Dividend Growth Investing In A Bull Market

DJIA 3-month chart

DOW 14,000?

The thought of that in the throws of the recession just a few years ago would have been impossible to imagine. Yet here we are knocking on the door. The stock market has been on a tear over the last couple years. The Dow Jones Industrial Average has already more than doubled since it’s March 2009 lows, and is up 9.57% over the last 6 months alone.

Where does all of this leave dividend growth investors? Well, it’s made our job a bit harder. I consider myself a strong proponent of dividend growth investing. I have somewhere around 90% of my net worth tied up in dividend growth stocks, as part of my Freedom Fund. That’s real money in there that I sweat through many 50+ hour workweeks to earn. If that’s not “proof in the pudding”, I don’t know what is.

How has this bull run made our job harder? Well, as a dividend growth investor I consider valuation of stocks paramount to my long-term success. The more expensive an individual stock is, the lower the yield -which means less dividend income, and the higher the likelihood that I will receive a lower total return on my investment. Although capital gains are not a primary concern to my investing goals, a lower yield, and less dividends, means I compound my growth at a slower rate. The less dividend income I receive, the less shares in the future I can buy since I’ll have less capital to (re)invest with.

So a higher market means that all stocks are more expensive, right? No. As always, there are undervalued stocks, fairly valued stocks and overvalued stocks in this market just as in any other. The DJIA may be up almost 10% over the last 6 months, but that doesn’t mean every single stock in the Dow Jones, or S&P 500, is up almost 10% as well. Stocks are priced based on the underlying fundamentals of the company the stock is representing ownership in. This is an important fact that I think a lot of investors miss. Just because Coca-Cola (KO) is having great success in China doesn’t mean all of the sudden Johnson & Johnson (JNJ) is going to sell more Tylenol in Chicago. Companies are all individual enterprises and have varying degrees of success based on countless factors, and the stocks of said companies invariably will show that success, or lack thereof. It comes down to earnings over the long-term.

However, this doesn’t mean that investors aren’t prone to irrationality and emotion. Quite the contrary, as I believe if humans were removed from stock market transactions the whole market would show little volatility as a whole and stocks would likely trade simply based on earnings with no variation of pricing ratios. But, alas humans are involved in stock market transactions and individual companies can be priced cheaply against earnings, sales, book value and other fundamentals…and they can also intermittently be priced expensively against said ratios. This variability is why dividend growth investors need to pay such strict attention to current valuation, also perform extensive qualitative analysis in addition to the quantitative numbers and compare current stock pricing to the historical valuation the market has placed on an individual stock. Investor sentiment (currently apparently bullish) will either provide a premium to an individual stock, or a discount to such. An intelligent investor will try to take advantage of the latter and be patient with the former.

In a bull market like we seem to find ourselves in currently, “good deals” on stocks can be harder to come by due to overriding investor sentiment and as such it would be wise to deploy capital at a cautious rate. I’m currently taking my time looking at individual opportunities currently and making sure to not get caught up in the hype, or “noise” as I like to call it. It’s easy to get caught up in the hysteria when the market is climbing day after day, but I rather find myself more cautious than ever. As always, it’s best to stay fearful when others are greedy. I find myself in the rather unique situation currently of having some difficulties at work, and due to this I’ve been building up my cash position for any unforeseen surprises (unemployment). It looks like there couldn’t be a better time, in terms of market performance, to be in such a situation.

I’m going to include two articles that I think are on topic and extremely relevant to dividend growth investors in relation to the current market valuation and how that translates to individual opportunities. They are written by Chuck Carnevale, one of my favorite authors and the creator of the F.A.S.T. graphs. These pieces are written better than anything I could put together and I think they are worth reading in their entirety.

Attractively Valued Blue-Chip Dividend Champions For Your Retirement Portfolios

Shiller PE Continues To Mislead Investors, S&P 500 Is Fairly Valued In Early 2013

Both are great articles. The first focuses on slightly undervalued as well as fairly valued dividend champions and the second article gives the author’s take on why the S&P 500 is currently fairly valued as a whole.

What about you? Is dividend growth investing easy or hard in a bull market run?

Full Disclosure: Long KO, JNJ

Thanks for reading.

Photo Credit: Big Charts


  1. says

    Dividend Growth Investing is getting harder for me. I was hoping for a big dip as Congress proceeded to drive the country off the default cliff again. But they let me down and now the stock market is screaming. Some of my favorite stocks are flying up in price faster than I can grab them.

    Oh well. It just means that I have to spend a bit more effort researching and maybe suck it up and make a few sub-par buys. But even if I buy a stock that’s slightly overvalued, over the course of a 30+ year lifespan, it will probably come out as a wash in the end.

