Wednesday, September 11, 2013

Three Characteristics of Successful Dividend Investors

Just like practicing skills in any field, Dividend investing takes time to learn. It takes most people several years in college and grad school in order to become good teachers, lawyers, accountants etc. It is no surprise that dividend investing then takes a lifetime of practice to learn and perfect to one’s individual personality.

The first trait of successful dividend investors is realizing why one wants to be a dividend investor. It requires that investors be exposed to other trading strategies, such as market timing, index investing, daytrading, swing trading, options etc. While traders in big banks like Goldman Sachs (GS) can successfully daytrade the market and earn a profit every day, this strategy might not be suitable for a person that just retired and started managing their money. By learning about market strategies, investors could develop a better understanding in formulating their trading plan. By educating themselves about how the market works, investors will develop the hunger for knowledge which would eventually bring them profits. Most important of all is to have the independent thinking to make the decision for yourself. The beauty of dividend investing is that once the perfect dividend stocks have been selected, one can basically collect the rising stream of income with little portfolio maintenance, leaving more time to other activities.

The second trait of successful dividend investors is formulating a strategy which, much like a business plan, outlines how investing should be done. The strategy should be realistically tailored to the investor’s personality, in order to increase the odds of sticking to it. I mention the word realistically, because a strategy whose goal is to generate 20% yields in one year while possible, would be impractical and unrealistic. Sticking to a strategy requires discipline, which would essentially make or break the dividend growth investor’s performance.

The strategy should discuss the following items: (but not limited to them)

- Screening Criteria
- Entry Criteria
- Exit Criteria
- Money Management

The third trait is patience. After an investor has done all the work in screening potential candidates and researching them inside and out, they have a list of stocks to purchase when they trade at attractive valuations. Since not all stocks are bargains all the time, it would take time to build a diversified portfolio of dividend producing investments. It would take a lot of patience to avoid chasing yield, not sticking to your strategy by overpaying for stocks and otherwise avoid any actions that would detract from long-term performance and achievement of investing goals. In the world of dividend investing, sometimes inaction is the best activity for most investors.

In my dividend investing, I have had several examples where not doing anything has paid off. For example, I have been watching shares of Walgreen’s (WAG) for several years. I liked the business; I also like the growth prospects for the business. The problem was that the stock never really yielded much. That was until in 2010 it briefly yielded 2.50%, which is when I loaded up on the stock. Walgreen has essentially been flat over the past decade, with the dividend being a large component of total returns over the period. By having the patience to wait for the right time to initiate a position in the stock, I have avoided several years worth of watching my capital do nothing and earning no income in the process. Check my most recent analysis of the stock.

Another example of having the patience was during the financial crisis of 2008-2009, when stock markets tanked to 12 years lows, unemployment skyrocketed and the overall mood in economies around the world turned gloomy. Many financial stocks cut distributions. Investors who ignored the bleak headlines and held on to those stocks which maintained and even increased distributions should have higher portfolio values than 3 years ago. I was also able to purchase some shares at rock bottom prices:

Chevron (CVX) at 64.35
Aflac (AFL) at 25.24
3M (MMM) at 55
Altria Group (MO) at 14.91

I had researched each of these four companies in detail for many months and years beforehand. Once I saw the low valuations, I immediately loaded up my portfolio with quality income stocks selling at a discount. Unfortunately situations like that are seen rarely, but once they happen, investors need to be able to capitalize on them.

Relevant Articles:

The Most Successful Dividend Investors of all time
Master Limited Partnerships: The Perfect Dividend Stocks
Dividend Growth Strategy for Retirement Income
Emotionless Dividend Investing


  1. Learning different investing styles is definitely key. I had to fail as a day/swing trader AND an options trader before I learned that my personality is much better suited to slow and steady dividend growth investing. Tens of thousands of dollars in losses later, I feel like I'm finally on the right track. Only time will tell I suppose. Thanks for all your great advice and counsel.

  2. This strategy is not unlike dividend growth investing.

  3. I certainly agree with all 3 of these traits. My own investing path led me through several different investing strategies before finally settling on dividend growth. I now know I want to follow the dividend growth investing strategy as creating a steady income stream from dividends to live off of just makes sense to me. Also agree that patience is a big one. You have to be patient when looking for the right time to by and be patient while waiting from year to year for those dividend increases!

  4. I think all three attributes are key, but I think patience is by far the most important. Dividend investing is long and boring. There is no flare, no quick returns, no hot stocks and that's why we love it. I am a very young investor and did not have capital to invest in 2009 and am quite envious of your rock bottom prices.

    1. I wouldn't be envious at all, because there is one more component of dividend investing not mentioned and that is getting started early & the power of compounding. Both of which you will have on your side because of your youth. The rock bottom prices you think you missed out on will be nothing compared to what your portfolio will look like in 30 yrs if you start now.

  5. What about when you do have a 20% Run. You mentioned WAG - which is up 48% YTD. Do you just ignore the run? or do you constantly analyze your portfolio to see if the money is better used elsewhere.

  6. Thanks for bringing up these great points. I certainly agree with you on all 3 points and as for the patience, yes it is the most important key to success. I would say that especially in times of recession we definitely need to be more patient.

  7. Any comments on General Mills after last week Will you sell?

  8. A 4th. Being a very aggressive saver with good budgeting. One needs money to make stock investments. For me this was the foundation of my long term investment success. It also develops a discipline which helps with the development of your investment strategy. One can easily save 10-30% or more of your take home pay.


  9. I am very good at all of this except Exit strategy. My sole strategy right now is if you cut or reduce the dividend I get rid of the stock immediately. To me it foretells more bad news to come. Any suggestions about additional items to consider when developing an exit strategy? I am a purely Dividend Growth Investor.


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

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