But that’s not how things turned out…
In this department, no one really cared about hard work. People showed up to work as late as possible and left as soon as the managers would allow.
Most of my coworkers spent their time chatting in the lunchroom and barely got any actual work done.
I was disappointed not only because the work wasn’t challenging, but also because no matter how well I performed, I wouldn’t receive enough of a raise to provide for my family.
It was a rude awakening to the corporate culture of some companies.
My position at the bank comes to mind today during our Income Week series.
Because many retirees feel stuck with income that doesn’t meet their needs just like I did working at the bank.
Fortunately, there are ways to increase your income and get more out of your retirement savings.
And that’s exactly what I want to talk with you about today.
Giving Yourself a Retirement Raise
Soon after I realized the bad news about my position at the bank, I started figuring out a new plan to boost my income.
I asked out every successful business person I knew for coffee or lunch to learn as much as I could about other job opportunities.
In time, I landed my next job at the hedge fund where I learned all about investing, managing wealth, building income and protecting retirement savings.
One of the things I loved about the hedge fund was that my income was almost entirely based on how much value I created for our clients.
In other words, I “ate what I killed,” as my boss Bill would say.
When it comes to your retirement and the income you generate from your savings, you can make a similar choice to the one I made early in my career.
Many retirees follow a traditional model where they invest most of their savings into a money market fund or Treasury bonds that pay low interest.
This is sort of like my position at the bank. These investments don’t generate the income you need and don’t let you live a fulfilling retirement.
But some retirees are willing to ask questions, learn a new skill and take matters into their own hands.
By learning to invest on their own and take advantage of big income opportunities the market offers, these retirees consistently increase their income and have a chance to truly enjoy what matters.
That’s exactly the kind of retirement I want you to have.
That’s why this week, we’re focusing on better ways for you to generate more income for your retirement.
Investments That Give You a Raise Over Time
One of the best ways to make sure your retirement income grows over time is to invest in companies that consistently increase their dividends year after year.
If you invest in these stocks, you’ll start with a healthy income stream today. You’ll also ensure that your income will continue to grow over time.
And if you choose your companies wisely, you should be able to grow your income much faster than the rate of inflation.
This helps make your retirement more enjoyable as time moves on.
But how do you know which companies will increase their dividends over time?
In addition to looking at the company’s history of dividend increases and the quality of the underlying business, there are a few other pieces of information you should watch for.
First, look at how much a company pays out each year compared to the amount of profit it generates.
If a company only pays out a reasonable portion of its earnings (less than 70%) through dividends each year, it leaves plenty of room for growth.
This way, even if a company’s earnings don’t increase sharply, it can still pay out a generous dividend without dipping into reserves.
Second, look at how much cash per share a company keeps on hand.
A company with a war chest full of cash can afford to pay growing dividends while still reinvesting some of its cash in new growth opportunities.
A big cash balance can give you more confidence that your investment will continue to grow your income through good and bad seasons in the economy.
You can find information about a company’s cash balance using the same free online resources.
Finally, watch for how much cash a company is using for stock buybacks.
When a company has a share repurchase program, it means some of the company’s cash is being used to buy back shares.
Those shares are “retired” and are no longer held by investors.
This is often a great thing for us as income investors because with fewer shares outstanding, it means each of our shares gets a bigger piece of the company’s profits.
It’s important to watch for balance though…
If a company uses too much cash to buy back shares, it could leave less cash available for dividends.
But a company that buys back shares at a reasonable price while leaving plenty of cash for dividends can be a great opportunity to grow your wealth and income over time.
My Favorite Dividend Growth Play for Today
If you’re looking for an investment that will grow your income over time, consider buying shares of Apple Inc. (AAPL).
At the end of its last fiscal year, Apple was sitting on a massive $90 billion cash balance, giving it plenty of free cash to pay out to investors like you and me.
Let’s see how Apple stacks up to all three of our considerations for growing your income.
To start with, Apple is expected to earn $4.68 per share next year while the company’s current dividend is only $0.205 per quarter.
That leaves AAPL plenty of room to increase its dividend while still earning more than enough to cover a generous payment.
I should note that since AAPL started paying a dividend in 2012, the company has increased its dividend every year.
And the next quarterly dividend should be higher when the company announces its next level of payments.
Second, I already mentioned that AAPL has a huge cash balance near $90 billion.
With about 17 billion shares outstanding, this gives AAPL more than $5.00 per share in cash. That’s plenty of cash available to keep growing dividends regardless of how strong or weak the economy is for the next several years.
Finally, Apple has been very diligent in buying back shares over the last decade.
In 2013, there were more than 26 billion shares of AAPL outstanding. But today, that number is slightly below 17 billion.
Over the last eight years, the company has reduced the number of shares by about 35%.
That means every share of AAPL you own now represents a much larger portion of the company than a share would have covered in the past.
In other words, investors now own a bigger portion of the company and can expect to receive a larger portion of the profits through future income payments.
So in addition to being a tremendously profitable growth company, AAPL also gives you a great chance to grow your income over time.
Generating Income Both Now and in the Future
So far, our Income Week has focused on how you can set your retirement up to generate income over time.
And that’s very important as we plan for your fulfilling retirement.
But what if you need income right away?
Later this week, we’ll talk about some ways you can collect instant income from the market.
I’m particularly excited about this opportunity.
We’ll not only cover strategies for capturing cash directly from the market. I’ll also introduce you to a friend of mine who can show you a secret “trick” to put cash directly into your account!
So please stay tuned to our Income Week alerts as we highlight the best ways to put more cash in your pocket!