Wednesday, October 30, 2013

Dividend Growth Investing Works for Everyone Willing to Put the Time Into It

I have been writing about dividend investing since early 2008. I started this site in order to write down ideas on dividend investing, keep myself motivated, and make myself to do some work before putting money in dividend paying businesses.

There were not a lot of dividend investing sites back then besides mine, and only Dividends4life and The Dividend Guy are still active. The rest just dropped out, because writing about investing is time consuming. Recently, we have a lot of websites that keep on discussing personal stories of the authors, including details like their monthly income, expenses etc. Some dividend authors like Dividend Mantra have gone as far as coming out into the national spotlight.

You would never see this on the Dividend Growth Investor website however. What you would see is information related to my dividend investing strategy, dividend stock analyses, portfolio management and dividend increases. This example type of information, is really all the information you really need to succeed in the game, if you put in the effort. Actually, your effort might be the most important ingredient you need to succeed with dividend investing, now that I think about it.

The reason why I am anonymous and share little detail about myself, is because this is not and should not be important to you. I have observed how when I mention something specific about my investing, I always notice that someone is focusing on the things that should matter the least to them. This is because it is all very relative - to a cashier working at Wal-Mart, saving $5000/year might look like an impossible task, whereas a highly-compensated lawyer might just ignore anything that mentions less than $50,000. For example, an article I posted about the power of dividend reinvestment garnered some of useless comments stating that someone in their 20s cannot save $3000/month. Another article I wrote about investing in a Roth IRA generated comments that investing $200 at a time is not worth the effort. The reality is that it does not matter how much you put into your strategy, because all it matters is that you have a strategy, and you execute it consistently with the amount of capital you have at your disposal. It should not matter if you put $200/month or $3000/month in dividend paying stocks, or whether you are 25 or 65 years old. What matters is that you put some money to work when you find attractive dividend payers at reasonable prices.

I believe that dividend investing is a perfectly democratic way to earn passive income. In order to be successful, it does not matter what your age, gender, or nationality truly is. You do not have to play office politics, or focus on things that do not interest you. You do need to put in some work into it however, in order to learn how to screen for stocks, analyze companies, and build diversified portfolios over time. You also need to have an open mind, and not be subject to prejudices. This is where most investors usually struggle, because if you make up your mind in advance, then it is very hard to make the right decision, even when the data tells you what the correct answer is.

What I am trying to say is that dividend growth investing is a strategy which is bigger than a single individual. You can be successful using it, whether you put $200 or $20,000/month, and whether you are in your 20s or 60s. The core concept applies for all scenarios. Dividend growth investing is all about finding a quality company at a cheap price, which can increase earnings in order to pay growing dividends. You also want to focus on a company whose dividends are sustainable, which lowers the risk of a dividend cut. Growing dividends are important, because they allow you to maintain purchasing power of your dividend income, without having to add more capital or having to reinvest a portion of distributions back.

If you are a 50 – 60 something year old, you still need to plan at least for a 20 – 30 year retirement. As a result, focusing on a stream of income that maintains purchasing power and is sustainable should be more important than chasing the highest yield available. For a 30 something year old, you have a slightly longer period to focus on, but you should still make your investments in a way that translates into a sustainable and growing stream of dividend income for decades. For both scenarios, income investors would likely see a $1000 purchase of a stock like Exxon Mobil (XOM) as a source of $30 in annual dividend checks that will grow at or above the rate of inflation. Assuming a 7% annual growth, this income likely will double every decade.

In both age group scenarios, you are interested in purchasing assets that can provide you and your heirs with a growing and sustainable stream of income for decades to come. I am getting my inspiration behind this thesis after looking at trust funds set up to benefit people, their children and grandchildren and favorite non-profits. You never know in advance whether the 50 year old will live 50 more years, or whether the 20 year old would die in 10 years. This is why your strategy for each age group might be remarkably similar.

Of course, the fruits of dividend investing are going to go those who take the time to study it patiently, devote time to better their skill over time and effort, and build expertise over time. Just like compound interest, knowledge does accumulate over time. And, as you build you knowledge and your portfolio over time, it blends into a powerful symbiosis that turbocharges your potential. This is because as you gain scale in your investments over time through patience, smart work, perseverance and a little dose of luck, you will be able to devote more time to your investment interests. In other words, if you manage to retire using dividend investing, then you would have the time to learn more about it.

In summary, I do not think it should matter to you who I am, where I live, what my background is, or how much money I have (or make). The thing that matters is that I have a desire to follow a dividend retirement strategy, and consistently save and invest in income producing securities until the income from these investments is enough for me to retire on. This type of thinking could be applied to everyone that wishes to attain financial independence using dividend investing. My goal is not to make everyone a clone of my DGI strategy, but to provide readers with the analytical tools, frameworks and models, that would provide them with the foundation behind their future success. If you have the tools of the trade, you can paint your own masterpiece. If you choose to focus on irrelevant facts however, and draw wrong conclusions, then you will not be really helping yourself out in your investing journey.

