Saturday, April 5th, 2008
Here is why you must start buying dividend paying stocks now!
It has long been a strategy of mine to invest in high quality Dividend Growth Stocks as a for retirement and I’m about to show you why you should do the same!
The beauty about this strategy is that it is not rocket science and that everyone can understand the basic principles behind it. I’m not promoting trickery or complex technical mumbo jumbo, just good old fashioned common sense with a side of logic.
The Stock Market Crash Scare Tactic
I’m sure that we have all heard that the baby boomer generation is aging and entering into retirement. We have also been told that all of these individuals are going to make a mass exit out of the stock market, causing the greatest stock market crash that we have ever known.
Some so called “Gurus” have suggested that the aging demographic is going to cause havoc with the markets by selling all of their stocks to fund their retirement.
Is This Possible?
In theory, the outlined scenario could be possible if all of the baby boomer’s withdrew their money from the stock market at the same time. But, as we know, the boomer generation lasts for a couple of decades…they were not all born in the same year! And even if they were, not everyone can or will remove their equity from the markets at the same time.
Therefore, we can clearly see that this scenario is highly unlikely.
But Aren’t All of The Baby Boomers Going to Buy Bonds?
While conventional wisdom dictates that fixed income (bonds) should comprise a larger portion of ones portfolio as they near retirement, it might not be as simple as black and white these days.
For instance, as time goes by the life expectancy of retirees becomes longer and longer. This means that a retiree will need to make their nest egg last for several more years than they my have previously thought.
Therefore, the retiree will need to take on additional risk in order receive higher returns in order to ensure that they do not deplete their principal prior to death. Taking on more risk means investing in more equities (stocks) gaining capital growth in their portfolio to fund a longer retirement.
So Why Should I Buy Dividend Paying Stocks?
The reason we must invest in dividend paying stocks now is because they will be the investment of choice to fund the retirement of Baby Boomers.
You see, dividend paying stocks have the potential for both capital gain and income production. Not only that, these investors will be looking for stocks that have a track record of increasing dividends…giving them yet another hedge against inflation. This combination, as explained earlier, will be necessary to fund the lengthening retirement that comes with a greater life expectancy.
If we combine this factor with today’s low interest rate environment, we can see that fixed income instruments (with the exception of TIPS) such as bonds and CD’s provide little, if any, protection against inflation.
Factor that in with the fact that historically, dividend paying stocks have outperformed non-dividend paying stocks.
So what do I do now?
In order to provide potential capital growth, income, and protection against the erosion of purchasing power, we must buy the best dividend growth stocks and hold them for a very long time. Read How To Choose Dividend Growth Stocks.
Even if you are young, the generation of retirees that are looking for this 3-part combination of shareholder yield to fund their retirement will start to accumulate shares in high quality, dividend growing, blue chip companies in order to fund a long retirement and help to hedge against inflation.
The accumulation of these stocks will, of course, drive up the share price which means big profits for you!
The Closing
You see, it doesn’t take rocket science to see what is going on. I’m certainly not leading the charge with this idea.
Get out there and search for some great companies that grow their dividends year after year. You won’t get rich overnight, but the strategy works.
Remember to always do your due diligence and as Charles Kirk reminded me, don’t buy a stock just for the dividend!
Posted in Stock Studies | 13 Comments »
Thursday, November 29th, 2007
I’m sure that from time to time we have all fallen victim to the lure of wealth and riches. After all, we are all devoted to investing and developing wealth through the ownership of stocks and other assets.
However, once in a while there are times when we find ourselves so caught up in the market and the performance of our portfolio, that we feel completely stressed. I suppose that some would say this is simply the “nature of the beast”. If you want to have a fantastic life and become wealthy, then you have to pay the price.
What Exactly Is that Price?
- Must we pay with sleepless nights worrying about which way the market futures are pointed?
- Should we be spending hours examining the relationship between the price of oil and various world currencies?
