Last week, anywhere I checked on the internet, everyone was focused on stock market volatility. The fear is that we might be entering a new bear market. As a long term dividend investor I don’t really care much about things like that.
I care about selecting quality companies which can deliver results in any environment. I view declines in stock prices as opportunities to buy more shares at a discount.
The sad thing is that few managed to cover the news that Altria (MO) just raised its dividends. The company has been raising dividends for over 4 decades, and is still not done growing earnings and paying larger dividends to its shareholders. I find it impressive when a company can afford to be boring today, and just keep calm and carry on with its proven business model. As an investor, I like boring and predictable, particularly when I am paid in cash to hold on to that investment. Check my analysis of Altria for more details on the company.
Altria raised its quarterly dividend by 8.70% to 56.50 cents/share. This dividend champion has raised dividends for 46 years in a row. The ten year dividend growth rate is 11.60%/year. Given the fact that shares have been consistently undervalued over the past 60 years, the high dividend growth and the consistently high dividend yield, it is no surprise that Altria has been the best performing stock in the S&P 500 since 1957.
Monday, August 31, 2015
Friday, August 28, 2015
A Dividend Portfolio for Early Retirees
I am often asked the following question in some variation: If I were starting a dividend portfolio today, and had a lump sum to put to work, how would I invest it?
The goal of an early retiree is to have the flexibility to do what they want, paid for by their nest eggs.
Dividend growth stocks should be an ideal strategy for these individuals, because they provide a relatively safe stream of income which is always positive and is more stable than relying on total returns. The risk with traditional approaches to retirement such as the 4% rule is that you might have to sell assets when prices are low or stagnant, which could deplete the nest egg that you worked so hard to accumulate.
With dividend investing, you are essentially living off the dividends generated by the portfolio. This is similar to living off the fruit from a tree you have planted twenty years ago. Selling chunks of your portfolio in order to finance expenses in retirement is similar to cutting the tree branch you are sitting on. By cutting off the tree that gives you fruit, you won’t get any more fruit. However, by focusing on the fruit (income), you not only receive more fruit over time, but you also can benefit from long-term appreciation in the companies you have invested in ( the tree grows too). It is a true win-win for long term dividend investors. I also believe that dividend growth investing addresses many risks that retirees face these days.
The goal of an early retiree is to have the flexibility to do what they want, paid for by their nest eggs.
Dividend growth stocks should be an ideal strategy for these individuals, because they provide a relatively safe stream of income which is always positive and is more stable than relying on total returns. The risk with traditional approaches to retirement such as the 4% rule is that you might have to sell assets when prices are low or stagnant, which could deplete the nest egg that you worked so hard to accumulate.
With dividend investing, you are essentially living off the dividends generated by the portfolio. This is similar to living off the fruit from a tree you have planted twenty years ago. Selling chunks of your portfolio in order to finance expenses in retirement is similar to cutting the tree branch you are sitting on. By cutting off the tree that gives you fruit, you won’t get any more fruit. However, by focusing on the fruit (income), you not only receive more fruit over time, but you also can benefit from long-term appreciation in the companies you have invested in ( the tree grows too). It is a true win-win for long term dividend investors. I also believe that dividend growth investing addresses many risks that retirees face these days.
Wednesday, August 26, 2015
Do not get emotionally attached to a dividend position
As someone who has been investing in, and writing about dividend paying companies for over seven years, I have accumulated a lot of observations about investor behavior. One of the issues I have observed is when investors get emotionally attached to a dividend stock they owned. While it is important to invest in companies you understand and believe in, it is equally important to also know when a company is no longer performing up to par. It is important to objectively evaluate and identify companies in a portfolio that are no longer pulling their weight, in order to stop adding to those companies and possibly even sell them. Failure to do so could result in permanent loss in capital, and permanent loss in capacity to generate dividend income.
Many investors I have interacted with over the years have liked the types of Johnson & Johnson (JNJ), Procter & Gamble (PG), Coca-Cola (KO) to name a few examples of successful dividend growth stocks from the past few decades. And I agree that these companies are great, with wide moats, strong competitive positions and global platforms for selling branded products at a premium price. However, while these companies are great there is not such a thing as a buy and forget investment.
It is important to monitor your dividend stocks regularly. Monitoring is important, because things change and people cannot predict what will happen to a business 20 years from now, using the information of the past or present. A healthy and growing company today might find itself in a declining industry and have its fortunes decimated. Investors should purchase stocks with the intention of holding on for the long run. However, if any warning signs are spotted investors should not add more funds to position, and even consider selling. Newspapers enjoyed an economic moat for decades. The internet ruined the moat of companies like Gannett (GCI). Other companies might decide to change business model and embrace hot growth industries, while disposing of their core stable cash generating assets in the process. Prime case in point is Enron. Another one was french water utility Vivendi, which turned itself into a media conglomerate.
