Sep 10

Alaska Permanent Fund Dividend

by in Life of Arlo, Thought Objects

Alaska Dividend Graph, 1982-2008It’s been a miserable summer in Juneau. Rain, rain, and more rain. I wonder how many people have seriously considered moving because of it. And I wonder how many of those people decided to stay because of the Alaska Permanent Fund dividend.

The Alaska Permanent Fund is Alaska’s way of giving back to the residents of the state. Profits from oil sales are put into a fund, only 1% of which is then invested. Every October, the average earnings over the last five years is split among us 600,000 (or so) residents. (It’s more complicated than that, but only slightly.) Our dividends dipped during the dot-com crash, but that five-year average insulted us from a huge cut. Conversely, it’ll take a few more years before we see how high these record oil prices push it back up.

Everyone’s waiting for the checks, which could arrive as soon as Friday. This year’s dividend is the biggest ever, at $2,069. Of course, our illustrious governor decided that her constituents were unfairly burdened by high oil prices this year, so she spearheaded an initiative to share a little more of the state’s wealth. Each resident will receive an extra $1,200 in “energy relief” this year. (No wonder she has such a high approval rating!) The energy relief packaged is issued by the same office, the Alaska Permanent Fund Division, so in essence we’re each receiving a $3,269 dividend this year. Think of it: A household of five will receive a bulk sum of $16,345! Sky’s the limit for Mormons and Catholics! Who wants to move now?

I can remember back to the very first Alaska dividend in 1982. I wasn’t quite 10 years old, but that was old enough to understand that if my dad’s Coast Guard transfer had come just a few months later, our family would have been $5,000 richer (over $10,000 in inflation-adjusted dollars today.) I got to thinking: How much would I have received if I’d been eligible for every single dividend? How much would I have in the bank if I hadn’t spent any of them? What if I’d invested them?

I plugged some numbers into Excel. Take a look:

Excel table

The second column has list of the PFD amounts since 1982. Total amount given to a resident eligible for all 27 years is $30,805.41. The average yearly dividend is therefore $1,140.94.

I freely admit that I know little about global interest rates, yields, and investments, but after a scanning through the Department of Treasury’s tables, I found one that may be a fair gauge of a low-risk investment over the years. It’s called “Market Yield on U.S. Treasury Securities at 1-year Constant Maturity, Quoted on Investment Basis.” I take that to mean it wouldn’t be too hard to find a nice, safe CD (Certificate of Deposit) near that amount. Anyway, the pattern seems to fit what I know about the U.S.’s recent financial history: Great interest rates in the 80s, horrible after the dot-com crash.

I’m only slightly better with accounting principles than interest rates, but I think I’ve got my compounding interest formula correct. The fourth column, labeled Yearly Principal, totals up what a resident would have if they invested their dividend in CDs at each year’s rate. The formula is: P * (1 + r), where P = the Principal and r = the interest rate. Of course, the principal rolls over each year.

Looks like if someone safely invested all their dividends in CDs, they’d have $51,891.89.

I thought it might be interesting to average out the interest rate over the same 27 years and came up with 5.85%. Investing consistently at that rate (which would probably still be relatively low-risk for a savvy, market-knowledgeable investor) would result in holdings totaling $63,826.66. That’s just a bit more than twice the original dividend amount.

Yeah, okay, so my numbers are based on some barely-educated guesses, but still. The state of Alaska has given out quite a bit of money and we’re all looking forward to this year’s record check.

Next week, everything goes on sale. Costco’s probably stocking up their inventory of plasma TVs and computers, the Honda dealerships are probably offering deals on jet skis and generators, and furniture stores all over the state are advertising their no-interest dividend specials. Even Alaska Airlines knows how to get in on a good thing – tickets out of the state were just discounted this week.

While most people in the country are facing some tough decisions due to rising fuel costs, Alaskans are actually benefiting. As long as the Permanent Fund Corporation continues to invest our money safely, dividends should continue to climb right along with oil prices. For many of us, it easily offsets a year’s worth of gas.

More than makes up for the occasional crappy summer, too.

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Welcome to Postcard Valet

Postcard Valet is a travel blog and video podcast by Arlo and Oksana Midgett. They just returned to Juneau, Alaska, after almost three full years of travel and living abroad. Many of their stories, photos, and videos have yet to be shared...

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