Why I Only Buy Companies That Consistently Pay And Raise Dividends

pizzaI have been busy since early 2010 buying up equity stakes in companies that have lengthy dividend growth records. There is a methodology behind my madness, and I’ll explain.

You see, it would be easy for me to liquidate my six-figure portfolio and open my own business. Maybe I open a pizza shop and become a local hero, serving up pies to hungry patrons.

But would this be the best decision with my money?ย 

Where do I think I will be able to make more money over the next 20 years: A collection of world-dominating, high-quality businesses like The Coca-Cola Company (KO), Johnson & Johnson (JNJ), and Chevron Corporation (CVX), or a local pizza shop? And that’s not to mention which choice would involve infinitely more hard work.

Before you sarcastically answer this rhetorical question, try and contemplate why the answer comes so easily and obviously to you.

See, there is no chicken or the egg syndrome here. Decades of dividend growth come on the back of being a high quality company, not the other way around. You don’t just pay out more and more cash, hoping that business just magically gets better and grows year after year. A business can pay out more and more dividends as a portion of profit because that profit is rising over time.

Now, back to my pizza shop example.ย 

Let’s say I didn’t have a six-figure portfolio with which to bootstrap my little dream. Let’s instead assume I need capital. And let’s just say I have some investors that front me the cash necessary to fund Papa Jason’s pizza shop, but require perpetual cash payments that rise every single year.

These are smart investors, after all, and don’t want to be told how great of a business this is and how their stake will surely be more valuable in time due to my managerial prowess in running a pizza shop; they want cold, hard cash in hand while they wait to see that equity investment rise in value. And they don’t want the same payment year in and year out. No, these are the really, really smart kind of investors, and they want more money every single year to keep up with (and hopefully exceed) inflation. These investors have lifestyles to maintain!

Think about that for a moment. It wouldn’t be enough for me to just be a local success story, selling enough pizza to pay all of my bills, fund a staff, allow myself a small salary to make my hard work worth it, and also pay out my investors. No, I have to pay my investors more cash ever single year. So that means more pizza, more chicken wings (I’ve expanded the menu by now), more toppings, more profit – year after year. It’s not enough to just be successful; I have to be more successful every single year in order to satisfy the growing payments to my hungry investors. While I’m selling pie to customers, my investors want a bigger slice of the profit pie, which has to grow in kind.

When you have a company grow its dividends for decades on end, that’s a result of a fantastic business model. You almost cannot grow dividends for 20 or 30 consecutive years and be a low-quality business; the two are pretty much mutually exclusive, assuming the dividend in question is still well-covered and poised to continue growing.

If I don’t run my pizza shop well and I’m unable to sell more and more pizza there is simply no possible way I can pay eager investors rising portions of my ever-growing profit pie. ย That’s because the profit base isn’t growing. Dividends are paid in cash, from cash. As such, there’s no way to “fake it”. Sure, I could take on debt to pay out my investors and this would work for a while. But over time, this scheme would blow up in my face when I can no longer afford both the rising debt payments and dividend payments. Something will eventually give, and that something will be my own little slice of Italy. Bye-bye Papa Jason’s!

When I look at Coca-Cola’s outstanding 52-year streak ofย rising dividend payouts, I think of the immense growth and consistency for a company to be able to do something like that. It requires a constant mind on the business, and the ability to maintain quality at all times. You can’t sell a crappy product and make more and more money for a century. It just doesn’t happen.

Focusing on companies that raise their dividends regularly and reliably forces me to hone in on businesses that tend to be rather high in quality. There are currently 519 companies on David Fish’s Champions, Contenders, and Challengers list – a document that tracks companies with at least five consecutive years of dividend growth, which is filters from the thousands of publicly traded stocks available to an investor. Furthermore, from those 519 companies with at least five years of growing dividends, only 105 companies have managed to raise their dividend payouts for at least 25 consecutive years. That’s 109 out of thousands.ย I’d say that’s a pretty special group!

While it doesn’t automatically mean that a company that chooses not toย pay a dividend is somehow of lesser quality than a business that chooses to pay a dividend and/or raise that dividend payout regularly. However, a company that can manage to continue to raise its payout at rather impressive rates to investors after decades of already doing so is without a doubt doing something right. The cash doesn’t just appear out of thin air; the money that is paid out to investors year after year comes from constantly improving underlying business fundamentals. These are real businesses selling real products and/or services to real people. And the cash is real. And that real cash will one day pay for my real bills when I’m financially independent and living entirely off of my dividend income.