    The worst part is that starting yields are being driven down as prices go up. I don’t really feel comfortable buying most stocks at under a 3% starting yield.

    • says


      I hear you on watching some of your favorite stocks run up on you before you can blink. This is an unfortunate byproduct of bullish investor sentiment. It leaves us value investors scratching our heads.

      That being said, I don’t plan on changing my game plan. I’ll continue to buy quality at an attractive long-term valuation and reinvest the dividends appropriately. We just have to be a bit more prudent right now and make sure we’re pulling the trigger for the right reasons.

      Best wishes!

    • Steve says

      This is one of the reasons I’m primarily a “dollar cost averager.” When the market is up, I buy and when it is down I buy. Of course I like to see the market down because I get more shares for my buck which translates into more dividend income. However, I find that dollar cost averaging takes the emotion out of investing for me. When I try to get cute and time the market by either holding back cash or deploying it, that’s when I find myself making mistakes. I end up holding back because of fear or deploying because of greed and I usually do the opposite of what I should be doing. Basically, I don’t think you can go wrong with DCA.

      Of course, I’m with you on valuation as well. As I deploy cash each month, I look for the best value available. Some months are great for this and some are terrible. It looks like February will be terrible. But, I console myself in the fact that even if I buy at a higher valuation than I prefer, that purchase will throw off dividends that will allow me to make better purchases in the future. If I let that cash sit then it’s doing nothing to advance my DG plan.

      I know some will disagree but experience has shown me that DCA works best for me.


    • says


      I had a lengthy discussion in the comments section of an older article a while back on DCA against market timing. I’m in complete agreement with you. Although it’s tougher to find a “good deal” on a stock right now, that doesn’t mean all stocks are expensive and it doesn’t mean it’s a bad time to invest.

      We don’t know the future. What we do know is that PepsiCo is going to keep selling Tostitos, people are going to keep brushing their teeth and cars will still need to be filled with gas tomorrow. It’s that certain level of certainty that allows me to invest with companies that produce products or provide services that we all want/need on a basic human level through all economic cycles. It’s that certainty that also allows me to turn a slightly blind eye to overall market valuations because I know that said products and services will come at increasing premiums over time.

      Best wishes!

  2. says

    Dividend growth investing is definitely harder in a bull market, but it just means you have to dig a little deeper for attractively valued stocks. While I prefer investing in undervalued stocks, I don’t mind buying fairly valued stocks of high-quality companies. The worse that could happen is that the fairly valued stock becomes undervalued, at which point I would simply buy more and get a higher dividend yield.

    One of my aims this year is to buy one attractively valued stock each month (beyond any purchases that offset sales). Part of the rationale is that I can really only make one purchase with my monthly savings, but the main reason is that it makes me more disciplined about investing on a regular basis and not trying to time the market. It forces me to focus on individual stocks and their valuations instead of getting hung up on what the market is doing. For example, even though the S&P 500 index hit 1,500 today for the first time since 2007, I bought a stock that I deemed to be attractively valued.

    • says


      I’m with you. I don’t mind buying fairly valued stocks, although that skews a bit towards higher quality companies. For instance, I don’t mind paying full price (or even slightly over) for something blue chip like Coke, but would have a rather hard time paying full price for a small cap regional bank. It all comes down town risk/reward.

      I also don’t try to time the market, as you know. I’ve been buying stocks on a monthly basis for a few years now, and still plan to do so this month. The only thing that has kept me from buying so far has been a questionable environment at work.

      I view the overall market like a check on the weather. Rain may be in the forecast for Southwest Florida, but there will always be pockets of sunny neighborhoods. One just has to look a little harder for them. Volatility is low now and everyone’s buying…so that just means us value investors focusing on long-term income growth need to dig in and focus on quality and try to find the largest margin of safety available.

      As I’ve always said, 30 years from now it won’t matter if you paid $85 or $90 for MCD. It may seem like a big swing today (and it is in the short-term), but the long-term effects of time smooth over short-term variability like this. When the DJIA is at 20,000 at some unknown date in the future, we’ll look back at 14,000 as a great time to invest.

      Best wishes!

  3. says

    When the markets are up bargain-hunting becomes much more difficult finding a deal here or there. The true problems for me will arise when the markets tumble and there are too many good deals about….it would be like a, “almost going out of business” sale at your favorite place to shop.

    • says

      Investing Early,

      I do hope you’re right and we see a tumble here pretty soon. It’d be nice to see some fire sale prices on some of my favorite stocks!

