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

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