Dividend Growth Investing And The Joy Of Doing Nothing

“You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideals come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing.” 

“Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.”

“The stock market is a no-called-strike game. You don’t have to swing at everything – you can wait for your pitch.”

- Quotes by Warren Buffett

What do these quotes mean, and why am I starting an article off with them? Well, I don’t have a lot of real compelling stock ideas right now. I certainly have my eye on a number of high quality companies that I’d either love to own a part of, or increase my ownership stake in. But I feel that investors are being a bit greedy right now, so I’m consciously choosing to be a bit fearful. While I abstain from timing the market or valuing the entire market, I continue to believe in thoughtfully valuing individual companies through qualitative and quantitative analysis and only purchasing shares when they are trading for prices comfortably below their intrinsic value which confers a margin of safety. And right now I’m finding margins of safety on high quality companies to be few and far between.

As many of you know, I’m extremely bullish on equities over the long-term and I’ve invested monthly excess savings from my day job into dividend growth stocks every single month for three years save for a short period of time last summer when I took a break from blogging and investing.  However, this may be one of those rare times I don’t purchase stocks during the course of a month. 

What I’ve found is that dividend growth investing is wonderful for times like this, when the stock market is valued at all-time highs and us value-oriented investors are left scratching our heads for attractive opportunities in which to put new capital to work. Dividend growth investing can actually be wonderful for inactivity.

The joy of doing nothing can be powerful indeed because the wonderful companies that I’m already invested in – companies like Johnson & Johnson (JNJ), The Coca-Cola Company (KO) and Philip Morris International Inc. (PM) – these companies are still sending me dividend payments just the same as they have for decades before. The great thing is that these dividends continue to stockpile in my brokerage account. It’s like a wealth snowball being built right in front of me, except I’m not doing any of the work. I’m not rolling any snow or trying to source a carrot nose. The companies are actually increasing my liquidity so that I can take advantage of Mr. Market’s eventual mood change. At that time I’ll be very ready to be greedy when others are fearful.

I still have a couple days to purchase shares in a high quality company before the month ends, but if I don’t I’m comforted by the knowledge that I don’t have to swing at every pitch. Maybe the pitch that Mr. Market is throwing at me right now is a wide-left ball. Maybe in two weeks I’ll have a fastball right down the middle that allows me to get on base. Who knows. What I do know is that I’m slightly empowered right now by inactivity, and I’m realizing the joy in actually doing nothing. 

As I’ve said many times on this blog, a dividend growth stock portfolio that’s providing solid passive income doesn’t build itself, and so for over three years I’ve been wiring money from my checking account to my brokerage account like a giddy schoolgirl, anticipating buying stocks as soon as the wire transaction cleared. And that strategy has worked very well, allowing me to build a six-figure portfolio during that three year period. 

But right now I do wonder if being fearful while others are greedy isn’t a prudent move to make. As always, I believe cash to be a horrible asset that will only guarantee losses to inflation over time. However, liquidity via excess capital can be a powerful tool indeed if Mr. Market’s historically bi-polar personality profile takes a sudden turn from manic to depressive. 

In conclusion, I am currently finding some solace in doing nothing. I am not seeing many high quality companies that are trading at prices with any significant degree of a margin of safety to their intrinsic value, and so due to such I take great pleasure in continuing to receive my dividends from the wonderful companies I’m invested in. I know that these companies are building me a nice little balance sheet with growing cash. I may not have an elephant gun when the time is right like ol’ Warren, but I’ll be happy to go hunting with the pea shooter that my investments are providing me. Free bullets, anyone?

How about you? Find the joy in doing nothing, while collecting your dividends?

Thanks for reading.

Photo Credit: CNN Money

Comments

  1. Anonymous says

    Ditto on that DM. Nicely said, couldn’t agree with you more. A lot of talk about this bond bubble so lets see how Mr. Market pans out over the next few weeks or so. Facinating read as always. Love the Buffett quotes by the way.

    -D

    • says

      D,

      Glad you enjoyed the post! I do appreciate it. While I have my hawk eyes on a few names, nothing is particularly compelling at the moment. I still have tomorrow to make a May purchase. We’ll see what happens!

      Best wishes.

