Tuesday, July 21, 2015

Am I a successful dividend investor?

How do you define success? To me, success is the freedom to do my own thing, and the ability to reach my goals. Given the fact that I am a few years away from potentially reaching out my dividend goals, I would consider myself a successful dividend investor in progress. So how did I get there? The answers are simple – I developed my own approach, stuck to it through thick and thin, kept learning more about investing and kept my emotions at bay. At the same time I ignored the random noise that comes from individuals who do not know what they are talking about, yet scream the loudest.

I kept buying dividend growth stocks in 2008 and 2009, when everyone else tried to make me scared about investing. The economy was supposed to go in the tank, and the Great Depression was coming. Based on my studies of history, the Great Depression was tone of the best times to buy equities. Hence, I continued putting my hard earned cash into dividend paying stocks.

I kept buying dividend growth stocks in 2009, 2010 and 2011, when everyone was afraid that the zero percent interest rate policy by the FED, and the money printing were going to decimate the economy. Based on my research, inflation is good for owners of businesses who sell tangible goods and services. A person would be willing to exchange the fruits of a few day’s work for a month’s rent, whether the medium of exchange is US dollars, seashells, or gold coins. Therefore, ownership of productive assets like businesses will result in protection of capital and distributions from eroding power of inflation. Take that gold bugs.

I kept buying dividend growth stocks in 2011 and 2012 and 2013, when Congress was deadlocked and also when taxes on dividend investments were going to reach 39.60% ( the highest tax on investment income is now 23.60% for those lucky enough to be single and earning $250,000 in annual qualified dividend income).

If you need everyone's approval before putting your hard earned money to work, then you might end up following the folly of the crowds into companies that are not suitable investments for you, and you also risk overpaying for those investments. If you are a successful investor, there are a lot of people who will disagree with you most of the time. Of course, if someone who has done the work to form the opinion, and presents facts and figures that refute your claims, then you should seriously consider their point of view. Otherwise, it is a waste of your time.

I believe that the reasons why I have been successful boil down to the following:

1) Develop an independent approach to evaluating investments

It has taken me over 15 years to formulate and continuously improve my investment approach. My goal has been to devise a strategy that will generate money for me to live off my portfolio. This has led me to dividend investing. I focus on companies that consistently raise dividends, and screen out those that are overvalued, or have unsustainable distributions. I then analyze each company in detail, in order to determine if the business can deliver earnings growth in the future, which would trickle down to dividend growth. Companies that have branded products or services that customers need, have the staying power to grow business and pay more dividends over time. I have a hard time imagining a situation where companies like General Mills (GIS), McCormick (MKC) or Unilever (UL) would not do well over the next 20 years, and not prosper.

2) Stick to that approach through thick and thin

I understand dividend growth investing pretty well, and have been practicing it for eight years now. I understand that the odds are very high that if I build a diversified portfolio of quality companies that keep raising dividends every year, and hold that for 20 – 30 years, I would do pretty well. By being a long-term investor, I am essentially letting the consistent power of compounding do the heavy lifting for me. Sometimes it is very difficult to stick to a strategy, especially when other strategies out there are temporarily doing better or you get a rough patch in a few sectors. Mistakes like American Realty Capital (ARCP) happen. I did learn a lot from this mistake, as I have from others. I have learned the hard way that it is better to stick to your strategy through thick and thin and wait for your cards to play out, rather than switch strategies in the middle of the game. Investors who switch strategies end up chasing the hot companies of the moment by wildly overpaying for them, and end up losing money in the process. I have learned that some of the best ideas I have come out with have faced stiff resistance - including Target (TGT) and Dr. Pepper Snapple (DPS).

3) Keep learning in order to improve continuously

Just because I have selected a strategy, and am following it, doesn’t mean that I am not trying to become a better investor every day. The learning never stops for me. I routinely scan my list of dividend growth stocks, and keep tracking fundamental performance of a large group of companies I own and follow. I also try to learn more about other companies, in order to be better prepared should the right opportunity present itself. I also analyze the investments I have made, in order to uncover any weaknesses or opportunities. This led me to discover that selling companies and buying something else was not adding any value to me, only adding value to the taxperson and my broker. In addition, I keep learning about other successful investors by reading about them. My learning also includes reading books about investing topics, and watching specialized programs on the topic. Knowledge is power, that accumulates over time, like compound interest. Following the investing greats such as Warren Buffett, Philip Fisher, Charlie Munger, Peter Lynch, Benjamin Graham, Henry Singleton and a host of many others, has been very helpful in my journey. I have found it much more important to focus on those who have a track record of success, than those who try to sell me something in order to "motivate me". As you know, those who can't do, teach. There is much more money to be made managing investments, than writing about investments. I think that is where my next opportunity in life will be.