- Is it healthy to spend our weekends devouring every newspaper article, blog post, podcast, iTune, Powerpoint presentation, instructional video, stock chart and Egyptian Pyramid Hieroglyphic to squeeze an extra percentage point out of our portfolio?
My answers to these questions came from my dog!
Yes, an 11 pound Shit-Zu/Poodle named Ralphie provided me the answer these most intriguing questions without even saying a word.
As I was pondering these thoughts, I noticed that Ralphie had picked up one of his toys and wanted to play fetch. Interestingly enough, this toy was the first one that I bought for him (3 years ago). For some reason he always likes to play with the that toy.
Anyway, I played with him for a little while and then he decided that he had played enough to earn a treat. I agreed, so I went and got him a crusty milk bone from the bulk bag that I purchased so long ago that I can’t even remember. After I made him lay down, roll over, play dead and dance I finally gave him the treat. And, per usual, he was just as happy with that treat as the first one that I gave him from that 20lb bag months ago.
After devouring his milk bone, Ralphie decided it was time to curl up and sit down next to me on the couch. He was content to just fall asleep there as he has countless other times over the past few years. Ralphie was happy.
What Does This Have To Do With Personal Finance?
Ahhh…I’m glad you asked. I was just getting to that!
You see, our society puts so much stock in tangible goods and keeping up with the Jonses that we often forget how to be happy. It’s true; as our lives move along we become more and more stressed and worried about how we are going to become rich and famous so that we can buy all this “stuff” and we seriously forget how to be happy.
Why can’t we be like Ralphie and be ecstatic about playing fetch with our first toy(driving that old car you have) or eating that favorite meal that you’ve cooked a thousand times instead of going out for dinner (You know you like it or you wouldn’t make it) or falling asleep on that old couch like you did back in college?
Why can’t all of those things be good enough? My dog is happy 24-7 and he sleeps like a log! He is content with his life, he has the necessities and he enjoys the simple things.
Yes, it is nice to have goals and dreams of wealth and riches but is it worth the cost of enjoying the things that you already have?
This article is about taking time to stop and smell the roses, but more importantly to learn to recognize the roses that are already in your garden!
I encourage you to all take some time to be more like Ralphie (No, I won’t scratch your belly). Schedule some ‘time out’ this weekend to enjoy the fruits of your labor and take a break from the quest for more stuff!
Posted in Investment News | 9 Comments »
Sunday, November 18th, 2007
As a dividend growth investor, I am frequently asked why I don’t invest in high growth stocks and, more importantly, why I believe investing for dividends is a more appropriate strategy.
Here are the 3 most essential reasons that I prefer dividend investing:
1.) Dividends offer investors fantastic flexibility.
Dividends give you tremendous financial flexibility throughout your investing life. While you’ve got an income from working, you can reinvest those payments to speed the process of compounding your wealth. Once you’ve decided to retire, the cash thrown off by dividends spends just as well as any other source of money!
What is even better, a rising dividend payment can help you fight inflation by providing you more cash every single year.
2.) You can’t fake money in your pocket.
Dividends also have the added bonus of being exceptionally difficult for companies to fake. After all, it’s difficult to convince lenders to loan money to a company if that company is going to turn around and hand it over to its shareholders.
As a result, to sustainably make and increase those dividends, the business needs to generate serious cash on both a regular and repeatable basis.
3.) Dividends are paid from the company’s cash flow.
Perhaps most important, a company’s dividend payment comes from its operational success and not from the panic, hype, or analyst interpretations that influence its stock price. Throughout these rocky market periods, dividend payments allow us to make money even when the stock price moves lower.
Why Invest In Dividend Paying Stocks?
- Quicker compounding.
- Increased financial flexibility.
- Cash in your pocket without selling.
- A hedge against inflation.
- An check on the company’s accounting.
- Cash Flow in a down market.
With all of the benefits of dividends, it’s obvious why they can be an integral component of one’s portfolio.
Did I miss any benefits of dividends? If so, let me know in the comments!
Posted in Investor Education | 3 Comments »