  2. says

    WHAT!?? DM go a month without buying a stock?! It can’t be! :-)

    I’m all about doing nothing, at least when it comes to buying in the market. Honestly, it stresses me out. I have not been investing long, but I can say that I felt much more comfortable with the volatility we have seen over the past couple of years than I am with this bull market. Maybe I’m crazy feeling that way, but most stocks seem a bit pricey to me these days.

    Do nothing DM, do nothing! :-)

    The Stoic

    • says

      Stoic,

      Haha! Me not buy some equity ownership during the course of a month? Not possible. Well, I still have tomorrow. So, anything is possible. While I’m not saying buying in this market will lead to losses, I am saying I don’t really think comfortable margins of safety exist with a lot of the names I typically track.

      I also enjoy volatility. It makes picking up shares on the cheap a lot easier!

      Best regards.

  3. says

    Howdy DM, just curious as to how your portfolio did during the 2008-2009 crisis? Or did you start investing 3 years ago after the crisis already subsided? If so, do you think there’s a chance you might be overly optimistic since you haven’t experienced a downturn? In good times, everybody is a genius stock investor, even me. Check out my foray into Chinese equities earlier this month on my site.

    What were you doing with your money for five years or so after college?

    Thx for the insights.

    S

    • says

      I would be hustling to buy buy buy after a ten month window when the Dow first Drops 500 points in a single day (panic button indicator), during a “crisis”. Especially since Coca-cola was paying out dividends during both world wars..and the great depression. I looked around at the consumers during this “crisis” and nothing changed. They were still spending money they didn’t have.

    • says

      Sam,

      Thanks for stopping by.

      I didn’t start investing in stocks until early 2010, so I rode the wave up after the wave had already looked good to ride. Not my choice, but rather just the way a series of events unfolded. As far as I why I didn’t invest earlier, I was broke because I was spending 100% or more of my income up until late 2009.

      I’m actually looking forward to seeing how I do if we do get a severe correction. You never really know until you’re actually in that situation.

      Take care!

  4. says

    DM, how do you figure intrinsic value? If you go after the grandmaster Ben Graham, there are plenty of companies out there which have prices well below their “Graham number”. For instance I see COP, BBL/BHP. CVX and XOM do not only trade below their intrinsic value but also below their historic price/earnings multiples. It’s hard for me to accept having cash sitting on the bench doing nothing but rotting…

    • says

      CDB,

      I use a combination of factors. I typically use a DDM or DCF model to value shares, and combine that with a look at historical yields and P/E ratios and the like. I also take a look at analyst numbers (like Morningstar) to see if I’m out of line or not. It’s an art, not a science to be sure. So what looks expensive to me may look fairly valued to you. I agree that the names you pointed out offer some of the decent value in this market and I’m currently strongly looking at XOM and CVX. I recently purchased shares in BBL when it dipped to the mid-$50’s. That’s also a great name if you believe the fears on Chinese iron ore usage being slowed/reduced are overblown.

      I agree with you on not having a lot of cash on the bench doing nothing. That’s certainly not my point. I only am saying that dividend growth investing does make it a bit more tolerable to have cash (if one must) because of the incoming income, and the liquidity boost that provides (which could be useful if a group of stocks start becoming attractively valued again).

      Best regards!

      Best wishes!

  5. says

    I’m just like you, as soon as my trading account reaches my usual trading amount I get excited about the trade I have researched and can’t wait to buy it! I know there are less and less choices out there but they is still value out there. CSCO, SWY, and INTC for example.

    Cheers,
    CD

    • says

      CD,

      I was strongly looking at CSCO just a couple weeks ago when it was near $21. I was close to buying a stake in the company when it up and popped over 10% on earnings. While I think is still relatively attractive here, it puts a lump in my throat to think about buying a stock over 10% than the price I had already agreed upon in my own head. Takes a bit of the margin of safety and throws it out the window, so that’s tough.

      I’m with you on getting excited when the cash balance in the brokerage account reaches a level that allows a purchase or two. That’s great, great fun! :)

      Take care.

  6. Steve says

    DM,

    You always make me think!

