“Early Wal-tirement: How to get in from the Very Beginning. “

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Time with family and bloated turkey-filled bellies did nothing to slow down the avalanche of newsletter teaser ads — heck, we even saw plenty of “black Friday” deals for all those folks who are hoping to stuff a newsletter subscription into little Timmy’s Christmas stocking (yay!)

But perhaps the most popular one that’s been sent my way over the last few days is the pitch from Dan Ferris for his 12% Letter over at Stansberry & Associates — like many such ads for this service that we’ve seen over the years, the basic pitch is a simple one that’s wrapped in an odd made-up name … and, to keep your friendly neighborhood Gumshoe interested, they also pitch a way to get in early on some wealth building excitement.

The made-up name is “Wal-tirement” — they’re teasing us that Wal-Mart effectively took over the retirement planning business the same way they took over groceries, prescription drugs, tiny plastic useless toys from China, etc. Here’s how Ferris puts it:

“‘Wal-tirement

“How the ‘King of Retail’ could help pay for your retirement

“After years of revolutionizing the retail business in America—

“The undisputed ‘King of Retail’ is now involved in another part of the U.S. economy…

“Helping to save your retirement.

“You read that right. In a move that is shaking the very foundations of conventional retirement wisdom, the retail giant is offering a program that, for many retirees, could actually replace Social Security, 401(k)s, IRAs, pension plans, and the like.

“Dubbed ‘Wal-tirement’ by our analysts, this program is completely separate from the government and has nothing to do with the ups and downs of Wall Street, but it’s got an unbelievable track record.

“You see, the incredible thing about ‘Wal-tirement’ is that the payouts have ALWAYS GONE UP—every single year. No matter what.”

And as usual, there are plenty of impressive looking charts — the steadily increasing payouts of “Wal-tirement” compared to the very unsteady performance of the S&P 500.

Not only that, but we have our suspicions confirmed: there really is a secret way of making money that Wall Street doesn’t want us to know about! Just as we thought! Here’s how Ferris puts it:

“… the mainstream financial community is beginning to take notice…

“MSN Money says this is ‘replacing the government as the gold standard for low-risk investing’ and a Certified Financial Planner recently wrote, ‘it scores a perfect 10 on the factors that are important to retirement investors.’

“In fact, Wall Street is so afraid of this program, they have convinced the government to make it illegal to be advertised to the general public. But there’s absolutely nothing illegal about me showing you how it works.”

Ah … so, yes, you guessed it, this is yet another teaser for DRIP investing — Dividend ReInvestment Plans (DRIPs) are, in this case, plans in which companies sell stock to investors directly (instead of through a broker) and allow you to reinvest your dividends into new stock directly as well. Sometimes they even give you a slight discount on reinvesting your dividends, which is nice, but basically these are pitched as a way to set up regular investments (many of them offer plans where you automatically invest $50 a month or something like that) and let you slowly compound a nice nest egg.

Of course, in many ways these plans are an anachronism — a good deal back when there weren’t easy online brokerage accounts that allowed you to reinvest your dividends for free, and when many full-service brokers charged commissions that were several times higher than the more competitive fees most people pay now. Not that there’s anything wrong with DRIP investing now, it’s just not necessarily hugely different from your regular Etrade or Ameritrade brokerage account that offers free dividend reinvestment. Most DRIP plans are offered not really direct through companies, but through the clearing houses on the companies’ behalf — companies like American Stock Transfer and ComputerShare run pretty much all of the direct stock purchase plans (DSPPs) and DRIPs. If you’re curious about the kinds of things that are available you can click on either of those names to browse their listings and see, for example, which programs offer discounted dividend reinvestment or low repurchase minimums, etc.

Sharebuilder, which many of you probably know, was one of a string of “start small” brokers that was effectively created to be a DRIP plan for anything — letting you buy and reinvest odd lots, including partial shares, thereby making it simple to invest a flat $100 a month (or whatever) into a specific stock at relatively low cost — though Sharebuilder also is not as inexpensive as it was when it was conceived perhaps a decade ago, and new brokerages and programs are being started up all the time.

The trick, as with all of these programs, is time. Dividend growth and reinvestment, with the power of compounding returns piled on top of the growth (hopefully) in the stock price, is the simplest path to long-term investing success and has created some remarkable fortunes for small investors — but those fortunes were created by folks who put a few hundred dollars into Johnson and Johnson in the 1950s and left it there to compound over and over as the dividend increased, or who, as in the examples given in this ad, purchased stock as Wal-Mart employees in the 1980s or before, before and during a long stretch of dividend increases and steady share price appreciation.