In the end, I focus on high-quality businesses that have competitive advantages which ensure that they can continue to pump out more dividends my way on the back of ever-growing profit. And the reason I do is simple: I like cash, but even more so I like more cash. And I’m doing my best as an investor to ensure that my passive income rises year in and out by focusing on the businesses that not only have a history of paying out more cash via dividends, but have an excellent chance at doing so for the foreseeable future.

Full Disclosure: Long KO, JNJ, CVX

How about you? Do you only buy companies that consistently pay and raise dividends? Why or why not?ย 

Thanks for reading.

Photo Credit: Suat Eman/FreeDigitalPhotos.net

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102 Comments

  1. Hi Jason, new to your blog. I find it very entertaining and informative. I’ve been gradually focusing on transforming my portfolio to Dgi for a while now and hanging around the Dividend Investing section at SA has encouraged me to fully commit as a preferred way for stock investing. So for what it’s worth thanks for that.

    I recently started auto depositing $500 into my brokerage every month. My question is, should I invest that $500 capital injection every month, or should I let the money accumulate to a certain dollar figure before I invest it.

    Lastly have you looked into buying a rental property they are great from a cash flow standpoint and if bought in the right area can be increase significantly in value overtime. I’ve been very happy with my investment and it’s provided a great boost to my monthly cash flow. My rent is akin to a dividend I get without fail. Anyhow, just a thought. Keep up the good work.

  2. I like the sound of Papa Jason’s pizza shop ๐Ÿ˜‰
    Great points as always, Jason. Paying out cash quarter after quarter for years and decades is something that cannot be faked. The businesses have to be run well and the performance and the feedback via dividends speaks for itself.

    Best wishes
    R2R

  3. Sunny,

    Glad to have you on board! Congrats on starting your own journey. The dividends start off slow, but that snowball does indeed become quite impressive over time.

    As far as how much capital is needed to invest, this all depends on your commission fees. I pay $7 per trade, so I generally try to make sure each purchase transaction is around $1,400 or so, which amounts to a 0.5% commission fee. I think that’s reasonable. When I first started, $1,400 was pretty hard to come by, and so I generally tried to invest once I had ~$1,000. I scaled up as my dividends and income increased over time.

    I wish you the best of luck with the rental property, but I personally have no interest whatsoever on becoming a landlord. It’s just not for me. I know it can be pretty lucrative from a cash flow perspective, but dealing with tenants, repairs, maintenance, management companies, etc. sounds very unattractive.

    Thanks for stopping by! I hope you stay in touch. And that snowball will grow. ๐Ÿ™‚

    Best wishes.

  4. R2R,

    Now I’m hungry for pizza! Of course, I’m always hungry for pizza. ๐Ÿ™‚

    And you nailed it: Decades of dividend growth comes on the back of decades of running a business well. And the dividends are just the proof in the pudding, as I like to say.

    Cheers!

  5. Thanks for the feedback. I will definitely stay in touch. It’s great to have a place to bounce off Ideas off of someone. At the very least, to have another point of view.

    Being a landlord isn’t too bad, although I have moments where I want no part of it. Thankfully I have an adequate property manager and most importantly good tenants.

  6. Another great article… Always great to walk by a business that I own shares in and see cars in their parking lots and big lineups.. No stress, relatively speaking, when I see this situation as I don’t need to lift a finger to make the money here… The employees working at the companies serving their customers makes me money…

  7. I like the comparison of rental property to dividend income, because are both good investments for your future. The key difference is that rental property really is not passive compared to dividend income. You have more risk in a rental and definitely more of a headache.

    With a stock, all you have to decide is whether you want to continue holding it or trade into a more attractive position.

  8. Hey Jason, great article. It’s good to have focus ๐Ÿ™‚ Well, you could always buy shares in Boston Pizza or whatever if you still crave for some pizza ownership ๐Ÿ˜‰ and agreed, far less risk when buying into good quality. My strategy is pretty different but the profits i make go into high quality dividend stocks anyway.

    Keep up the good work
    cheers
    T

  9. Do you know of a free stock screener that will let me search for dividend growth? I’m stuck using the David Fish spreadsheet and slowly paring it down, but that is A: time-consuming and B: not updated in real-time.