Many investors I have interacted with over the years have liked the types of Johnson & Johnson (JNJ), Procter & Gamble (PG), Coca-Cola (KO) to name a few examples of successful dividend growth stocks from the past few decades. And I agree that these companies are great, with wide moats, strong competitive positions and global platforms for selling branded products at a premium price. However, while these companies are great there is not such a thing as a buy and forget investment.
It is important to monitor your dividend stocks regularly. Monitoring is important, because things change and people cannot predict what will happen to a business 20 years from now, using the information of the past or present. A healthy and growing company today might find itself in a declining industry and have its fortunes decimated. Investors should purchase stocks with the intention of holding on for the long run. However, if any warning signs are spotted investors should not add more funds to position, and even consider selling. Newspapers enjoyed an economic moat for decades. The internet ruined the moat of companies like Gannett (GCI). Other companies might decide to change business model and embrace hot growth industries, while disposing of their core stable cash generating assets in the process. Prime case in point is Enron. Another one was french water utility Vivendi, which turned itself into a media conglomerate.
Monday, August 24, 2015
Dividend Companies I purchased in August
The stock market is finally having the correction everyone has been waiting for since 2012. In the past month, the S&P 500 is down by 7 – 8% from its all-time-highs. I am not sure if people are scared yet or not. I have a feeling that stock prices can go down even further from here, though it will be a slow process that could take several months. Either way, this is not the time to panic. This is the time to stay the course, and keep following a sound strategy for achieving long-term investment goals and objectives. It is important to remember that time in the market trumps timing the market for the long-term dividend investor.
As many of you know, I am in the accumulation phase of the game. Therefore, I have money to deploy each month. That money comes from regular job income and dividends. It is very interesting that the most important asset I have is my ability to earn income. As long as I have that asset, I have the ability to deploy excess cash into investments that will pay rising dividends for me.
As a dividend investor, I view each stock I buy as an asset that will provide me with growing cashflow for decades to come. The only difference is that I do not have to spend 50 - 60 hours/week in the office, filing TPS reports, and sitting in long status update meetings which take more work than the work itself, in order to earn that passive dividend income. I gladly accept lower prices for shares, because this means I am effectively purchasing my future retirement income at a discount. Since I am not a market timer, I cannot tell you whether stock prices are going to be up or down. My hunch is that things will go lower over the next few months, though not in a straight line down, given the fact that the broad market is only recently starting to sell off. No matter what happens, I do know that by investing my savings each month, without emotion, I should do fine over time.
As many of you know, I am in the accumulation phase of the game. Therefore, I have money to deploy each month. That money comes from regular job income and dividends. It is very interesting that the most important asset I have is my ability to earn income. As long as I have that asset, I have the ability to deploy excess cash into investments that will pay rising dividends for me.
As a dividend investor, I view each stock I buy as an asset that will provide me with growing cashflow for decades to come. The only difference is that I do not have to spend 50 - 60 hours/week in the office, filing TPS reports, and sitting in long status update meetings which take more work than the work itself, in order to earn that passive dividend income. I gladly accept lower prices for shares, because this means I am effectively purchasing my future retirement income at a discount. Since I am not a market timer, I cannot tell you whether stock prices are going to be up or down. My hunch is that things will go lower over the next few months, though not in a straight line down, given the fact that the broad market is only recently starting to sell off. No matter what happens, I do know that by investing my savings each month, without emotion, I should do fine over time.
Friday, August 21, 2015
Eaton Corporation: Attractively Valued Stock to Consider
Eaton Corporation plc (NYSE:ETN) operates as a power management company worldwide. This dividend company has paid dividends since 1923, but is the type of company that does not raise them every year. For example, in the past two decades the company kept annual dividends unchanged in 1999, 2000, 2002 and 2009. While you would not find the company covered by most other dividend investors, I believe that it has some great prospects for those willing to take the time and study this business. I recently added to my position in the company, and decided to update my analysis on the company.
The most recent dividend increase was in February 2015, when the Board of Directors approved a 12.20% increase in the quarterly dividend to 55 cents/share.
The company's competitors include Johnson Controls (NYSE:JCI), Parker Hannifin (NYSE:PH) and ITT Corporation (NYSE:ITT).
The most recent dividend increase was in February 2015, when the Board of Directors approved a 12.20% increase in the quarterly dividend to 55 cents/share.
The company's competitors include Johnson Controls (NYSE:JCI), Parker Hannifin (NYSE:PH) and ITT Corporation (NYSE:ITT).
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