How to become a successful dividend investor

Becoming a successful dividend investor takes time, effort, and dedication. You need to understand the basics, stick to a clear investment strategy, be able to do your own research, diversify and stay disciplined and patient.

Here are some steps you can take to become a successful dividend investor:

1. Start by educating yourself about dividend investing. 

Read books and articles about dividend investing to learn about dividends and how they are taxed. This also means learning about different types of dividend-paying stocks, how dividends are paid, and how to evaluate the potential of a company to continue paying dividends.

You may like this list of books that shaped my strategy. For retirees, qualified dividends are taxed at a lower rates than regular income. For some retirees, dividend income can be tax-free.

2. Develop a clear investment strategy. 

Decide what your investment goals are and how dividend investing fits into your overall investment plan. Dividend investing is a long-term game, so it's important to have a plan in place that will guide your investment decisions. This plan should include your investment goals, the types of stocks you want to invest in, and the amount of money you want to allocate to dividend investing.

You may like this brief overview of my investing strategy. Of course, my archives show a lot more resources.

3. Do your own research. 

Before investing in any stock, be sure to do your homework. Don't just rely on the advice of others or the recommendations of brokers. Take the time to thoroughly research potential investments, and consider using tools like stock screeners to help you identify promising dividend stocks. This means reading company reports, studying the company's financials, and getting a sense of the company's overall health. Pay particular attention to the company's dividend history, as well as its ability to continue paying dividends in the future.

4. Diversify your portfolio. 

Dividend stocks, like any other investment, can be volatile. Dividend investing involves taking on some level of risk, so it's important to spread your money across a variety of different stocks to reduce your overall risk. To reduce the risks, make sure to diversify your portfolio by investing in a variety of stocks from different industries and sectors. This means investing in stocks from different industries, with different levels of risk, and from companies of different sizes. 

5. Stay disciplined. 

Investing in dividend stocks is a long-term strategy, so it's important to stay disciplined and avoid making rash decisions based on short-term market fluctuations. Stick to your investment plan and don't let emotions drive your decisions.

When you're first starting out as a dividend investor, it's important to start small but invest consistently. This means setting aside a small amount of money each month and using it to gradually build up your portfolio. As you gain experience and become more comfortable with dividend investing, you can gradually increase the amount of money you invest.  It's very important to remain disciplined by investing consistently. 

6. Be patient. 

Dividend investing can take time to pay off, so be patient and stick with it. Dividend investing is a long-term game, so it's important to be patient and not expect immediate results. It may take several years before you start to see significant returns on your investment, but with patience and dedication, you can become a successful dividend investor. Over time, the steady stream of income from dividends can add up and help you achieve your financial goals.

Conclusion

To sum up, becoming a successful dividend investor requires a thorough understanding of dividends and a clear long-term investment strategy. It also involves doing your own homework, regularly reviewing your portfolio, being disciplined and patient, and diversifying the portfolio. With these steps, dividend investing can be a rewarding and potentially profitable endeavor.

Thank you for reading!

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The Gift That Keeps On Giving

We just had Black Friday and Cyber Monday. The Holiday Season is approaching. Everyone is rushing to buy gifts to the people that are most important to them. An expensive gift shows appreciation, and your love for the other person.

At least that’s what the marketing departments at some of the worlds largest companies have convinced us to believe.

People rush to overcrowded stores, and scour the internet for great shopping and gift ideas. I am guilty of that as well, as I bravely ventured to the parking lots of Target and Bed Bath and Beyond. I also set foot in the stores. Perhaps I even dared to buy a few things.

At the end of the day, everyone gets more stuff, filling our basements, landfills, storage units.
Parents usually feel the pressure to provide that exciting gift for their child, which is promising to develop them, entertain them and teach them important lessons. Kids will play with the toys for a while, until they end up gathering dust in a basement or just thrown in the trash.

I have come to the conclusion that no one will remember your gift ten or twenty years down the road. It is very rare that this gift will be a life changing event.

