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If Only I Had Known About These Dividend Stocks…

At one time or another, we all have thought, ‘If only knew this when I was younger.’ I purchased my first dividend stock for income in 2003. Like many newly converted income investors, I was chasing yield. I quickly built a portfolio consisting of Real Estate Investment Trusts (REITs), Master Limited Partnerships (MLPs) and high yield, high risk stocks. My portfolio’s yield was consistently in the low to mid-teens. Eventually, after some unnecessary losses, I learned there was a better way to invest in dividend stocks. Here is what I learned…

Dividend Investing is About Future Yield, Not Current Yield

I was fortunate enough to accidentally buy some good dividend stocks and hold them long enough to figure out the “secret” of dividend investing. It is not necessarily starting with a high-yield investment, but ending up with a high-yield investment. This usually occurs by buying investments with a moderate yield, a history of growing dividends and letting time do its job.

Too often we take a short-term approach, to our long-term detriment. There is a reason we don’t see infomercials selling dividend growth investment strategies. For those looking to get rich now, a disciplined approach to investing that focuses on the long-term simply isn’t appealing.

Successful Dividend Investing is About Substance, Not Style

In my aggressive growth investing years, I equated dividend investing with old folks and the inept. That was simply not my style. Time and experience have taught me there are no style points awarded in building a winning investment portfolio. In the end the long-term performance (substance) of your portfolio is all that ultimately matters, not how you got there.

I find it interesting that the same people that complain about taking a beating in the market, are the same ones who will ridicule those that follow a dividend growth strategy. For me, I enjoy having a growing income and portfolio, while not having to follow the market’s every move.

You Can’t Beat the Herd, by Following the Herd

Through the years I have settled down quite a bit. Using well-defined investment allocations, I have set boundaries and guidelines to ensure I don’t over expose my portfolio to undue risk and I employ a meticulous process when selecting investments.

Let the talking heads start a stampede to buy a stock after it has seen a significant run up. For me, I prefer to take a contrarian approach and buy stocks when they are cheaper and their yields are higher. My focus is on quality dividend growth stocks with a long record of consecutive dividend increases, such as:

CurrentPriceYrs of
Weyco Group (NASDAQ:WEYS)2.53%1.5%29
Kimberly-Clark (NYSE:KMB)4.20%1.7%38
Meridian (NASDAQ:VIVO)3.18%7.7%19
Abbott Labs (NYSE:ABT)3.41%9.0%38
Colgate (NYSE:CL)2.62%15.4%47
Cincinnati Fin. (NASDAQ:CINF)5.23%16.4%50
Clorox Company (NYSE:CLX)3.49%20.3%35
Southside Banc. (NASDAQ:SBSI)4.22%35.4%12
Starting in my 40′s, I will enjoy substantial investing success. However, if I knew in my 20′s or 30′s what I know now about dividend growth stocks, I would likely be retired now. The compounding power of growing dividends is tremendous. Start early, at some point time will change from your friend to your enemy.

Full Disclosure: Long KMB, ABT, CL, CINF, CLX. See a list of all my income holdings here.

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- 10 Stocks With 100+ Years of Dividend Payments

- Increasing Dividend Yield Part II: REITs

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Rating: 3.8/5 (8 votes)


Batbeer2 premium member - 7 years ago
Thanks for the article. two thoughts.

I purchased my first....

I was fortunate enough....

I find it interesting.....

Starting in my 40′s, I will.....

My focus is on....




1) Would the article not be better if it were about stocks ?

Start early, at some point time will change from your friend to your enemy.

2) HUH !?
Sivaram - 7 years ago    Report SPAM

The only people who can retire off dividends are upper-middle-class or higher i.e. you need to have a fairly sizeable portfolio when you are 30 or thereabouts. The average person really needs capital gains from equities or else they won't retire as wealthy as they need.
Sivaram - 7 years ago    Report SPAM
"Start early, at some point time will change from your friend to your enemy.

I think he/she is talking about the loss of time i.e. you can't compound money for as long of a period. Compounding something for, say, 30 years will produce wildly better results than compounding them for 10 years.
Value_barbarossa - 7 years ago    Report SPAM
Just curious Sivaram, as to what you'd define as a sizeable portfolio at 30? I think with even $100,000 invested in retirement accounts at 30, prudent investment should ensure a reasonable retirement.

I hope to have $150,000-$250,000 in retirement/investment accounts by 30. But I've got to focus on building an investment portfolio instead of purchasing a house. Most people from upper middle class families end up possibly borrowing for school, and then extending to get into a house as soon as they can.

I think a high earner could start saving at 30 and still develop a sufficient portfolio to live on dividend income by retirement. Still, my focus is purely on capital appreciation at this point. I'm happy to get dividends as they give me the opportunity to invest extra cash. Still, with some of the very best long term investments there will be opportunities for reinvestment (like Berkshire Hathaway.)

Sivaram - 7 years ago    Report SPAM

Hi Value_Barbarossa,

Assuming you are whom I think you are, I should say, good job with your interview with Alice Shroeder. Anyway, to answer your question...

I think $100k at age 30 will provide reasonable, but not spectacular, retirement. I would consider anything over $100k sizeable if you have no debt (i.e. $100k+ net worth). But I doubt many below upper-middle class can hit that by age 30 unless they are big savers. Most Americans and Canadians have very low savings, if you adjust for debt. Only the higher end professionals can hit $100k to $250k by 30, I think.

If we say you have $100k at age 30, and if you earn 8% per year (nominal), then you are looking at around $1million by age 60. If we assume your retirement income is 5% of portfolio per year (return will likely be lower as you shift towards income-oriented assets) then you will earn around $50k per year from your portfolio. (taxes and commissions will shave 1% to 2% off your returns depending on details).

So, I think one's savings goal should be at least $100k by age 30, or maybe $200k by age 40. The more the merrier ;) If you live in low cost areas, you can get away with less.

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