    Normally I’m right with you but in this case I think I disagree just a tad. I agree that investing based on emotion is death so sometimes doing nothing is advisable but I think your other philosophy of staying disciplined in your strategy of deploying funds every month is the way to go in this market. Rain or shine, high or low, put the money in. Why? Because the market may pull back but by how much? It could advance even more and THEN pull back but not to the levels we’re at now. You just never know. So, I choose look for the best value at the moment I have cash and buy. The less I think about it, the better decisions I tend to make.

    That doesn’t mean we ignore common sense, of course. I had a trailing stop loss order on a REIT that was up over 40% since January. I knew this company was WAY over valued compared to historical norms. It was triggered last week and I sold off a few shares (only enough to bring the balance of the REIT closer to the weighting I like for stocks in my portfolio). Turned out to be a great move. I bought something else this week with the proceeds. I decided not to hold on to the cash even though the market could go lower. It could continue its climb tomorrow.

    Thanks for the good thoughts but doing nothing scares me more than possibly buying into an overbought market. I know that as long as I keep buying, I’ll catch the dips in the market for sure.

    Thanks!

    Steve

    • says

      Steve,

      I’m not saying to not buy stocks right now, but rather that dividend growth investing makes it more tolerable to hold cash because the wonderful companies we’re already invested in keep sending us those dividends as they always do. It’s easy to watch the game from the sidelines when someone keeps stocking your cooler. :)

      Also, I think there are still opportunities out there. I’m only saying that there is nothing particularly compelling where I would be extremely excited to purchase at today’s levels. I’ve said many times that entry prices matter much less with a long-term horizon, because it won’t matter much if you bought MCD at $97 or $102 when it’s 20 years from now and it’s $400 or share (just a guess). The key is to identify high quality and pay a REASONABLE price. Are there many high quality companies trading for reasonable prices? That’s the real question. I think you can make an argument either way, but it’s certainly less clear cut than at any time over the last three years when I’ve been investing.

      Hope that clarifies my stance a bit.

      Best wishes!

  7. Spoonman says

    Your ability to stay put is admirable. I find it incredibly difficult to sit on cash.

    Today we had a nice drop in the market, I wouldn’t mind if it kept going down a bit more. XOM and some other oil companies still look attractive, but their yields are getting rather low. My personal rule is not to buy when the yield is less than 2.5%, so I still have some options.

    • says

      I wish my parents bought some high quality XOM shares before or when i was born to hold on to forever. Though being apart of a business allows you to study the business and become more entrepreneurial, investing passively after learning to be frugal; free’s your chains from having to work (and be taxed) for life.

      DM’s future children will be wealthy and truely free. But they must learn to live monk like lifestyles to be free from spending greedily as well.

    • says

      Spoonman,

      I agree with you. It’s tough to stay put. No doubt about it. I’m a net buyer, and I’m ready and willing to part ways with my limited cash hoard. In fact, I’m very excited to purchase some equity positions, but only if the prospects for a solid total return look promising. I still have a day left, so we’ll see what tomorrow bring us. I do hope that we get some softness in a couple names I track and then I’ll be gloriously able to put more capital to work for me. :)

      Best regards!

  8. says

    I just bought some CVX. There wasn’t much in the market that was wroth purchasing, but I figured that CVX was probably one of the better buys at the moment. With my luck the market will begin moving down right now.

    I’m not sure if it would have been better than sitting back and doing nothing, but I’m not sure if whether I buy CVX at 115 or 125 will really matter that much 10 years into the future, so long as I didn’t pay more than fair value for it.

    • gibor says

      Have the same opinion about CVX…. had set limit buy , but it didn’t executed…. but my “luck” is “luckier” than yours, so most likely it will continue up :)

    • says

      MFIJ,

      Not a bad way to go there. CVX is one of my better ideas at the moment. Again, it’s not trading for a price that’s overly compelling, but I think there is some value there. I also like XOM here.

      I agree with your assessment on looking at the purchase with a long-term lens. The you of 10 years from now will likely be very glad indeed that you purchased shares in a high quality oil company like Chevron! It’s this long-term view that keeps me buying stocks even when I thought I wasn’t getting fantastic prices.

      Take care!

  9. Onassis says

    The unrest because of rising criticism of the supports of the central banks increased week by week.
    The next two months could be very interesting and volatile.

    I think waiting is one of the better options!