I believe that the best gift to provide to others is the gift of stock. I think that the best gift should be buying quality dividend paying stocks to recipients.

The gift recipient will receive dividends for decades. Every time they receive a new dividend check, and every time that dividend check increases with dividend growth, they will think fondly of the person that gave them that stock.

For example, if your great grandfather bought just one share of Coca-Cola stock in 1919 for $40,and reinvested those dividends, he would have left an estate worth $21 million today from just that one investment. This investment would generate close to $50,000 in monthly dividend income, which has increased for 60 years in a row.

I believe that the best holiday gift is the one that keeps on giving. This is why I prefer providing the gift of stock to the people closest to me. Namely, my offspring.

I still do actual presents, but I supplement them with a deposit and an investment in an investment account in their name. Time is the most valuable asset that a young person has. The ability to sit on an investment made at a young age, and then compound it for many decades is very helpful in accumulating wealth.

There are many ways to give the gift of stock. I would focus on the cheapest ways, and look for ways to minimize fees and costs as much as possible. There are a myriad options to accomplish this. Each will be available to you depending on your individual circumstances. However, the optimal one will vary from person to person, which is why I would encourage you to speak with a CPA, particularly if these options seem overwhelming.

One way of giving stock as a gift is by opening a custodial account. You control the stock as the adult, and the child becomes its owner at the age of 18 or 21 ( depending on your state). This is as simple as opening a new brokerage account. 

There may be tax implications however.

For 2022,  the first $1,150 in qualified dividends are not taxable. 

The next $1,150 is the child's marginal tax rate. 

Anything above $2,300 is taxed at the parents' marginal tax rate.

The tax rates on dividend and capital gains income for minors are more onerous than the dividends and capital gains rates for their parents. 

Taxes can become more complicated if the child has earned income too. I'd touch base with a CPA/Tax Advisor to address any specific situations.

Fidelity and Schwab have interesting information on the Kiddie tax. They also refer you to IRS publication 929. It's excellent bed time reading.

Depending on your individual circumstances, and if you do not want to deal with stepping on to the kiddie tax, it may make sense to just open an account in your name. You can then keep the funds in your name, but mentally earmark it for the benefit of the child. At a certain point in time, you may decide to transfer the stock as gift to the younger person. Brokerages like Fidelity can easily accommodate these requests, but may charge a small fee for it. You also need to pay attention to the gift tax. Right now, all you need to know is that a gift of up to $15,000 that you make to someone is not subject to a gift tax. If you are married, each partner can donate securities worth $15,000, for a total of $30,000. The recipient gets your cost basis in the stock.

When the young person inherits the stock from you, their cost basis will be the price of the security at the date of your death. That’s the third way of getting the gift of stock, but it is the worst way for the person who makes the gift of stock.

A fourth way to give the gift of stock is by using designated tax-deferred accounts. If the minor has some earned income, you can let them spend it or do with it as they please. You can then go ahead and put the same amount as their earned income in a Roth IRA. You are then free to invest in anything you want, without worrying about taxes. The money will compound tax-free for decades.

Alternatively, you can put the money in a 529 plan or an Educational Savings Account. There are limits to how much you can invest in each account, and the money has to be used for certain purposes. I do not like the restrictive nature of these accounts, the taxes and fees if the money is withdrawn and not used for education. I also dislike the fees on the 529 accounts in general. There are limits in 529 accounts to what you can invest the money in. For educational savings account, the money has to be disbursed by the recipient’s 30th birthday.