Relevant Articles:

Living off dividends in retirement
Common Misconceptions about Dividend Growth Investing
Why most dividend investors never succeed
How to accumulate your nest egg
Dividend Investing – Science versus Intuition

This article was featured in the Carnival of Wealth

24 comments:

  1. I enjoy your articles and am starting to invest in dividend paying companies, thanks to you. Nevertheless I do not quite understand why you want to stay anonymous. For me, that is usually a sign that one is afraid of something or hiding something. It does not lead to a real sense of trusting. If you really want to trust someone or a business for that matter, people need trust. That is why for instance, when reading about a company, I often check the "about us" tab, just because I am looking for reassurance about who is behind the product. Giving a human face, a name, a short summary, goes really far in building trust. There are those that go the extra mile and post youtube videos about their products or what they do. That also builds a lot of trust.
    To finish, with one example, you are familiar with Jacob on the ERE forum. Look at the trust he has built with his audience. Although, he keeps many things discrete, such as his networth and his picture, we have a name, we know his background and the stories of how he got to where he is at. That builds real trust and I think that is one of the reasons he has such a growing following of readers and bloggers... Just my 2 cents on the topic. David

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  2. Thank you, your articles help me with a system of dividend investment. Barry

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  3. Keep up the hard work, your effort is much appreciated. I've been reading your research and following a similar path for growing my dividends since 2009.

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  4. Could not agree more. The fundamental things apply as time go by.

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  5. I couldn't agree more. Dividend growth investing is a strategy that can be executed by anyone no matter how large or small amount of money one can afford to set aside each month. The most important factor is willing to put in the work to learn the strategy, create a plan, and then put that plan to work. Nothing else matters

    Reading how other dividend investors reach certain levels of portfolio size or dividend income really does no good for you. Maybe it motivates you but at the same time it could be really discouraging for someone just starting out or who doesn't have much money to invest each month.

    I believe that everyone who takes the time to properly execute a dividend growth strategy can have a bright prosperous future. Much better than if they don't follow a plan.

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  6. Awesome article. You hit the nail on the head. Keep up the good work. I use your site as one of the ways I can increase my own investing knowledge.

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  7. Great article and sums up exactly why I love DGI. As a 30 year old, I'm looking maxing out my Roth with dividend stocks and looking forward to 40+ years of investment.

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  8. I appreciate your blog, your articles and the time you take to share your experiences. Please keep it up.

    Skip

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  9. I agree totally. I have been investing this way since I was a child. I wish I had been able to be more serious about it before now...but we all have setbacks. And no it does not matter who you are, and I still agree with what yous ay and I am doing it much more seriously today so that in 15 or 20 years I will have a modest stream of income waiting for me. Its not hard and I am as confident in the strategy today at 59 as I was at 18.

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  10. I do not care about who you are but I love what you do. Keep up the fantastic work that you have done in this site since it is helping many other people to plan for their retirement.

    And remember that usually those who wear masks are the real heroes.

    Thanks a million.

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  11. I think many people deal better with a specific example rather than frameworks and foundations. Also, people get a better connection if they can read your article and put themselves in your shoes. I think this drives the hunger for knowledge of you and irrelevant specifics.

    Keep on keeping on.

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  12. Hi,

    i´m from germany and i follow your blog since the end of 2008 and i really love how you write your articles. I thought that i should leave a comment to show my respect and that you keep this up. Don´t let those comments distract you. Please stay as long as you can and spread your information :-)

    Most germans don´t invest in stocks they rather buy houses because they are scared about the stock market. I think this is a big mistake. Even if a small number has stocks then they often concentrate in german stocks and won´t diversify their portfolio.

    I currently have positions in 94 highly diversified worldwide companys with many additions in the last years thanks to your information and further research and analysis by myself.

    I hope i can enjoy your blog many years to come. Stay as you are ;-)

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  13. DGI--Keep up the amazing work. I've been following your site for a couple years now; read every article; and am impressed at your professionalism and high-quality work. My investment philosophy has evolved for the better because of your approach. It is obvious that you are a highly disciplined individual. Who cares if we don't know your personal story or history. That's your choice to share or not to share.

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  14. Your style works just fine the way it is. The information and motivation you provide is very valuable, regardless of how much personal information you choose to provide to your readers. I think we're just a bit voyeuristic these days and have come to crave personal details by default, for better or worse. Thanks for the time and effort you put into writing. Your site was the first one I found when I began researching a dividend growth strategy. Though I now follow at least a dozen other DG blogs on a regular basis, yours will always be cornerstone for me. Only one question: Why all the pointed references to Dividend Mantra lately? Seems a little out of character for you.

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  15. Hi DGI!

