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Dividend Investing Is Not Just A Trend

January 26, 2012 | About:
Intelligent Speculator

Intelligent Speculator

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It’s a bit annoying honestly. Why in the world do so many people in the media and elsewhere like to punch on dividend investing and those that use it. I’m not saying that it’s a perfect investing method or even the best one around, but saying that it’s just a fade or a big bubble is at least as ridiculous. I’m not sure if those writing such stories do so just because it will make a good story, to get a good story out there or if they truly believe it. Here are the top reasons why I think that dividend investing is not only there to stay but will actually become much bigger over time:

DIY (Do It Yourself) Investors

A few decades ago, the only people investing in the markets were professionals. Sure, you had the exception here and there that was buying and selling stocks but for the most part, individuals that had money had a broker that would try to get the best returns possible. That has changed in recent years. Why? Because of the exaggerated fees that were being charged, because an increasing amount of information has been made available to the public through the internet

Add to that the appearance of discount brokers that have made it cheap and easy for individuals to buy stocks, making what would have been very difficult a few years ago, a growing trend.

Dividend Investing Is An Amazing Long Term Investing Method

What is the reason most players end up losing big when they go to a casino? Sure, the odds are stacked against players but there’s also the fact that very few people enter a casino with rules regarding how they will play, how much they are putting into play, etc. It takes discipline for investors to be successful. For most of us, that means haviing a clear, easy to follow set of rules that can be followed.

How in the world can most of us tell what Exxon (XOM) might be worth or if we should be buying gold, oil, Euros, etc. The investment world is incredibly complex and I think there is something to be said for having a simple but reliable system to make investments.

A Stock’s Value = ?????

The basics of finance are that the value of a stock is:

Stock value = Present value of all future cash flows

In almost all cases, dividends are the only type of cash flows that shareholders do receive so I think that it makes a lot of sense to invest from that perspective. One counter-argument would be that doing so will end up excluding many high growth stocks like Apple (AAPL). Fair enough. But if you use that argument, there is no end really. You could probably add real estate, futures, commodities, currencies, alternative assets, foreign companies, etc. There is no end. So I don’t think there’ s anything bad with using a smaller universe (dividend stocks) to find our investments.

It Provides A Clear And Easy To Follow Methodology

Unless you are a professional (and even those might struggle), you’ll have a hard time telling me what any given stock is worth. However, if I ask you a different type of question, the common investor might be able to do exactly that:

How much will this stock pay you back and how likely will that amount increase (and by how much) over time?

The 2nd answer is not easy by any means, but it’s certainly much easier to get my head around it.

Psychology Change

I’ve also discussed the importance of seeing a dividend portfolio as what it should be, an increasing amount of cash flows. Sure, we’d all like the “value” of the portfolio to increase, but in the end, that is not what it’s about. It’s about making enough money to pay for your retirement when that time comes. I’ve also discussed how I believe a dividend portfolio is much better alternative to annuities. From that perspective, trying to buy dividend stocks makes a lot more sense to me than trying to find undervalued growth stocks.

I would love to hear your thoughts on this, do you think dividend investing will end up being just a trend? If not, why?


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