The last way is the most common way for richer individuals to gift stock to their beneficiaries. It involves setting up a trust fund, whose sole purpose is to hold the stock for the beneficiary. The trust fund disburses dividends, interest and income to the beneficiary, but usually is a separate legal entity. This provides protection to the trust assets, and the beneficiary gets to enjoy a stream of income over their lifetime. Trust and estate is a very complex matter, which will not be explained by a single blog article. The biggest advantage of a properly structured trust is that it eliminates the estate tax for the wealthy individual, while also showering their offspring with rising dividends for decades to come. That’s what the Rockefeller family has done in a nutshell. You definitely need to engage a qualified professional, or a team of professionals, before even thinking about starting a trust fund. If the Rockefellers can teach us anything, it’s that a proper trust fund planning can provide for several generations.

Today, we discussed gifting dividend stocks as presents, rather than spending the money on gifts that no one will remember in a decade or two. Dividend stocks are the gift that keeps on giving, as they will provide dividend income for decades to the recipient. There are different ways to accomplish this task, which can be used as tools to do what is necessary in order to give the gift that keeps on giving.

Relevant Articles:

- Stockpile Brokerage Review
- Five Stocks Delivering the Gift that Keeps on Giving
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Four Companies Rewarding Thankful Shareholders With Raises

There were several companies over the past week which announced their intent to raise dividends to shareholders. It is always great to see companies that are able to extend their long streaks of annual dividend increases. I find dividend increases to be a good indicator of how company executives feel about the near-term business environment. It also shows their confidence in the company’s growth prospects. 

Factors that boards of directors consider when setting the dividend include future earnings expectations, payout ratio and dividend yield relative to those at peer companies, as well as returns available on other income-oriented investments.

This is why I find it very helpful to review dividend increases every week for established dividend growth companies. To be included in this list, a company should have managed to reward shareholders with a dividend hike for at least ten years in a row.

I review these press releases as part of my monitoring process. For the purposes of this article, I narrowed the list of dividend increases down to a more manageable level.

I focused on companies that can afford to grow dividends for at least a decade. I figured that a company which has managed to boost dividends during a recession and an expansion, or even longer, is better suited for further research by a long-term dividend growth investor like me.

In my previews, I look at the most recent dividend increase, and compare it to the ten year average. While there are some year-over-year fluctuations in dividend growth, it is helpful to see if dividend growth is decelerating.

In addition, it is helpful to review trends in earnings and dividends, alongside dividend payout ratios. This is another indicator of dividend safety.

Last, but not least, I also try to review the valuation behind every company. I prefer to buy future dividend income at attractive valuations; overpaying for future dividend income is not a good business decision.

Over the shortened Thanksgiving week, we had six companies hiking distributions to their thankful shareholders. 

The companies include:

Hormel Foods Corporation (HRL) develops, processes, and distributes various meat, nuts, and food products to retail, foodservice, deli, and commercial customers in the United States and internationally. The company operates through four segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, and International & Other. 

Hormel Foods increased its quarterly dividends by 5.80% to $0.275/share, marking the 57th consecutive annual dividend increase for this dividend king.

The company has managed to grow annual dividends at an annualized rate of 8.87% over the past five years.

The stock sells for 27.27 times forward earnings and yields 2.23%.

HP Inc. (HPQ) provides personal computing and other access devices, imaging and printing products, and related technologies, solutions, and services in the United States and internationally. The company operates through three segments: Personal Systems, Printing, and Corporate Investments. 

HP increased quarterly dividends by 5% to $0.2625/share, marking the 13th consecutive year of annual dividend increases for this dividend achiever.

The company has managed to grow annual dividends at an annualized rate of 13.50% over the past five years.

The stock sells for 9.08 times forward earnings and yields 3.48%.

Hingham Institution for Savings (HIFS) provides various financial products and services to individuals and businesses in the United States.

The company hiked its quarterly dividend to $0.63/share. This is a 3.30% increase from the prior quarterly dividend paid in the third quarter of 2022. It is also a 14.54% increase from the dividend paid during the same time last year.

The bank has consistently increased regular cash dividends for the past 27 years. In addition to that, it has managed to pay a special dividend in December, for the past 28 years. 