      Hope all is well.

      Take care!

  4. says

    I have to admit, I have a harder time adding to current positions when they are trading well above my cost basis. I am still nibbling, but am waiting for a pullback and have lots of dry powder.

    I do agree some still some decent buys in the market now.

    What are your thoughts on AAPL? Starting to look like it is moving from a growth stock to value. 2% yield now and I expect some serious dividend increases in the future. I am thinking about starting a position after I do some more DD.


    • says


      I’m with you. I used to cringe a bit when purchasing stocks above my cost basis, but then I remembered that over a long and prosperous investing career this is naturally going to happen if the underlying companies are doing their job correctly and increasing top line and bottom line growth and buying back shares when opportunistic. The share prices are going to go up over time, which is good.

      I just continue to look at valuations on an ongoing basis, which changes as the facts change.

      AAPL is just not for me at this time. Of course I’m very tech shy. I’m probably not the best guy to ask about that stock. The yield is a bit low and there is really no history of management’s commitment to grow it as it was just initiated not long ago. I think they make great products, but I continue to believe that the need for constant innovation will be their Achilles heel. We can already see that as the growth is slowing down to less godly rates. You can only go so far with a couple products with yearly refreshes before you need to innovate a totally new product. Just my $0.02.

      Best regards!

  5. says

    DM, this is a great writing. It is true that as the price goes up, the yield goes down which makes us to use more money committed for the same yield we could get a few months ago for less.

    I also agree that even in this bull market you still can find good buying opportunities, partially due to dividend increases, pullbacks and minor corrections. I agree that waiting for (unrealistic) price (drop) which happened a few months ago, you may end up waiting forever. But I also believe and when looking at the chart of any company you want, the price never goes straight up. It is jumping like a frog is jumping. Sometimes two steps up, one down, three up, one down, etc, as long as the stock makes more jumps up then down, we are in uptrend. When it jumps down to take a rest, it is a great opportunity to buy more shares.

    • says


      Absolutely. Looking at any stock’s chart will show you more opportunistic times to purchase and less attractive times to buy. I try not to time the “frog jumps”, but rather just stick to a fundamental quantitative analysis and pick a price I think is fair. If it’s trading below that price with a reasonable margin (10% or so) I’ll buy regardless of all the noise surrounding me. Obviously just as important, if not more, is the qualitative nature of the business and what it’s prospects are going forward.

      Take care!

  6. says

    I’m not crazy about the market right now. I still have some cash on the side waiting to utilize, but many of the items on my watch list are not at the price I’m willing to pay. The only exception is INTC and if it continues to drop I will likely add more shares.

    • says

      The Stoic,

      I would agree with you on INTC. One of the few blue chip stocks out there trading so cheaply. Of course there are a lot of investors that believe it’s a value trap, explaining it’s relative cheapness. If I didn’t already have such a large allocation (one I feel is already too large) I would be buying more here.

      I also have some cash on the side. I’m just continuing to stay patient and scan the opportunities to make sure I’m 100% comfortable before I pull the trigger. The great thing is that we, as U.S. investors, have access to such a wonderful collection of outstanding businesses…regardless of overall market valuation and sentiment. The opportunities are endless.

      Best wishes.

  7. says


    Honestly I think everything is relative. Here’s the reality we live in a worked where there are thousands of companies. I know you try not to take a macro view but you kind of have to sometimes. Theoretically for the next 100 years USA could have phenomenal growth opportunities and the entire market could be priced at peace of 30. And you’d miss the entire 100 year run because you thought the fair value was 15 pe. I think the most important thing is find cheap companies in current market conditions. I still see more cheap stocks in comparison to the entire market then I can spend my Money.

    • says


      Great perspective there and one I generally agree with. We don’t know what the market or what individual stocks will be priced at in the future. We only know the now. And we have to base our decisions on the now. The market can stay irrational for very long periods of time, which explains multi-decade bullish and bearish trends. Like I commented earlier, when the DOW is at 20,000 down the road we’ll look back at 14,000 as a fantastic time to buy equities.

      The great thing is that an investor with a cool head who can remain rational in periods of irrationality can do very well. Taking advantages of Mr. Market’s mood swings is imperative. Right now he’s estatic. This can change tomorrow. And regardless of such, the even better thing is that Mr. Market is made up of thousands of stocks which also have mood swings which offers boundless opportunities.

      Best regards.

  8. says

    The market is not perfect so there’s always mis-pricings somewhere. Sometimes you just have to dig a lot more to find them. I think I’ll be leaning more towards selling puts to collect income while I wait for the market to at least take a breather. Of course there’s no telling when that will be.

