It is easy to be captivated with a top performer. Everyone loves a winner. During the '80s and '90s, when Jack Welch was chairman and CEO of General Electric (GE), the company ran like a well-oiled machine. It routinely beat the street's expectations and the ever-increasing stock price reflected its performance. I once said that if I could only buy one stock for the rest of my life, it would be GE.
Then there's the first-love arrow; that first stock that you bought. For some reason there is often an emotional attachment for the first of anything. Some business owners frame the first dollar they earn, while some investors have a hard time letting go of the first stock they purchased, especially if the stock performed well for an extended period of time. For me it wasn't the first stock I purchased (I can't even remember what it was), but instead it was the first stock I purchased for its dividend that held a special place. That stock was a REIT, First Industrial Realty Trust Inc. (FR).
So what happened? Both GE and FR cut their dividends and I immediately sold them. To achieve our long-term investing goals we must remove emotion from the equation. It is a recipe for disaster when we make investing decisions based on a past relationship with a stock that is contrary to the current fact pattern.
That is not to say I am not fond of certain stocks. For example, I currently like or admire these dividend stocks:
The Coca-Cola Company (KO) is the world's largest soft drink company, and it also has a sizable fruit juice business. The company has paid a cash dividend to shareholders every year since 1893 and has increased its dividend payments for 49 consecutive years. Yield: 2.8%
The Procter & Gamble Company (PG) is a leading consumer products company the markets household and personal care products in more than 180 countries. The company has paid a cash dividend to shareholders every year since 1891 and has increased its dividend payments for 55 consecutive years. Yield: 3.3%
Wal-Mart Stores Inc. (WMT) is the largest retailer in North America, Wal-Mart operates a chain of discount department stores, wholesale clubs, and combination discount stores and supermarkets. The company has paid a cash dividend to shareholders every year since 1973 and has increased its dividend payments for 37 consecutive years. Yield: 2.4%
Abbott Laboratories (ABT) is a diversified life science company that is a leading maker of drugs, nutritional products, diabetes monitoring devices and diagnostics. In mid-October 2011, Abbott announced plans to split the company. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 39 consecutive years. Yield: 3.5%
McDonald's Corporation (MCD) is the largest fast-food restaurant company in the world, with about 33,144 restaurants in 119 countries. The company has paid a cash dividend to shareholders every year since 1976 and has increased its dividend payments for 35 consecutive years. Yield: 2.8%
However, if any of the above stocks ever cut their dividends or their business fundamentals changed, I would immediately sell them. It is important to remind ourselves that we should love people and use stocks, not the other way around. A strong love for people will help you through troubled times, while a strong love for things, including dividend stocks, could invite troubled times.
Full Disclosure: Long KO, PG, WMT, ABT, MCD. See a list of all my dividend growth holdings here.
- High Yield Dividend Stocks in Gurus' Portfolio
- Top dividend stocks of Warren Buffett
- Top dividend stocks of George Soros
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