What I Like about Dividend Investing

“Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”-John D. Rockefeller (American Industrialist and Philanthropist, founder of the Standard Oil Company, 1839-1937)

I saw this quote on twitter (follow me @startingfrzero) recently and thought it would make for a great post on dividend growth investing. The greatest thing about dividend growth investing, as opposed to other strategies, is that its results are obvious right from the start.

What do I mean by that? With dividend growth investing, after a relatively short period of time owning these stocks you get to see the results when the dividend checks start coming in (or depositing in your online account nowadays). Once you receive them they can’t be taken away. Contrast that to a growth based, total return strategy where although you may see large gains on paper quickly, they can disappear quickly in a market downturn. In a market downturn those with a total return strategy are more inclined to sell low to limit future losses and preserve capital.

Dividend growth investors on the other hand welcome market downturns so they can pick up more income producing shares in some of the most successful companies in the world. As long as the earnings power behind the companies is not negatively affected by economic downturns, bear markets just give us the opportunity to pick up more shares at bargain prices.

Then you can sit back, stop worrying about things like the Fed’s interest rate policy and which hot stock is going to the best performer over the next year and just enjoy watching those dividends come in.

5 comments

  1. I’ve always said that the best way to profit from investing is staying invested and collecting profits instead of watching unrealized gains in your statements and not seeing a dime until you sell and exit the investment.

    regards
    R2R

    1. As much as I like seeing those gains in my stocks, I know in the long run, the passive income they’re producing is by far more important.

      Thanks for stopping by and commenting R2R.

      Best wishes,
      SFZ

  2. I’m in the process of writing a post on this very topic as well. I love dividends as much as the next guy, but I’m inclined to disagree with this post. See, I’m after total return, not just dividend return. In fact, I think that it makes more sense to invest now in the huge dividends payers of the years to come, not just today’s dividend payers.

    Quick example: Lots of dividend focus’d investors are putting their money in KO, PEP, WMT, JNJ…..etc. All fine companies, but very, very mature. Growth of net income from here on out will be slow, but steady.

    Thus, I’m far more focus’d on companies that pay smaller dividends, but have the potential to grow them rapidly. SBUX, MA, V, WFM…..all of these pay dividends yielding about 1%, but all should be able to grow their net income for several years at 15%+. Thus, they can raise their dividends fast, and their share price should grow as well. This means a total return higher than the traditional dividend payers.

    Long Term Brian

    1. Brian,

      I definitely lean more towards the slow but steady growing companies. With reinvested dividends, dividend growth stocks can still manage a pretty good total return. David Crosseti over at Seeking Alpha did an article a few weeks ago detailing the total returns of his dividend growth stocks over the last 20 years or so and it was kind of surprising. However I’m more focused on building up a reliable, passive income stream of dividends with a small portion of my portfolio in total return focused index funds.

      I agree with you on investing in the stocks that have recently begun with dividends and that offer more dividend growth as they mature and increase their payout ratios. I recently bought Visa and picked up Apple at the beginning of last year. Both have fairly short dividend histories but should be able to grow their payouts a lot faster than the rest of my holdings over the next few years. SBUX is a stock that’s on my radar as I noticed its on Loyal3, just need to do some more research on it.

      Thanks for stopping by and commenting.

      Best wishes,
      SFZ

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