    Onassis

    • says

      Onassis,

      I try not to pay attention to macroeconomic news, because I think that can quickly cloud your judgement. Rather I just continue to focus on the basics like valuing a company and trying to buy at intrinsic value, or preferably less. Sticking to those basics allowed me to continue buying stocks right through the Election cycle, the Sequestration fears and the like. The only thing that dampers my enthusiasm for buying stocks is overvalued securities, rather than any macroeconomic news/fears.

      Best wishes!

  10. gibor says

    Agree that on NYSE there are not big choice of good dividend stocks… but you can also look over the border :) there are a bunch Canadian stocks interlisted on NYSE that have pretty attractive valuations…. (note that TSX was lagging last couple of years and YTD gain is less than 3%), as an example all 5 big Canadian banks trading at pretty low P/E about 11 , have dividend yields between 4-5% and CAD$ is relatively cheap now… stocks like SU, CNQ, GG ,POT imho also good for a long haul

    • says

      gibor,

      I agree with you. I’m currently looking at BNS, TD and RY. I think all three are fairly cheap and offer solid yields in this market, albeit with the risk of a Canadian housing bubble. I don’t want my exposure to financial stocks get out of line, and that’s the only reason I haven’t increased my stake in TD or BNS.

      Take care!

  11. says

    You bring up some great benefits to dividend investing. I’m just about done paying off debt and having a decent emergency fund, so I haven’t been able to invest (outside of my retirement) yet, but I will start within the next year. Hopefully we see a little bit of correction before I begin investing.

    • says

      Jake,

      I hope you get that correction as well. It would be awfully nice to start building a portfolio from scratch with attractively valued shares in wonderful companies. That was my position a few years ago, and I couldn’t be happier investing when I did. That being said, an investor just starting out today should do fine as well as long as their time horizon is long-term (potentially forever).

      Best wishes.

  12. says

    DM, I agree with you. Stocks like JNJ, KO, PG, PM and some other sre still high. Although these days they are correcting a bit, but they are still too high even for me to buy now. And I would love to buy those or increase my holdings, by no means. There are other companies I like and some of them corrected more and those are which I am buying right now, such as Realty Income or KMP, T, MCD…

    • says

      Martin,

      I’m glad that some of these stocks are finally coming back to Earth. Although PM hasn’t really been a stellar performer over the last few months. I’m already allocated to PM heavier than I’d like to be so that’s not on my watch list currently.

      I’ve noticed the drop in O too. That’s down 8.5% over the last trading week. If it comes down much further I’d be interested in initiating a position in the company.

      Best regards!

  13. Anonymous says

    DM Took2summit here,

    First of all, interesting that you start off a post of why you shouldn’t buy quoting buffett, when he spent 5.6 BILLION dollars to buy NVE yesterday to pay 23% higher then you could have paid a day before. He’s clearly a buyer, and a strong buyer, in today’s market! :) Other utilities look quite appealing to me at the moment as a lot of them have dropped over 10%, namely I am looking hard into ED and SO at the moment.

    The food sector also looks ready to crack a bit. I am going to load up on KMB if I can get it under 95 (it dropped 5% yesterday on no news, which is really strange for a low beta company like KMB) and I am also looking at companies like GIS, CPB, K, KO, hoping they continue to drop a little more.

    However, like I said before, I believe utilities already have healthy enough a correction to use the money. There’s ALWAYS an opportunity in any market.

    • says

      Took2Summit,

      Well, taking a look at NVE one of his subsidiaries is buying the entire company so that’s why you see the 23% pop. Buying entire companies usually involves paying a hefty premium, and I think he and others would admit to such. It’s not advisable to following such a strategy if you’re not buying an entire company out, obviously. He also paid a hefty premium for HNZ because he (with another firm) purchased the entire company. It’s not like he paid 23% higher by buying it today vs. yesterday. That premium was always going to be there.

      I’ve noticed some of the consumer stocks lagging lately as well, so I’m quite excited about that. KMB, GIS, KO, PG and the like have all been weak lately. That’s the kind of weakness I’ve been looking for. I would love to buy KMB and GIS if they come down even further from here.