4) Keep emotions out of bay

The main reason why many investors fail is because they get euphoric when prices climb up, and get downright depressed when prices start going down. Those feelings of fear and greed could be very counterproductive, because they could let investors do silly things such as overpaying for companies, switching strategies to pursue the next sure bet or get scared away from a perfectly nice investment at the worst times possible. With income investing, I see people chasing high yielding stocks every day, or buying companies without researching them. In addition, many investors just focus on the dividend, without understanding whether it is sustainable and whether the company has the underlying earnings strength to keep raising distributions. Another emotional mistake is the lack of patience, which is usually driven by the need for constant action. In reality, if you build a well-diversified portfolio of quality dividend growth stocks that are bought at fair prices, and you do nothing for 30 years, you could do pretty well. It is difficult to average down on companies, when their prices are going south. However, if you truly like a company like Johnson & Johnson (JNJ) at $100/share, you should like it even better at $90/share, assuming nothing material has changed in the company's business model.

The purpose of this introspective post is not to brag about myself. The purpose is to try to distill a few traits, which have helped me along on my journey towards the coveted dividend crossover point. As I practice what I have been preaching for the past 8 years on this site, I get to notice what works and what doesn't. This is why it is important to repeat those nuggets of truth over and over again. I believe that the journey to financial independence has been really beneficial to me in many ways, because I am much more knowledgeable and more adaptable. In purely monetary terms, I am on track to earn enough dividend income on a forward basis to cover expenses sometime around 2018.  Since that was my goal since the beginning of this site, I would say I am on the right path.

How do you define success in your investing?

Full Disclosure: Long JNJ, GIS, MKC, DPS, TGT, UL

Relevant Articles:

Successful Dividend Investing Requires Patience
How to buy dividend paying stocks at a 25% discount
How to become a successful dividend investor
My Dividend Goals for 2015 and after
How to reach your dividend income goals?


  1. Hi DGI,

    Although I have been investing for years I have only last April set out a clear goal. Fortunately my portfolio contained large secure companies with prospects of sustainable dividend growth.

    I came to realise that I am not a particularly talented investor, but setting a goal of increasing my dividend income by 3%-5% a year is attainable for me and compares very well with the pay increases of people I know who work extremely hard.

So far my dividends are up 7%, but i do expect that to tail off over the next year.

    1. Louis,

      Thanks for stopping by and reading the article. You are doing a smart thing by focusing on goals which are reasonable and achievable. Anything extra is a nice surprise, which will surely help you reach your goals sooner! Historically, dividends on US stocks have risen by 5 - 5.50%/year. So you might be up for a nice surprise over time.

      Best Regards,

      Dividend Growth Investor

  2. I have learned greatly from your blog over the past several years. Having never invested in my lie, only saved and saved heavily, it has taken a great adjustment, but your site laid the groundwork for making the adjustment. I'm still highly conservative, with only 40% of my savings invested in stocks, but all of those stocks are owned as individual stocks and not through an EFTs or mutual funds. I understood the value of controlling when or if to sell, and not be driven by other investors needing to exit a fund. Thank you.

    1. The most important thing is to have a strategy and investment style that you can stick to, through thick or thin. When you know yourself, and create a strategy that you can stick with, then the job is halfway done - the rest is to just save and invest, rinse and repeat. Investing is no rocket science.

      Best Regards,

      Dividend Growth Investor

  3. I have benefited greatly from this blog which I found only recently. I'm a financial advisor, invest for myself and have the goal of living off dividends post age 66. As one who has studied all possible retirement income methods currently available, the dividend income strategy is the simplest most efficient method I've seen. And believe me I've studied them all for years on behalf of clients. Many won't start early enough to make it work but for those of us that do....
    Keep up the good work and posts. Much appreciated.

    1. Thanks for stopping by and reading. I have found living off dividends to be the easiest retirement income method for me as well.

      Good luck in achieving your goals!

      Dividend Growth Investor

  4. Thank you for sharing this awesome journey with us DGI. Your insight is appreciated and I thank you for constantly reminding us of this great journey of Dividend Growth Investing. I love it and will keep building my portfolio to greater heights as I still have 23 years until retirement. However, my life has greatly improved since I started and have much more purpose and meaning and most importantly security for a brighter future.
    Thank you and I wish you the best. Take care my friend.

    1. Dividend Hustler,

      You have a long journey ahead for you. However, you have already taken the first and most important step – that is getting started using a strategy you will stick to. Once you gather a certain amount of income generating assets however, there is a tipping point where the dividend stocks will do the heavy lifting for your wealth building. Once you start, your wealth snowballs exponentially, helped by long-term compounding

      Reminds me of the beginning of one of my favorite books:

      “It is the winter of Warren’s ninth year. Outside in the yard, he and his little sister, Bertie, are playing in the snow.
      Warren is catching snowflakes. One at a time at first. Then he is scooping them up by handfuls. He starts to pack them into a ball. As the snowball grows bigger, he places it on the ground. Slowly it begins to roll. He gives it a push, and it picks up more snow. He pushes the snowball across the lawn, piling snow on snow.
      Soon he reaches the edge of the yard. After a moment of hesitation, he heads off, rolling the snowball through the neighborhood.
      And from there, Warren continues onward, casting his eye on a whole world full of snow.“

  5. Hi,
    I've been investing for about 9 years now in RE/mutual funds/ETFs. Wifey and I are on target to have enough to consider ourselves financially independent in less than 3 years. I learned about this dividend growth this year and I'm LISTENING! Thank you for sharing your sucess story.


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

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