Time is the great fortune builder in these cases, though it also helps to choose a stock that enjoys a multi-decade bull market and long string of dividend increases as many of today’s “blue chip” stocks have, and to avoid those “sure thing” household names that withered on the vine like Kodak, Penn Central or Enron, since the real intention of a DRIP that you set up as a separate account specifically for one company is that you’re going to be a “buy and hold forever” investor — which the companies love. Most DRIP plans make it a bit more difficult to sell or cash out than a standard broker.

But I promised a tease beyond just the “conceptual” tease of the Wal-tirement — and tease they do. The implication is that getting in early on the Wal-Mart “Wal-tirement” program would have made you rich, but that it’s not “getting in early” if you do it now — no, there’s a different “Wal-tirement” plan that you can apparently catch at an earlier stage now … from the ad:

“If you want to make a lot of money …

“I mean, really have the chance to make a lot of money over the next few years …

“Then you need to include in your “Wal-tirement” portfolio a cash-rich company with a plan that’s still in its infancy.

“This is, by far, one of your best shots at turning just a small investment stake into significant sums of cash.

“Let me explain …

“You see, not too long ago, one of the most profitable — and fastest growing — young Blue Chip businesses announced a “Wal-tirement” plan of its own.

“Nobody has the ability to generate as much cash as this company — not Wal-Mart, not ExxonMobil, not Bank of America, not JP Morgan… nobody.

“Its revenue has increased more than 7-fold since 1996. It now generates nearly $70 BILLION per year.

“Glenn Tongue of the T2 Partners hedge fund calls this company ‘the most cash-generative business’ he’s ever seen.

“In fact, this company generates so much money its biggest financial problem is what to do with the mountain of cash it earns in excess of what it needs to maintain and grow the business.

“And the best part is, this company not too long ago announced it too was launching its own “Waltirement” plan….

“… getting into this plan today is similar to getting into the original “Waltirement” when it was in its early stages.”

So who is this? Toss those few clues into the mighty, mighty Thinkolator (patent pending), and we learn that this is …

Microsoft (MSFT)

I know, such an obscure name, right? Who’s ever heard of Microsoft, or noticed when they launched their dividend and started steadily increasing it a few years ago? Oh, right … everybody.

Still, the fact that a stock is well-known certainly doesn’t make it a bad investment — and it’s hard to argue against Microsoft as a steady dividend-growth pick. The stock is cheap by pretty much any metric, with both trailing and forward PE ratios well under 10, trading for less than 3X sales with high margins. They generate free cash flow with a stability and consistency that would be the envy of some utility companies, and they have buckets of cash and, unlike most of the tech companies that carry too much cash, a proven willingness to give that cash to shareholders. They called attention to their then-new dividend with a special dividend payment of $3 a share back in 2004, and in the intervening years have lifted the payout from 32 cents/year to the current 80 cents/year. And that still means they’re paying out a very sustainable portion of their earnings, less than a third of earnings are turned into dividends…. and yes, they still have plenty of cash to do whatever they want, even buy Yahoo if they choose to take another dive down that rabbit hole (actually, they have enough cash on the books to buy Yahoo twice at the current price).

That’s not to say that being a big tech stock with lots of cash, a dividend, and a cheap valuation makes Microsoft unique — there are any number of household name tech stocks in that category, though relatively few, with the possible exception of Intel (INTC), which I own, have committed to a real dividend growth program for their investors.

And yes, Microsoft has a dividend reinvestment plan — you can buy the shares through your regular discount broker and instruct them to reinvest dividends, or you could go the “Wal-tirement” route as teased and sign up for the more direct DRIP — they link to the details from their website here.

Is MSFT on the cusp of a stable couple decades of dividend growth that could cause you to look back in your golden years and give thanks that you got started “early” in Mr. Softee’s DRIP program? Well, I have no idea — but there certainly aren’t too many companies that have proven to be stronger or more consistent in generating piles of cash, and their relatively newfound urge to give that cash to investors certainly isn’t a bad thing. I don’t own shares of MSFT myself, but it’s hard to make a strong case for avoiding MSFT if you’re building a dividend growth portfolio.

And no, you don’t have to call it “Wal-tirement.” Nor do you have to use the other terms they’ve used to sell this basic dividend reinvestment strategy in the past (ie, 801k plans, 424 Dividend Boosts, “Secret” websites or phone numbers that “Wall Street doesn’t want you to know about”, “Black Market income” and probably a few that I’m forgetting).

If you pick the right stock and hold on for decades of dividend growth, and reinvest those dividends you’ll probably do quite well … the trick, of course, is both in the “picking the right stock” and in the “holding on” when it doesn’t look so rosy. If you’ve a better idea than MSFT for getting in early on a “Wal-tirement” plan, well, I’m sure we’d all like to hear it — just let us know with a comment below.