The special dividend is $0.63/share for 2022, which is down from the special dividend of $0.75/share paid for 2021. Overall annual dividend income paid in 2023 is set to exceed overall annual dividend income paid in 2022 however (including special dividends).

The company has managed to grow annual dividends at an annualized rate of 12.28% over the past five years.

The stock sells for 14.34 times earnings and yields 0.88%.

The York Water Company (YORW) impounds, purifies, and distributes drinking water. It owns and operates three wastewater collection systems; five wastewater collection and treatment systems; and two reservoirs.

The company increased quarterly dividends by 4% to $0.2027/share. This dividend champion has increased dividends for 26 consecutive years.

The company has managed to grow annual dividends at an annualized rate of 4% over the past five years.

The stock sells for 33.06 times forward earnings and yields 1.78%.

Relevant Articles:

- Twelve Cash Machines Hiking Dividends Last Week

- Nine Companies Rewarding Shareholders With Raises

- 13 Dividend Growth Stocks Rewarding Owners With A Raise

- Twenty Dividend Growth Stocks Raising Dividends Last Week

Twelve Cash Machines Hiking Dividends Last Week

 I review the list of dividend increases every week, as part of my review process. I focus my attention on companies that raised dividends in the current week, and have at least a ten-year track record of annual dividend increases.

Only a company with a strong cash flow generating business can afford to grow dividends for a long period of time. Therefore, a business growing dividends for at least a decade is worth looking at for further research.

There were nine companies that fit the criteria. You can view the five companies in the table below:

Name	Ticker	New	Old	Increase	Streak	P/E	Yield	5 year Dividend Growth
Agilent Technologies	A	0.225	0.21	7.14%	12	28.82	0.62%	11.02%
Brown-Forman	BF.B	0.2055	0.1885	9.02%	39	35.66	1.18%	5.70%
C.H. Robinson	CHRW	0.61	0.55	10.91%	25	12.19	2.51%	3.23%
DTE Energy	DTE	0.9525	0.885	7.63%	14	19.03	3.32%	7.10%
Griffon	GFF	0.1	0.09	11.11%	12	9.94	1.11%	9.46%
KeyCorp	KEY	0.205	0.195	5.13%	12	8.72	4.41%	17.84%
Matthews	MATW	0.23	0.22	4.55%	29	9.87	3.07%	6.89%
MDU Resources	MDU	0.2225	0.2175	2.30%	32	16.92	2.91%	2.53%
Motorola Solutions	MSI	0.88	0.79	11.39%	13	25.77	1.34%	11.61%
Nike	NKE	0.34	0.305	11.48%	21	35.69	1.29%	12.04%
Royal Gold	RGLD	0.375	0.35	7.14%	22	31.52	1.42%	5.46%
WesBanco	WSBC	0.35	0.34	2.94%	13	13.05	3.52%	6.64%

This is a list of companies for further review. Most seem attractive as businesses, but that doesn’t mean that they should be invested in at any price, regardless of valuation.

This would likely be the last post for me this week. I will look forward to the Thanksgiving raises from Hormel Foods, McCormick, York Water Company, South Jersey Industries and Hingham Institution for Savings.

Relevant Articles:

- Nine Companies Rewarding Shareholders With Raises

- Twenty Dividend Growth Stocks Raising Dividends Last Week

- 13 Dividend Growth Stocks Rewarding Owners With A Raise

24 Dividend Aristocrats For The Next 24 Years

The S&P Dividend Aristocrats Index includes the S&P 500 companies that have managed to increase annual dividends for at least 25 consecutive years. 

It is an elite list of quality companies that I have on my watchlist. To get there a company would have to get to become a member of S&P 500, AND also raise dividends for 25 years in a row. Only a quality company with a strong business model and the ability to grow business and generate a growing amount of excess cashflow can get a spot on this list. Success is not an accident.

There are only 64 such companies in the US today. You can see the list of these companies here.