    The biggest thing is figuring out where you’re comfortable investing with a company and whether there’s any give in that number. Investing is a very fluid process. I’d hate to miss out on a KO or JNJ or PG by just a $0.01 or so because my fair value was calculation was this and I wasn’t going to pay more than that. 10 years down the line and you won’t remember that you missed it by a penny.

    Great and timely article because I’ve been feeling this way as well.

    • says


      Absolutely. Sometimes finding the mispricing that is ever present in the market is harder than other times. It’s currently a bit difficult.

      Valuation is paramount. Don’t get me wrong there. But, it’s not the end all be all to investing. If a company has superior prospects and a long history of richly rewarding shareholders I’m not going to gripe about $1 a share. Like I’ve said many times before, will it really matter if you bought MCD at $85 or $90 when it’s trading for multiple hundreds of dollars per share decades from now? It won’t.

      Going further, time has something to do with this. Valuation is even more important when you’re not holding stocks for a very long period of time. If you’re trading “trends” or trying to read charts or something crazy then short-term volatility is going to get up close and personal with you. Paying slightly too much for a high quality company, on the other hand, won’t matter that much when you’re still holding the stocks decades down the road. Quality is also important. Paying too much for a low quality company, even one you hold for a long period of time can be a poor decision. Time, quality and valuation all work hand in hand and I try to be ever aware of how they interplay.

      Best wishes!

  9. says

    Agreed: deals are harder to find these days. I’ve been waiting on a pullback since early/mid December. I’ve looked foolish with the market running up. Hope you can find some good deals and share the ideas with us. DFS is looking pretty good relative to V, MA, and DOF – but isn’t really a dividend play with only a 1.4% yield.

    • says

      Headed Home,

      DFS is an interesting name. I’ll be honest. I’ve never looked at it before. I do like the economic moat behind credit card companies. I’ve looked at V a number of times and really missed out at $90 a share when I strongly considered picking up shares.

      I’ll have to watch DFS in the future. Certainly a cheaper option than V. That dividend cut during the recession was kind of nasty, however not uncommon in financial stocks.

      Best wishes!

  10. Anonymous says

    I have not been buying anything lately, except for my 401k automatic contributions. Like PIP, I have been selling PUTS, and making decent income from that.

    • says


      Great to hear of your success with options. I haven’t entered the arena of options yet, but continue to explore that as a potential future measure to increase income.

      Best regards.

  11. says

    My take is to sit down and relax. Investing is mostly patience and seizing opportunities. It’s annoying when you have cash to invest but don’t know where. But it’s the case right now. The only position I would increase is my Barrick Gold’s. It’s not expensive at all at the moment. But I have already 10K$… so…

    Take care DMantra!

    • says


      Certainly nothing wrong with exercising patience if you don’t see anything that you’re comfortable with. The key is to not look at the market as a whole, however, and rather concentrate on individual equities and their pricing relative to intrinsic value.

      Good to hear you got your severance package. I hope you put it to great use!

      Thanks for stopping by.

      Take care.

  12. says

    Hi again Dividend Mantra ! Great exposé you have made. As to me I do not care about the market at all now. I know it is as they say, fairly or slightly overvalued at 95 to 98 % of GDP. But who cares ? I need my money bring new money to me (Make money with money) and as Warren Buffett said: if you buy a farm you do not look at the weather forecast every day ! He also said not to sell your farm if it is still productive.

    Before I forget I think that the small clouds that appeared at your job will son dissipate and the sky will be sunny again.

    My approach to investing is mixed, and a nice cocktail too: Net Cap Asset Value stocks, Dividend growth stocks like you (thanks to you), Graham defensive stocks, and undervalued predictable ones. Especially i like some emerging economies stocks (found CCU Cervecerias Unidas very interesting today). In short I like stocks where the growth is, i.e. JMHLY Jardine Matheson.

    Thanks again for the great article of Chuck Carnevale, great at showing us all the stupidity of this “famous” Shiller pe !

    Take care, Fais attention ! Be careful, Sois prudent !

    • says


      Thanks for continuing to follow my journey and the blog. Much appreciated.

      I do hope you’re right about the sunny disposition on the horizon!

      I don’t know if I’d call the Shiller PE stupid. It’s simply one resource of many an investor can use to get a general pulse on the overall market valuation, which can be effective or ineffective depending on your individual goals. I think it’s important to look at overall market valuations, but as always I consider individual equity valuations above all else. There are many different ways you can go about and value one single company, so it should be no surprise that there is more than one opinion regarding the overall market valuation.

