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3 Things 3-14


Although MAS is a financial services company, not everything published herein will be about numbers or investing. But no matter the topic, we hope for three things: 1) That you find the time you spend engaged worthwhile. 2) That you’ll reach out to us for help in any of our areas of expertise if something we discuss creates an urging in you to do so. 3) That you’ll share this with somebody new each time you read it.

Thing One

The Importance Of Dividends

Excerpted from

"...When examining the 2 ways of getting paid to invest—capital gains and dividends—it's natural that dividends have special appeal. A stock's capital-gains potential is influenced significantly by what the market does in a given year. Stocks can buck a downward market, but most don't. On the other hand, dividends are usually paid whether the broad market is up or down.

The dependability of dividends is a big reason to consider dividends when buying stock. Not every stock must pay a dividend, but a steady, dependable dividend stream provides nice ballast to a portfolio’s return. For example, Procter & Gamble, the consumer-products giant, has paid a dividend every year since 1891. Procter & Gamble's stock price has not risen every year since 1891, but shareholders who owned the stock at least got paid during those down years. They weren't totally dependent on capital gains to get paid.

Payback on your initial investment

The rising dividend stream not only provides a hedge against inflation but also accelerates the payback on investment. Think of payback as a safety-net approach to stock investing. Nobody knows for sure how a stock is going to behave over time, but calculating a payback period helps establish an expected baseline performance—or worst-case scenario—for getting your initial investment back. Most investors look at 2 stocks and select the one they believe has the most upside over time. This places all the focus on reward. Calculating a stock's payback based on dividend flow forces you to address the following question: If this stock never makes me any money in terms of price appreciation, how long would it take for the dividend payments to bail me out of my initial investment?

To understand the concept of payback, look at the following example. Let's say you buy 200 shares of a $40 stock. Your investment is $8,000 and the stock pays an annual dividend of $1.20 per share (that's a yield of 3%). Based on that dividend, you expect to receive $240 in dividends the first year. If that dividend stream never changes, you will recoup your initial $8,000 investment in roughly 33 years. What if that dividend stream grew just 5% per year? You would recoup your initial investment in 20 years. In other words, your payback period would be reduced by some 13 years.

This calculation is not affected by the movement of the stock price over time. It isn't impacted by the stock's yield over time. It only makes one assumption—expected dividend growth—to compute the length of time to recoup your initial investment.

Should you focus on stocks that have the quickest payback? Not necessarily. Ultimately, total return is what matters. It's great to have a stock pay back your initial investment in just 15 years, but it's better to own a stock that increases your initial investment 5-fold in 15 years. Still, using dividend payback is a worthwhile concept for framing the risk-return potential of 2 stocks. The dividend payback matrix helps determine payback times (in years) based on dividend yields and dividend-growth assumptions..."

Note the table below, which was included with the article, is a fairly handy tool for examining the dividend yield-growth-payback relationship at a glance. That said, you don't really need to get overly concerned with using it. But you should at least internalize what it says about the importance of considering dividends when investing in stocks, especially when their values move lower and you get understandably antsy.

When Should You Take Social Security?

Excerpted from

"...When it comes to Social Security, it can be tempting to take the money and run as soon as you're eligible—typically at age 62. After all, you've likely been paying into the system for all of your working life, and you're ready to receive your benefits. Plus, guaranteed monthly income is nice to have.

Health status, longevity, and retirement lifestyle are 3 key factors that can play a role in your decision when to claim your Social Security benefits. You may not be able to predict your future health status, given the uncertainties that many people are dealing with during the COVID pandemic, but you can rely on the simple fact that if you claim early versus later, you will likely have lower benefits from Social Security to help fund your retirement over the next 20-30+ years.

If you start taking Social Security at age 62, rather than waiting until your full retirement age (FRA), you can expect up to a 30% reduction in monthly benefits with lesser reductions as you approach FRA. Remember, FRA is no longer age 65: It now ranges from 66 to 67, depending on your date of birth (see your full retirement ageOpens in a new window). And your annual cost-of-living adjustment (COLA) is based on your benefit. So if you begin claiming Social Security at 62 and start with reduced benefits, your COLA-adjusted benefit will be lower too.

Waiting to claim your Social Security benefit will result in a higher benefit. For every year you delay your claim past your FRA, you get an 8% increase in your benefit. That could be at least a 24% higher monthly benefit if you delay claiming until age 70. But, make sure to evaluate your decision based on how much you've saved for retirement, your other sources of income in retirement, and your expectations for longevity.

While many people could benefit from waiting to age 70 to take Social Security payments, others may need this source of guaranteed income sooner to help pay their bills, or they may anticipate not living long enough to reap the rewards of delaying..."

Thing Three

Just A Thought

Go as far as you can see; when you get there, you’ll be able to see farther. – J.P. Morgan


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