      I think utilities as an aggregate are sub par dividend growth holdings because the “growth” side of the equation is usually low due to a number of factors. I still would like a 5% allocation to utilities in my portfolio over the long haul due to the entry yield juicing my dividend payouts a little. I don’t know if SO is a steal at today’s prices with a P/E over 18. Certainly has a great yield, and you can probably expect the payout to rise 4-5% over the foreseeable future, but nothing particularly compelling about it to me. Also some of these companies are a bit more sensitive to interest rates because of the higher yields, so just something to think about in the back of your mind.

      Best wishes!

  14. says

    Considering the current bull market is now over 4 years old, I have self-imposed a rule that I will be no more than 50% long until the bear returns. On the very day we meet the technical definition of a bear market (20% down on $SPX) I will begin reinvesting the idle 50% in equal monthly installments during the 12 months which follow. It helps me to sleep at night to not be excessively long when the bull market is statistically running out of time.

    • says

      Neo,

      It’s hard to say what’s going to happen. It’s amazing to me we haven’t seen a bit of profit taking already from some of the big institutional investors. I don’t know if we’ll see a 20% correction in the near future, but I’ll keep scanning for opportunities and try to buy on the dips. I don’t want my cash to build too much, but I don’t want to buy overpriced equities either.

      Hopefully we both get the pullback we’re looking for!

      Best regards.

  15. says

    I’m all about doing nothing as well, letting my money do all the work. I don’t have a big enough portfolio yet to really make that happen, but there are signs of great things to come as long as my established companies continue to pay dividends and increase their dividends over time.

    I figure a portfolio of 30 Canadian stocks and 10 U.S. stocks, all established dividend payers will do the trick…

    Regardless of market conditions, as long as they pay dividends, I must not sell.

    Mark

    • says

      Mark,

      I’m with you. There are definitely signs of great things to come. It’s really inspiring to see the seeds of past work start to grow a nice dividend garden today. I’m not overburdened with my garden yet, as it’s still relatively small…but one day it’ll be a forest! :)

      I’m with you. I think 40 established dividend payers from both sides of the border should definitely do the trick!

      Take care.

  16. says

    DM,

    I hate to build my cash up because I’d much rather prefer to get it invested but I can’t really justify overpaying for companies. Especially if it’s not a super high quality company. I’m stuck right now with a lot more cash than I’d like to have and will probably bite the bullet and start investing some on a monthly basis should my cash build to $20-25k. Now if I had a huge portfolio already then sitting on the sidelines would be more palatable, but I don’t exactly have the same kind of base built up as Mr. Buffet. Best of luck in finding some opportunities.

    • says

      Pursuit,

      You have a lot more cash than I do, my friend! Having $5-6k in cash, for me, is “a lot”. You put that to shame.

      Having a much larger portfolio does lead one to be a bit more patient during markets like this. When you’re collecting thousands in dividends per month you can reinvest that kind of capital without even touching new money. A problem I definitely wish I had!

      Best of luck to you too.

      Take care!

  17. gibor says

    Wow ! What happened to markets in last half-an-hour of the trade?! Chart is simply dives…. any news?
    Anyone thinking to buy on Monday?

    • says

      gibor,

      From what I understand of it there was some kind of trade imbalance sparked by some re-balancing by major funds. Or, it could be the start of something wonderful. :)

      Best wishes.

  18. says

    When there aren’t good opportunities it’s good to wait indeed! It’s even easier when you have 20-30 companies sending you checks every 90 days, just let the money pile up and deploy it when a good opportunity arises. I’m sitting on a little cash pile too. The companies I consider are XOM, CVX, and DPS. WMT is selling for less than 15x earnings so buying that now would also be a decent buy in my book for the longterm.

    Take care!

    • says

      Exponential Dividends,

      I like some of your ideas. I’m already fully allocated to WMT, but that company has lagged the S&P 500 by about 5% or so YTD. It does appear attractively valued. I like the oil plays here. CVX and XOM are both high on my watch list.

      Happy hunting!

      Best regards.

  19. Anonymous says

    Hey!
    All you guys seem very astute by your posts. Just a quick question for all to answer if possible…
    Anyone do any homework on Royal Dutch Shell RDS-b
    ? Compared to the oil companies U.S. oil companies that you all like?

    Thanks!!
    All the best for all of your future investments!!