      I hope all is well on your side of the globe!

      Best wishes.

  13. Anonymous says

    The key is always finding good deals. Research makes it harder. There are some affordable stocks out there; COP is one, VZ is another, and some of the regional banks are; NYCB, VLY, FNFG.

    There is one large mega cap on sale right now. It sells at a below 10 PE, has a loyal and rabid following. They have growth and stability. There dividend is only 2.5%, but there is much room to increase it. That stock is Apple. Cheap, stable, and slowly will become a dividend regular. May be a good time to pick some up. With the rest of the market flying the way it has.

    If you can wait until APPL pays a 3% dividend, think about the dividend yield on cost in a few years with some dividend increases.

    I’ve never invested in it as I am a dividend affecionado, but now may be the time.


    • says


      Thanks for the comment!

      I’m not so sure about AAPL, but again I’m not a big fan of tech holdings in general. I wouldn’t mind at all if my portfolio had 0% exposure to tech, although I’m going to try and target somewhere around 5% or so long-term. I think there is the opportunity for outsized gains in this sector, along with outsized risk. The risk/reward relationship spread in tech is much more exaggerated than say…a consumer staple. I consider the latter my bread and butter (no pun intended).

      We can already see the otherworldly growth slowing with AAPL. It’s amazing that people are surprised that they can’t continue to grow at such a ridiculous rate. It shows how fickle and shortsighted investors can be.

      I don’t know where AAPL is going, but I do question whether or not they can continue the innovation that got them there. Jobs was an important part of that equation. They can release an iPhone 6,7,8,9 and so on…but eventually they’re going to need new, groundbreaking products to continue growing. I just don’t want to place a bet on that either way. I prefer sure things…like the fact that people are still going to put gas in their car, Pepsi in their refrigerator and need health care over the next decade.

      Best regards!

  14. Anonymous says

    Hello everyone,

    I enjoyed reading the comments above. I was also hoping on a fiscal cliff downfall that never happenned. Much harder now to find an undervalued stock.

    Just bought BHB Biliton(BBL). This ADR is a huge natural ressources company (basic metals, energy products) with international exposure in mainly politically stable countries. The yield is attractive at 3.36 %.

    Current price is 66.71. Morningstar fair value is at 100.00 with a buy at 70.00; currently ‘ undervalued’. Fast graphs shows BBL well below ‘orange line’ and ‘blue line’ deep in green territory. Only downside is the highish beta of 1.55 but for me the volatility effect will be diluted in my overall portfolio. Not sure what the non-resident tax rate is on this UK based stock. Bob Johnson wrote a nice article on BBL in seeking alpha; http://seekingalpha.com/article/444961-buy-bhp-billiton-for-dividend-income-today-and-profit-tomorrow.

    Anyone else have ideas ?

    • Anonymous says

      I own BHP as opposed to BBL. They are effectively the same stock, but with BBL significantly cheaper. I believe there are some tax differences, but the two kind of confuse me.

      Think long-term you can’t go wrong here though. Massive mineral supplier and an engine of growth once inflation picks up. Huge economies of scale.


    • says

      Anonymous and Thomas,

      Per BHP Billiton:

      “BHP Billiton was formed in June 2001 from the merger of BHP Limited (an Australian listed company) and Billiton Plc (a UK listed company). The merger was effected by way of a dual listed companies (DLC) structure, meaning that although the companies technically continue to be separate legal entities (now renamed BHP Billiton Limited and BHP Billiton Plc) with separate share listings and share registers, they are managed and run as a single economic entity. The companies have a common Board of Directors and management team. Shareholders in BHP Billiton Limited and BHP Billiton Plc have equal economic and voting rights, as if they held shares in a single company”

      Effectively, for U.S. investors BBL is the way to go since you don’t have to pay foreign tax withholding.

      I’ve looked at BBL from time to time. It’s a bit cyclical for my tastes, obviously being in the natural resource business. However, I don’t have any exposure to basic materials and this stock (BBL) along with APD are tops on my list. I think BBL looks pretty solid. The yield is nice, the growth is there and it’s at an attractive valuation. It’s on my list.

      “Anyone else have ideas ?”

      I’m currently looking at JNJ, KO, GE, TD, SO, WFC and AFL for potential buys this month. I have enough capital currently for about 4 buys, so I’m strongly looking at each of those names. JNJ, GE, WFC are all at the top of the list.

      Best wishes!

  15. Anonymous says

    Agree with above. Tax implications are of lesser concern to me considering Biliton’s size, diverse exposure. One criteria I look for are companies that have international exposure while being based in stable countries.

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