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

Sniffing out the teased picks from the 12% Letter's "Wal-tirement" ad

By Travis Johnson, Stock Gumshoe, November 28, 2011

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:


“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:

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“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.

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