    • says

      Anonymous,

      I looked at RDS.B a while back and I liked the high yield, however the dividend growth wasn’t much of a story. I think with that name you’d be sacrificing some consistent growth behind the dividend for the higher yield now. A bit of bird in the hand, perhaps? Also, they were pretty big in natural gas if I remember correctly.

      I think RDS.B would probably make a nice compliment to some of the other U.S. supermajors like Exxon and Chevron if you don’t mind the inconsistent dividend growth.

      Best wishes!

  20. says

    I couldn’t help myself a couple of days ago and made a small purchase of Coca Cola stock. I’ve been very light on cons staples and have been eyeing some names. I bought Coca Cola before during 2009, but sold it in 2010. I’ve bought now with the intent of never selling this one again. Hoping the price continues to dip another 10% or so as I’ve only bought 1/2 of the total allocation I’d like to have.

    • says

      Integrator,

      Can’t get much higher quality than Coca Cola! I kind of consider $40 my wall for KO stock right now. Below that level I’m interested, while above it I’m not. I see it just broke below that number (barely) on Friday. If it drops even lower I’d definitely be interested in increasing my relatively small position.

      I would definitely suggest holding on this time! :)

      I might be joining you in buying KO stock if it continues further down from here.

      Take care!

    • says

      JF Baconnet,

      Haha! Investing can definitely be a second job. I know that I’m a bit more active with it than I probably need to be, as I can be a bit OCD in almost all aspects of my life. Also, running a blog like this forces me to pay a bit more attention to detail.

      Although I will say that just sitting back and collecting dividends (the plan in early retirement) should be relatively easy. Not being a buyer any longer takes a lot of decision making out of the mix. We’ll see how it actually turns out in reality.

      Best regards.

  21. says

    I’m a big fan of doing nothing. It’s one of my favorite hobbies.

    Just to play a little devil’s advocate, with maybe a little pro DCA attitude mixed in:

    When you save a high percentage of income, as you do, retirement before you hit 40 is almost inevitable. Almost. For people that save 10% (or less), it is compelling to go for the home run hit (the greeter at Wal-Mart this stock can only go up!) and to try to maximize return at every opportunity. People such as yourself can just let the inevitable happen, and if total return is a little less, so be it. If you have enough income from dividends, then you have enough, it doesn’t really matter if you made 6% or 7% annually on the way there

    Maybe its like early 2008 again, and some market declines are coming. That will be a great buying opportunity. Or maybe its 1991 again, and a decade of steady growth is ahead of us. That will be a great opportunity too. We don’t know which way the market is going to go in the short term, but we can make a reasonable bet that it will be higher on your 40th birthday than it is today. That will be a great birthday party

    • says

      Jeremy,

      You make some great points there.

      I wrote an article a little while back that basically shows how much more important it is to have a high savings rate than a high rate of return if you’re looking to retire early, simply because the years of asset purchases are low (in my case 12 or less). So, yes because of my high savings rate I’m almost assured to have a large enough asset base by 40 to live off of using simple mathematics, and that’s true if I get a 6% return or an 8% return.

      However, that doesn’t mean that I’m not a passionate investor and don’t want to maximize total returns as much as possible. I’m a value investor at heart, and because of that I go through an internal struggle when the market is modestly overvalued like it is now. Certainly I’m of the belief (and habit) that purchasing the most attractively valued, high quality equities I can find every single month makes sense because the wealth snowball continues to roll downhill. Money makes money. However, when I see valuations being inflated (likely due to easing), it makes me cringe a little to part with my hard earned cash.

      I’m a big proponent of DCA as well, but do remember that you’ll often hear hindsight comments like “well of course you shouldn’t have bought stocks in X year (1999, 2007) because they were overvalued, should have sat on cash”. – These types of comments make me cringe a little, because there are so many that believe in monthly purchases and DCA, so is their money where their mouth is, or is hindsight 20/20 and what are they doing going forward?

      Again, I continue to purchase monthly, and bought O late in May and DLR already in June…so I continue to try and find value, but it’s important to be aware that the market is modestly overvalued by almost any measure you want to throw at it. Again, it’s a struggle. I’ll only be investing fresh capital for about 15% of my life, so every month and dollar counts and it makes sense to keep it working as much as possible, however it also makes sense to buy the best value I can because my opportunities are so limited.

      Great discussion.

      Best regards!

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