And if you’ve every subscribed to the 12% Letter, inquiring minds want to know what you thought — click here if you can share your opinion with a quick review for your fellow investors. Thanks!

And those of you who haven't retired yet, check this out as we get to the "planning and forecasting" part of the year...

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41 Responses to “Early Wal-tirement: How to get in from the Very Beginning. “


  1. I think this strategy is great for tax exempt accounts. I used it on a taxable account for a few years. Trying to figure the profit & loss for my tax form was way too much work.

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    • Starting this year, brokers are required to report the cost basis to you (and of course to the IRS) so this objection is no longer valid. It does not apply to those shares you bought before this year however. That is voluntary on the part of the broker, and of course mostly they go on the basis that most taxpayers prefer not to have this shown on their 1099-Bs.

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    • If you have any questions about Stansberry and Associates, please do not hesitate to call customer service at 1-888-261-2693. We would be happy to assist you. We are open Monday – Friday 9-5 EST.

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  2. Takes chutzpah to trumpet long term growth and at the same time predict the end of our country………………………….. But, that’s what they are all about, right?

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    • Anything to sell their “premium” newsletters. Porter Stansberry will not receive any more money from me ( subscribed to the 12% Letter briefly), and I’m a little embarrassed that I succumbed to his teasers in the first place. They do have some decent ideas occasionally, but they’re rarely the first with the idea.

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      • Blah Blah Blah. I have made a lot of money by listening and taking the advice of Standsberry. I am always amused by all those that want to bash them here. It is like anyting in life; take what you can use and discard that which does not apply. This retirement blan is brilliant, considering it involves in the magic of compound interest and that there wil be NO social security for these young people coming up. People choose not to listen and expect the government to take care of them later. Why we are in the mess we are today.

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  3. I subscribe to the 12% Letter and have been reinvesting dividends in my Roth account for about a decade so it wasn’t really news for me. I agree with Chi that reinvesting dividends in a taxable account is a bit of an accounting exercise for the average Joe.

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  4. Whatever stock you pick, don’t put all of your eggs in one basket. Today’s Microsoft coudl become tomorrow’s Enron. Most of the Canadian banks have DRIP programs and you can’t get any more solid than them. CNR also has a drip as does Manulife. While I have some Manulife shares, if I had put all of my retirement in that one, I would be planning to work until I was 90 given their current performance.

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  5. Dear Stock GumShoe staff,
    I´ve been wondering about Majesco Entertainment (COOL), it was pitched in a Navellier letter about two months ago. The stock lost a lot in October, but it’s climbed back close the price when it was pitched by Navellier. On a valuation basis the stock seems OK, no debt, new games, christmas season, there’s a law suit against COOL, but apparently the company will not be harmed. Is it the right time to buy?. Please let me know if you have any thoughts on this stock.
    Thanks.

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  6. I used to subscribe to The 12 % Letter when Tom Dyson was writing it. I liked him well enough, but then he wrote an article about how his friends were walking away from their home mortgages because they figured they could get another mortgage in the future at a lower cost. Tom thought that was a great idea. Me? I thought that was condoning theft, so I didn’t renew my subscription.

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  7. So : guys who’ve been invested 5 years or more? Can you tell us your roi for the 5 year period? I’d like to know real world results of dividend reinvested portfolio of dividend aristocrat stocks. Also, are such portfolios available for purchase for a long term period?
    Thanks for your response.

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  8. I was attracted to 12% Letter by those potential returns. After signing up, I did research online
    and asked some friends, veteran investors not traders. Check this website’s comments about
    Porter Stansberry. Thank you for your frank comments. Kind of like Snopes.com refuting
    rumors on the internet. Repeated solicitations for other newsletters, or get rich quick schemes, disappointed me. I phoned Stansberry and cancelled 12% Letter.
    My remittance was promptly credited back to me.

    Like(0)

  9. Instead of risking your DRIP investment with just one company, it seems best to invest in a DRIP mutual fund, including many diverse companies, with successful long-term return histories. Providing there are any proven DRIP funds available.

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  10. I’d be interested to read a response to Ryan’s question: Are there any (good) DRIP mutual funds? I recall recently coming across an MLP that pays your dividends in shares of stock, which I found intriguing (sorry that I didn’t make a note of it to mention here—I put a bid in for ETP instead, after several happy purchases of ETE). Yet considering the political haranguing to “simplify the tax code”—which as far as I’m concerned sounds like just one more way to create the dreaded investment “uncertainty”, dissuading investors and depressing the markets over possible near-term changes to the tax status of MLPs or REITs—I don’t want to put too many eggs in those two baskets. If the fees/load didn’t prevent you from getting a decent yield, a DRIP fund invested in solid dividend payers spread over a cross-section of sectors, with someone watching every tick and able to rebalance for what they saw coming down the pike, would be wonderful.

