Wednesday, July 30, 2014

Dividend Investing Over the Past Seven Years Was Never Easy

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

Relevant Articles:

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


  1. Great post :)

    I started investing in JNJ in 2009. Very glad I did. No doubt there is some hindsight bias in all of us, you simply have to fight it.


  2. I just finished reading 'The Great Depression: A Diary' by Benjamin Roth, a Youngstown, OH lawyer who kept a diary from 1929 through the start of WWII. His observations were timeless as he describes people who bought stocks at their highs, sold at the lows, and viewed the stock market as a giant slot machine. Very few people had the courage to buy at the lows and the patience to hold through the rough times that would inevitably come to an end.

  3. I didn't start dividend investing until January of 2012. I've seen significant gains and truly enjoy seeing the dividends arrive. I think what a lot of traders forget (note: I did not say investors) is that if the goal is to live off the dividends, selling the underlying security is a rare event since you'd be reducing/eliminating your income stream. If you're in the right companies, the income stream will keep coming regardless of market corrections. Yes, a correction would test an investor's resolve...but that test is a lot easier with the dividends arriving on time. Thanks for the articles!

  4. Really nice article. There is never a good time to start investing except yesterday. I started my portfolio with dividend growth stocks last year after losing money with years of speculating. My portfolio is almost over 50.000 € now and just started. I'm sorry I didn't find DGI 5 years ago!

  5. DGI,

    Great post!

    I admire your resolve through thick and thin. I'm personally looking forward to the next 10-20% correction both to test my personal resolve, and for cheaper stocks.

    Keep up the great work!

    Best wishes.

  6. Amen on your article. Thanks.

    In essence, those dividends just keep reducing our cost basis (not in tax terms) so whose afraid of a little downturn. And if your reinvesting dividends, that downturn just allows you to buy more stock at a cheaper price, further reducing your overall cost basis. Although when PNC's dividend went from $2.40/share to $.40/share in 2009, I have to say I did loose my resolve.

  7. Excellent summary of these recent years. I try to recollect the past and my emotional state at that time as I reflected the headlines to put in perspective my current situation. Thanks for putting it all down in black and white. Like you I am also looking forward to a drop and look forward to buying cheap stocks. Problem is that I think the headlines will terrify me again and I will have to remember how it was before when the media screamed doomsday. It's likely I will worry just how far and how long the next crash will be and may miss the boat!

  8. Great post DGI,
    As a dividend investor, I don't listen that much about negative market noises, but I am looking forward to see the next drop to hunt blue-chip dividend stocks at bargains. Mean time, I will be paying down my debts to get real gains from interest rate.

    Best Regards,

  9. Interesting story, DGI. I unfortunately baled out of stocks almost entirely after following an advisor who predicts the end of the stock market based on demographics. The DOW was at 9K and I didn't get back in until 13K. I missed many of the opportunities. One of the reasons that I got out of stocks is that I was looking at the total value of the portfolio, and a down market kills that. When I decided to get back in, I decided to go the dividend income route. Only regret is that I didn't start that way 30 years ago. Nice to see you doing so well.

    1. I too spent 30 years doing the "wrong" investing from day trades, quick trades, short term momenteum, etc, no DGI stuff. Around 2005 I noticed the 401k with buy and hold due to limited mutual funds and 1 stock was doing great compared to my self managed pick anything stock accounts so I switched to long term buy and hold DGI aristocrat/ccc stocks in the personal accounts. The past 10 years have been great, just wish I had started doing that in my 20's when I knew it all.... I look at the 30 years of different strategies as "a costly learning experience" of what not to do.

  10. What a wonderful trip down memory lane! Bravo DGI! Bravo!!!!!

  11. I am with you DGI. Just 5 years ago I was running scared with the herd. Now I look forward to the next downturn and get giddy when the market takes big dips.

  12. Nice article and perspective DGI. I started dividend growth investing in 2005. When the market tanked in 2008 I was "happier than a pig in slop," and buying dividend stocks in both a taxable account and non-taxable 401(k) using DCA. In fact, my spouse had to tell me to stop "gloating" and doing a "happy dance" about how I was loving the crash because most folks would never understand my "giddiness" (cheap stocks, cheap stocks, cheap stocks). If all continues as planned/projected, we should hit FI around September 2015 and will be retiring early. If the market drops 20% between now and then, I'll be buying and doing my "happy dance" one again.

  13. I really like this post.

    Anyone who ever thinks that it was easy to buy stocks the last 4 or 5 years probably wasn't buying stocks. In the first few years following the crash, every volatile day reawakened fears that the rally that we were enjoying coming out of the crash was about to end and we would be heading to new all-time lows at the drop of a hat.