  10. Papa Jasonโ€™s! Haha! Very nice.

    I couldn’t agree more with the points you make in this post. The ability to receive dividends that increase from year to year from companies that don’t require much monitoring is amazing. I could invest in rental properties, but managing a portfolio of rental properties requires a lot more time than simply holding dividend paying companies. Plus rental increases are quite limited, while dividend increases can easily be 7% per year.

    At the end of the day I’d rather accept a lower initial yield in exchange for highly passive income that increases by itself year after year at rates that exceed inflation.

  11. HI Jason,

    I agree with you. Owning quality dividend stocks is much better than running your own small business. I just see your example playing out a little differently. I think Papa Jason’s would be very successful and would start acquiring other pizza shops in the town followed by the state and eventually other states. Just like KO you would raise your revenue and dividend every year thanks to your continued expansion and delicious pizza.

    Would you ever invest in Amazon? I just picked up some shares at around $314. I think Jeff Bezos is a genius and I love the fact that I can invest in Amazon and have him work for me. The company is really remarkable. I also bought some Tesla Motors around $202 mainly because Elon Musk is another really smart guy and I can see this company being really successful thanks to Elon’s determination. These are the only two companies I own that don’t pay a dividend, I also count BAC since the dividends is pennies. Would you ever consider a company that doesn’t pay a dividend?

    I am hoping for some buy updates from you. I went a little crazy buying stocks (AMZN, TSLA, BAC, WFC and AAPL) over the last week.

    Take Care,
    Frank

  12. One of the great things about companies that can continue to grow their business/dividends each and every year for decades is that their business models are relatively simple. Warren Buffett said it best “I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”

  13. Two thumbs up.
    Good Work describing Dividend Investing in layman’s terms Mr. Mantra.
    Les Rip This Journey up. You hear me… Make them Juicy Dividends!!

    Joking aside, Thank you and Take care Jason.

  14. The other difference is that when you don’t have a tenant for a month or more could be a big hit to the income stream. Where a dividend company would have to cut the div to zero and be a much larger holding to have as big effect.

  15. Hello DM,

    well written, as always. Good luck I had Pizza yesterday. ๐Ÿ™‚

    I love reading your blog and I am impressed about the speed you accumulate more money and dividends every single month. Congrats!

    I try to build a dividend portfolio on my own, including the usual suspects from the US and UK. Since I am from Germany, of course with german stocks as well. In Germany dividends are usually paid only once a year (mostly in April and May) so the main harvest season starts forme in two weeks with BASF (largest chemical company in the world and a reliable dividend payer as well ๐Ÿ™‚ )

    regards from Germany!
    Markus

  16. Thankyou for another great post. I am currently saving around 3000$ each month and my goal is to have a portfolio that can support my family when I am older. How volatile are the stocks in your portfolio. An adjustment in the market will come some day. How do you think you will feel when you see your portfolio reduced by 30% even if the dividends are the same or even increased? I know it doesn’t matter but knowing and feel are not the same.

  17. In Europe there are some “dividend alert” in the telecoms. 5 of the biggest companies (Deutsche Telekom, Orange, Telefรณnica, Telecom Italia e KPN) will spend just half in dividends this year that they did 5 years ago.

    With your type of deversification, you are really protected from this fluctuations.

    But is an alert, dividends aren’t what thay used to be. US are quite different and tha companies you own maybe will be far from this cenario.

    Cheers

  18. Very good point Jason.

    A couple of years ago, I decided to become self employed in the insurance and investment industry wanting to help people build their financial security and make growing income at the same time since in that field you don’t only make commissions when you sell but also every year when your happy customers renew their policies and continue investing. I had to work more than a 100 hours per week to build my customer base and I knew it would be like that for a couple of years. Then I would finally be able to relax and slow down a little because my renewal commissions would be so high that they would cover all my expenses. Plus, insurance premium increases year after year and my percentage of commission was supposed to stay the same… Growing income indexed with inflation.

    I was discussing that strategy with a friend one night and he told me :

    “Allan, sounds like a nice plan. I understand that your goal is to be financially free and make growing income year after year while working less and less. But if you work 120 hours per week for 5 years, wouldn’t it be like working 40 hours a week for fifteen years? Sounds like a lot of work and stress to obtain the same result you were obtaining in your salaried job. Plus, you know and I know that insurance companies won’t let you sit on your…(you know the word) to live out of your renewals commissions. They will force you to continue to grow your (read THEIR) customer base. If everybody was living out from his renewals, the company would eventually disappear. A company needs above inflation growth!”