    I must say, you are the first DGI that I stumbled upon in 2011 and your teachings have transformed my life. Once I realized the Div Champions increased their dividends at such a significant pace, doubling in 3-7 years on average I jumped all in. I appreciate your teachings. It's been a great eye opener. My and my family will be for ever transformed for the better. Cheers to Financial Independence! Thanks for all you do and thanks for your straight forward structured company analysis. Jason

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  16. To anyone looking to gain knowledge and insight into investment opportunities, they would be remiss to not see the forest for the trees.

    You have so much to gain from an open look at others insights and areas of expertise.

    One person you are able to reach and help, can in turn help many more.

    I love to be able to show my friends and family what can be accomplished from my small beginnings and portfolio, and to encourage them with their endeavors.

    Time is on our side.

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  17. Btw, I talk about DM, and this is because I actually greatly admire this guy, not to put him down or anything. Calling him awesome is an understatement!

    DM is the first dividend site I open on a daily basis. ( also on a nightly basis as well). Hence I reference him a lot on my site, but it is not to be mean or rude to him. It is because I read his site often ( and so do a lot of other pple as well).

    If I ever shut down my site, I would point all my readers over the Dividend Mantra website.

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  18. DGI,

    Loving your articles. Thanks for the time, smarts, and effort you put into these.

    Don't be discouraged by some posters, it is part of the internet as you said. They'll ask weird questions that aren't relevant etc. Make mean statements.

    I truly value the work that you and Dividend Mantra do. Two of the best.

    Happy Halloween!
    Buster

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  19. Hello. I live in Sweden. Your blog is number 1 in USA in Sweden if I should decide. Very very good. I use the blog when I teach people in accounting/finance

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  20. Thanks everyone for commenting! Ifyou can think of anything to cover on this site, please do not hesitate to contact me.

    Have a nice weekend!

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    Replies
    1. Dear DGI,

      First of all: thank you for sharing all your wisdom, motivation and to answer to our questions!!!

      I have a question for you: I'm a starter / newbe who had already lost a bit of money on the stock market.

      Thinking positive, I try to learn from my mistakes.
      I never heats about dividend growth investing till a year ago. Being in my twenties, I guess this strategie can work for me and deliver a nice return over 30-40 years.

      BUT: I'm afraid to start with it. Please, let me explain why.
      I have several questions in my mind that cause me to doubt and frighten me. The stock market crashed in 2007/2008 but now in 2013 where a New highs. If you invest now, it's possible we have a new crash in the future and your investment loses a lot of value because you bought on the top. Isn't it better to wait for a crash? But on the other hand, maybe I never het started then?
      Another question: you have to diversify your portfolio, not putting everything in one or two stocks. Ok, but how do you manage all this? How do check every company and decide when to sell? It's not that I don't want to invest time in my portfolio, but I'm afraid that my knowledge just isn't enough to act right at the right time (altough I have a unersity degree).
      But suppose I start right now and base my choices of stock picks on your recently bought stocks. How do I know if that is a good choice for me? I mean: you already have a big portfolio and maybe, if you were me, you would make other choices to start building your portfolio?
      (Question on between: is it possible to have a kind of excelfile online with stocks you find attractive + the price range + a categorie that tells for example: good for starters / speculatif idea / ... ?)

      I know: I still have to learn a lot. But I know i've chosen the right path by following your website and Reading your articles. Again thanks for your reaction and all the things you do for us!

      Delete
  21. First Anonymous,

    I find it very interesting when people who are anonymous on the internet, demand that I am not anonymous and disclose it all.

    That doesn't sound fair at all.

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  22. Last Anon,

    Before I answer, I just want to say that everything on this site represents my thoughts and ideas and actions on investing. Therefore, it is not a recommendation for anyone else to buy or sell anything. I encourage readers to do their own research, and decide for their own whether to buy or sell something.

    I think you have some great questions. Starting out is scary, especially if you are just starting out.

    I am going to write a more detailed response in a series of blog articles, so please stay tuned please.

    But just to mention:

    1) If you are not comfortable, don't invest yet. Just start learning. Go though the archives of my website as a starting point: http://www.dividendgrowthinvestor.com/2013/03/complete-list-of-articles-on-dividend.html

    2) I have "bought at the top" since 2009-2010. As long as the entry valuation is ok, and there is decent growth expectation, I am hopeful for my investments. But some of the stocks i bought prior to Aug 2008 did crash. Some cut dividends. But most kept raising DPS and earning more

    3)I am spending a lot of time managing my portfolio. I look at Yahoo Finance news for my holdings daily, but the most important things are quarterly and annual filings. I also do an annual analysis of each stock I own. However, my goal is to keep an active knowledge base in my head of the 200 - 300 hundred dividend growth stocks in the US and abroad (achievers, champions etc)

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    Replies
    1. Thanks for your reply DGI.
      I will definitly read again your articles and I'm looking forward to your post to come.

      Greetings and many thanks!

      Delete

Questions or comments? You can reach out to me at my website address name at gmail dot com.

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