    The last little while, everyone is crowing about how overvalued the market is and surely a huge correction is imminent. This may be true, I have no idea what tomorrow will bring. It's equally possible, in my opinion, that the markets will close 2014 with a huge gain too.

    To continue to systematically put money in the stock market, regardless of the noise, takes discipline and composure, and the ability to control one's fear of the unknown.

  14. I think that all of those reasons that you mentioned are reasons that I hear people not wanting to invest at all, let alone dividend paying companies.

    I remember the feeling of the news and the economy in 2007. For some reason I remember being on the subway and hearing people talking about Lehman Brothers declaring bankruptcy. I'm not sure why that particular moment sticks in my head, but it felt like there was blood in the streets for anyone in the stock market. And to be fair there probably was. I wasn't the most responsible person with my money at the time but I did invest a little at the time. looking back I wish I had started pouring in as much as I could, but that was a lesson for me for the next time there's a collapse, when everyone else is scared that's when it's time to be brave.

    Eventually the market will recover, some companies might not make it so make sure you pick something you know will be around after. If the entire system collapses I already know that money will be worthless, I've seen enough movies to know that gasoline and bullets will be the only currency in a meltdown that throws our whole economy out the door.

  15. "The truth is that dividend investing was never easy"
    True words. Look at McDonalds at the moment. There will always be some risk.

  16. Good article. I have been at this investment process for a very long time.... DGI for about the last 7 years of my 40+ yr investment journey. I would assume most who faithfully read SA articles are a much more seasoned (ie, seen and survived a serious downturn - at least 40-50%) investor than the average investor. Yes, the seasoned has survived and learned much in the process. The average investor will sell at or near the bottom and will only return after the market is again near market highs or never invest again. Only invest per your risk tolerance. To do otherwise is dumb because you will never stick with it.

    Buy and hold is fine. But do not leave yourself with no cash to invest when the real value opportunities present themselves. I am not talking about just big market downturns, but also when your favorite stocks to purchase hit a very rough bump in the road. Some will say they can margin their accounts when these opportunities arise instead of having some ready cash. I can't think of a better way to lose your shirt quickly. I saw many investors go through this in 1987 and again in the 2000 tech crashes. Some lost it all. As you can probably tell, I invest when value opportunities present themselves as I like a comfortable safety margin in my investments.

    When a panic hits, like the 1987 crash....turn the TV off and do something enjoyable. I didn't....and watching the 87 crash was very enlightening by dam scary. Enough so, I didn't pick up stocks at some very very nice prices and why I should have turned off the TV.

    IMHO, 2008 was nothing compared to the 1987 panic, 2000 tech crash or the nasty long drawn out bear of 1972-3 that took years to recover from.

    So, just a few thoughts from someone who has seen most of the worst and best the markets have given us over the last 40+ years.

    Last patient.


    1. Well put. Even now, I get asked "where do you get all this money to invest with". The answer is having DGI stocks that keep throwing dividend money into your accounts and letting it accumulate until a buying opportunity comes along. By having the wisdom to know that even with today's opportunity if I don't have enough cash right now, will be an opportunity with a different stock next month or so due to dividends coming in. Slow and steady, one foot forward after another wins the race.

  17. This article highlights the need to drown out all the chatter and media spotlight on the markets. In each case you cite media sensationalism at its finest whether it's European defaults, debt ceilings, inflation fears, deflation fears, terror organizations or whatever. At any point in history you can always find a reason to not invest. You sound a lot like me as I watched my entire portfolio go in the red during 2008/9 but I kept adding to my holdings and did not sell one share in anything. Thanks for sharing.

  18. When I see the market going down a bit, I seldom wonder what to do. I look at the stocks I own and note that my basis is between $10 and $60 less then the current cost. I see the average basis of my holdings is $36.00 per share less than the current market cost. I do own GE with a basis of a dollar more than my cost but I am holding it to see where it goes from here.

    I did rather well in the 2008-2010 market period. I did not loose a dime. I did sell $30,000 in stocks in 2008 to help support a daughter and her husband, who had lost his job. I chart my total portfolio on graph paper which gives me a visual view of what is going on in the market. Much like a graph of the DOW. I find my chart of 32 stocks gives me a better idea when the market has recovered than an idea of when the market WILL go down. I invested all my saved investment money, plus the $30,000, in March 2009. I bought new shares with new money as I had held all the shares I already owned. Of course I can not loose a dime if I do not sell anything. I play the market like the game of chess and under the rules of war. As I am a combat vet, I give that some credit to my methods as I feel it taught me to hold on during hard times. Also, being frugal during my military career (what choice did I have) helped me execute my investment plan, which tries to remove fear and greed.


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

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