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    • There are two MLPs presently that pay their dividends in additional shares of stock. I’m not positive, but I believe these can be bought for an IRA without triggering the $1000 limit on earnings from MLPs & LPs. They are: Kinder Morgan Management, LLC (KMR) and Enbridge Energy Management LLC (EEQ). These are known as i-Shares. I’d had 68 shares of AT&T when Ma Bell Diversified in 1983-84. My initial investment had been $4,000. I put them in the DRIPs program and when I sold them in 1995, they had grown to $35,000. Figuring my taxes that year was an absolute nightmare as many of them by that time had split, split again, merged with other Baby Bells, etc. After that I vowed NEVER again to do DRIPs, but I can see how it would work well in an IRA.

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      • Why mess with a DRIP and all the various regulations. Just go to ShareBuilder.com, open up an acct for $50, sign up for a monthly program that cost $12 a month to operate, and buy any stock from 1 share to 1,000 for $1.00. You get 12 trades a month for $12.00. Stay
        consistent. Obtain the FREEDOM to pick and choose. Buy MSFT, INTC, WMT, CSCO, on a weekly, bi-weekly, monthly basis. Its the same concept as a DRIP but negates the challenges of having to make a Minimal amount (as which is often required with most DRIPS). But sign up to Re-Invest the Div. Same program as a DRIP with more options to invest.

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        • I use Sharebuilder.com although I don’t pay the monthly fee because I don’t do that many trades a month, but using the automatic trades, it’s still only $4. And they’ve changed their market fees from 9.95 to $6.95.

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  11. A view from a tax lawyer.
    1. They are correct that the bookkeeping in a taxable account is a pain.
    However, purchases starting 1/1/12, the broker or DRP plan administrator is required to maintain and report your cost basis with the sale of the shares in the closed lots.
    2. MLP’s
    A problem with MLP’s is that MLP’s held in retirement accounts may be subject to a tax, which will reduce your income stream if the partnership engages in an active business, which is 98% of them (including all pipeline MLP’s)
    However, the tax is not imposed if the income from active business in the account is less than $1000.00 per year (i.e. on an aggregate account basis, not a security security by security basis)

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  12. Well, I am glad that i bought Philip Morris some years ago as I worked for some of the foreign clients of the company. But, through a brokerage who figures out the cost price.
    Since then of course it split into two companies, Altria and Philip Morris Intl and both keep on going and going and going just like that rabbit!
    Also Kmp and similar are very good for dividends, most pipeline companies do well although I understand that KMP is beginning to have some problems.

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  13. If someone is selling you a plan for you to make 12% a year, you can bet they are not relying on it. Look at any of these pipelines, anh, or closed end funds. Some have lost 12% in a month. So it will take you a year just to break even.

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  14. Would appear to be a great addition to a tax-free account here in Canada. Too bad I wasn’t savvy enough to throw a few hundred bucks into some DRIPs when I was 19 or 20…

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  15. Ashim – “Wal-tirement” was a word the writer invented as part of his tease. Bring up the Clearance Houses that Travis listed in the above article, and maybe you’ll find who handles Wal-Mart.

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  16. I don’t like Microsoft as I see demand for their core business slipping. The software business is moving away from software in a box to software in the “cloud”. Don’t believe me, as yourself when was the last time you used Redbox, Amazon, eBay, and the 1000s of other businesses and applications that reside on the web AND not on your laptop. Salesforce.com is cloud based and secure and has made virtually all other CRM tools obsolete. I like Bill Gates believe that all “software” will migrate to the cloud and as soon as it moves off your operating system Microsoft looses it’s advantage and sales. I don’t think Microsoft is a good long term play and long term is what we are talking about here – right!

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    • Surely you are kidding right? I have MSFT, I am BUYING IT NOW, and guess what- I can sleep at night! They can afford to loose MILLIONS and still have enough cash in reserves to pay YOU every quarter ON TIME as expected. Any day you can buy a BLUE CHIP like this under $30 is a day that a stock is on sale!

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  17. It would be very beneficial for me to know how to participate in the Wal-tirrement plan.
    What and How do I get the information on the plan?
    Give me a clue on what to do.
    Thank you
    amk

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  18. I started three DRIPs in the 90s. AT&T, GE and AQUA (formerly Phila Suburban Water. I liquidated AT&T in the early 20s for a tax loss. GE became a looser after Jack Welch left but I held on until this Spring. AQUA was a real winner between dividends, 5% purchase discount and splits, I averaged 15%/yr. The proceeds of GE & AQUA were used to pay off an investment property this year. If you have time on your side DRIPS can be a PART of a successful portfolio

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