Very often, I hear the following comment:
“Well, the stock market has been going up non-stop in the past several years. Anyone who purchased stocks would have done very well. It was easy to buy stocks in the past five - six years, since they only went up. When stocks go down by 15%- 20%, all dividend investors will cry for their mommy and abandon their strategy”
I take great offense with those comments. First, they show the lack of prep work made by the commenter, and second, they show that the commenter is subject to hindsight bias, where everything looks easy but only in retrospect. In reality, there was always a reason not to invest in dividend paying stocks during each of those past seven years that I dedicated to dividend growth investing.
There is never a perfect time to start investing in dividend stocks. There is always a reason not to invest in dividend stocks. The truth is that dividend investing was never easy.
I myself started investing in dividend paying stocks at the worst time possible, which was in late 2007 – early 2008 period. This was the worst time possible to start investing in stocks in general, let alone dividend paying ones. I also launched my site at the time, in order to write down my ideas, and make myself do the work required to form an opinion on quality dividend paying stocks.
Some of you remember the dark days from 2008 and 2009, when many companies crashed, stocks kept falling from their highs by over 50% and several prominent bank payers slashed dividends. Those were some pretty scary times, as evidenced by the fact that some companies accepted usurious interest rates on loans from Berkshire Hathaway (BRK.B), mostly because they needed the funds, but also because they wanted Buffett's stamp of approval to calm investors.
It was pretty scary to watch any news during that time, because I feared the whole economy would collapse.
Nevertheless, I kept putting money to work every month during that time. It is insane to think about it now, but some of the best blue chip dividend stocks like were available at fire-sale prices. For example, I was able to purchase shares of Altria (MO) at $15.11 and Chevron (CVX) at $64.35 in early 2009. Even as late as August - September 2009, one could buy companies like Phillip Morris International (PM) at $46.94/share.
Then in 2009, stocks started going up after hitting multi-year lows. That’s when we had fears of inflation, fears that there was a disconnect between stock prices and the real economy, unemployment was bad and stocks were too high. That’s when I kept adding to my portfolios, and were still able to find stable dividend paying companies, that were available at attractive prices.
In 2010, I was able to keep putting money in dividend paying stocks, every single month. I was doing much better income-wise starting in 2010, relative to 2007, 2008, or 2009, which is why I was able to put even more money to work in dividend paying stocks. In 2010, we had fears of a double-dip recession, the TARP plan was being ridiculed left and right, and everywhere I looked there was doom and gloom. In fact, this doom and gloom is everywhere, and has only recently started to fade away. The majority of individuals I have talked to since 2009 have been in disbelief whenever I would inform them that the recession has been over since 2009. What made it psychologically difficult to commit money to dividend paying stocks in 2010 as the fact that preferential tax rates on dividends and capital gains were set to expire that year. This was a fear a couple of years later, although congress finally managed to extend those breaks, while raising rates for highest earners.
The years 2011 and 2012 were characterized by double dip recessions in Europe, Greece defaulting on its debt, and more fears about debt ceilings, and tax rates. It was not an easy time to put $1000, $2000 to work in Aflac (AFL) or McDonald's (MCD) or Walgreen (WAG). It was also tough because some of the companies, like Johnson & Johnson had issues on their own, which made many investors want to sell their shares at $60. This is when I kept adding to the stock, which is one of my largest portfolio holdings today. When I look at old articles I have written between 2010 and 2012, they mention Johnson & Johnson quite frequently. Yet, many readers didn’t like that and complained about it. In retrospect, what looks like a no-brainer decision when Johnson & Johnson is at $105/share, looked like a very scary decision back in 2010 – 2012.
Between 2009 and early 2013, a common fear I heard from investors was that “stocks are too high”. Looking at my archives, I even wrote several articles which discussed the fact that there are always some quality companies that are selling at attractive valuations.
The reason why I kept putting money to work for me in my dividend portfolio is because I had goals and a dividend growth plan to achieve them. This plan was helpful in outlining the steps that need to be taken in order to achieve my goals. I didn’t have all the steps codified, but the message has been clearly repeated ad nauseum on this site for several years: invest in quality companies at attractive valuations, diversify, dollar cost average, reinvest dividend selectively, keep screening the list of dividend growth stocks regularly, keep learning more about companies, business and develop strategy. Ignore the noise.
The other factor that really made me stick through my strategy through thick and thin was the reinforcing power of cash dividends which I receive in my brokerage accounts. When you get a dividend check from the company you invested in, it further solidified the idea that I am investing in real businesses, and not in some lottery tickets. The first dividend checks were a small drop in the bucket initially. This stream has been increasing in size, frequency and intensity. The goal is that this stream will cover my expenses in a few years or so. When you receive a stream of income which grows faster than raises at your job, which comes from global business powerhouses with growing earnings, it is pretty easy to ignore the opinion of the stock market and keep at your plan.
There is always something to worry about. The way to be successful is to buy shares in good companies that you understand, and buy them at attractive prices. If you have a diversified portfolio of solid blue chips, purchased at attractive prices, with long histories of dividend growth, which have catalysts for further growth in earnings, you can’t go wrong if you are patient and have a long-term time frame. And by long-term, I don’t mean next week, I mean that you should be fine collecting dividends, even if they closed the stock market for 10 years.
In fact, the dividend haters often claim that dividend investors will get scared from a 20% decrease in stock prices. I am really hopeful that they are right and we do get a 20% drop. I promise to act scared, as long as I can get that 20% drop. Inside, I would be ecstatic, since I would be able to buy more future dividend income with less dollars. As someone in the accumulation phase, a bear market would definitely make it easier to achieve my goals faster.
To end up with the words of superinvestor Charlie Munger” If You Can’t Stomach 50% Declines In Your Investment You Will Get The Mediocre Returns You Deserve”
Full Disclosure: Long MO, CVX, JNJ, AFL, MCD, WAG, PM
- Common Misconceptions about Dividend Growth Investing
- Frequently Asked Questions (FAQ) About Dividend Investing
- Dividend Investing Misconceptions
- Long Term Dividend Growth Investing
- Dividend Stocks For Long Term Wealth Accumulation
Wednesday, July 30, 2014
Very often, I hear the following comment:
The dividend kings index includes companies which have managed to increase dividends for over fifty consecutive years. A company that regul...
I kicked off the year with investments in two companies. Those are existing positions, which I am adding to. The companies include: Conoco...
My goal is to find companies which pay a decent dividend today, sell at attractive valuations and can grow those dividends over time from in...
The goal of every dividend investor is to reach their dividend crossover point , which is the time when financial independence is attained. ...
Here is the simple answer: live off dividends Here is the longer answer –when you live off the income that your portfolio produces, the ch...
There are many risks to investing . One of the major risks that could ruin a portfolio’s chances of generating adequate dividends are purely...
Imagine that you are able to receive a lump sum today, due to an event such as a sale of a business, cashing out of a pension, inheritance o...
I check the list of dividend increases every single week, in order to monitor companies I own, as well as uncover hidden dividend gems . Th...
One of the dumbest arguments against dividend growth investing is showing a single investment that failed, and thus implying that the strat...
Today marks the seventh year of me posting on Dividend Growth Investor website . I have posted different things on the site, but the overall...