As part of my monitoring process, I narrowed the list down to 24 dividend aristocrats for further research. I applied the following criteria:

1) I reviewed the earnings histories for each dividend aristocrat over the past decade. I removed the companies that didn't grow earnings sufficiently over the past decade. I also removed companies where earnings per share has been flatlining over the past few years. Rising earnings per share are the fuel behind future dividend increases. For REITs I looked at FFO/share.

2) I reviewed the valuation for the remaining companies and removed those that have a P/E ratio above 25. This corresponds to an earnings yield of 4%, which is roughly on par with US Treasuries.

3) The next step I took was to remove companies which had very small recent dividend increases.  This included Dover, Emerson Electric, 3M, Realty Income, Stanley Black & Decker. 

4) Next, I focused on companies with a payout ratio below 65%. Dividend safety is of paramount importance. I calculate an adequate margin of safety in dividends through the dividend payout ratio.

5) I focused on companies with 5 year annualized dividend growth exceeding 3%/year. This is roughly in line with historical inflation trends. 

This leaves me with a list of 24 dividend aristocrats for research:

Name	Ticker	Consecutive Annual Dividend Increases	Forward P/E	Dividend Yield	Forward Payout Ratio	5 year Annualized Dividend Growth
AbbVie Inc.	ABBV	50	10.85	3.94%	42.75%	17.93%
Abbott Laboratories	ABT	50	20.01	1.81%	36.22%	11.60%
Archer-Daniels-Midland	ADM	47	12.34	1.70%	20.98%	4.28%
Aflac Incorporated	AFL	40	13.36	2.28%	30.46%	9.72%
A. O. Smith Corporation	AOS	29	19.42	2.00%	38.84%	17.17%
Air Products and Chemicals	APD	40	25.33	2.25%	56.99%	11.49%
Atmos Energy Corporation	ATO	38	18.56	2.67%	49.56%	8.36%
Brown & Brown, Inc.	BRO	29	25.21	0.81%	20.42%	8.63%
Church & Dwight Co., Inc.	CHD	26	25.2	1.41%	35.53%	7.30%
Cincinnati Financial Corporation	CINF	62	25.66	2.51%	64.41%	5.56%
Essex Property Trust, Inc.	ESS	28	14.87	4.09%	60.82%	5.99%
Expeditors International of Washington	EXPD	28	12.51	1.20%	15.01%	7.71%
General Dynamics Corporation	GD	31	19.99	2.07%	41.38%	9.47%
Genuine Parts Company	GPC	66	21.82	2.01%	43.86%	4.57%
W.W. Grainger, Inc.	GWW	51	20.1	1.17%	23.52%	5.76%
Illinois Tool Works Inc.	ITW	48	24.22	2.31%	55.95%	15.07%
Johnson & Johnson	JNJ	60	16.85	2.67%	44.99%	5.87%
Lowe's Companies, Inc.	LOW	60	15.47	2.01%	31.09%	17.32%
The Procter & Gamble Company	PG	66	24.28	2.59%	62.89%	4.94%
Pentair plc	PNR	46	12.81	1.80%	23.06%	3.60%
PPG Industries, Inc.	PPG	51	21.76	1.91%	41.56%	7.70%
Sysco Corporation	SYY	52	20.35	2.32%	47.21%	8.21%
Target Corporation	TGT	55	21.56	2.49%	53.68%	6.38%
T. Rowe Price Group, Inc.	TROW	36	16.85	3.60%	60.66%	14.87%

Note: Data as of 11/11/2022. Data is from sources believed to be reliable.

While the titled of the article states 24 dividend aristocrats for the next 24 years, I would not treat it as a recommendation to buy. I view it as a list of companies for further research. I encourage readers to do their own due diligence before putting money to work.

This is a sample analysis of Air Products & Chemicals (APD) for more information on how I review companies.

Relevant Articles:

- Dividend Aristocrats List for 2022

- Rising Earnings – The Source of Future Dividend Growth

- How to determine if your dividends are safe

- Margin of Safety in Dividends