    Words of wisdom! I discussed with older ones that were making big paychecks and they confirmed me what my friend had found by himself. You can never rest in that field. Everybody wants to steal your customers. If the market crashes you have to reassure them. When the budget is thight they want to end their contract etc… Plus, Insurance companies change the rules every time they see their broker base slowing down their growth.

    I quit a couple of days after to find a good paying job with great benefits that would cover my expenses and give me a nice surplus that I could invest. In the past 5 years I’ve been able to more than double my income taking promotions year after year. Plus I get a good bonus and my salary is indexed with inflation. I plan to obtain another promotion pretty soon to get another 10k of extra income to invest.

    A company always needs growth to deliver growing dividends, to maintain competitivity and to keep up with inflation. There are barbarians at the gates that want your piece of pizza!

    Dividend growth investors (when they invest in the greatest companies) have understood these words of wisdom. And that is why I believe it’s one of the few best strategies available for a “normal” guy from the crowd who would like to eventually quit the rat race and RELAX!

    Thanks Jason! You should definitely start thinking about making webinars and give conferences or stuff like that. You have a nice reader base and your blog is addictive!

  19. DM,
    I only hold dividend paying stocks in my taxable portfolio. In the past I’ve owned some growth, tech, and retail companies (GOOG, URBN, MRVL and many more), and had varying levels of success. In fact I did well with growth stocks at times. But my dividend stocks always did better, didn’t fluctuate as much, and I get a payment from them that growths. And I can calculate with some accuracy what they’ll pay me in the future. Putting those factors together, I can see my retirement in the future funded by dividends, rather than capital gains. My IRAs and 401k have index funds, mutual funds and ETFs, so I’m not 100% dividend paying stocks. But my retirement accounts I prefer to be more passive with hence the indexing.

    Just think, you could go on Shark Tank for Papa Jason’s and they’d want a slice of your pizza shop, but probably prefer a slice of your dividends!
    -RBD

  20. Hi, wise words again, Jason! Your blog turned me last year November from chasing capital gains to DGI investor. And I plan to continue same track. Soon the snowball will start rolling =)

  21. I get my exposure to real-estate through property REITS. (O, DLR, OHI, HCP, ect). Great dividend’s, easy tax treatment, rising dividends, no landlord/tenant hassles and most important a ton of diversification.

    I’m similar to Jason in this regard in that i would never want to be a landlord. The group i work in has about 10 people i know that attempted the real-estate route. Only 1 of them particularly enjoys it. The other 9 complain and moan and wish they’d never done it. Not for everyone ๐Ÿ™‚

  22. I don’t know exactly what Jason’s criteria is but most DGI wouldnt touch AMZN/TSLA with a 10 foot pole. We usually have pretty concrete criteria screening criteria for entering a position. Things such as dividend >= 2.5%, PE < 20, Dividend Payout = 6%, Years Paying Dividend >= 10… combined with qualitative analysis for things like economic moats / unique product.

    Thats not to say growth investing isn’t a perfectly viable strategy. It’s just riskier than my personal tolerance and doesn’t really adhere to DGI goal, a proven track record of a rising stream of income via dividends.

    If you havent seen them check out the fastgraphs tool if you are curious for at a glance fundamental analysis http://www.fastgraphs.net/ as well as the CCC list by David Fish http://dripinvesting.org/tools/U.S.DividendChampions.xls

    Jason has written a bunch of useful past articles on this very subject as well. I just dont have them linked so you’ll have to dig them up out of the archives ๐Ÿ™‚

  23. Jason,

    6-month follower, 1st time poster here. Thanks for sharing your goals, decisions, (and overall mantra) for the rest of us. You and a few other div growth/frugality bloggers have opened a world to me that I would have otherwise been unaware of. I’ve followed your lead and have slowly begun to shift from growth/speculation to div growth.

    Anyway, my question is: You mentioned your $1400 rule for paying a .5% commission; and that’s true for me as well. However, I’d make an acception if something was “on sale”. I’ve got only 800 bucks this month, and am hungry to buy. Which, if any of your companies that you presently hold would you consider “on sale” at the moment, (i.e. down, but for an arbitrary reason…)

    thank you, r/s

    Kaizen77

  24. DM,

    I’ve only just recently started reading you blog, your insights and writing style are refreshing and I really appreciate the work you’re putting into the blog. It’s also incredible that you find time to reply to many of the comments on your site.

    A question for you (and maybe you’ve written on this in the past): How do you feel about using ETFs to build a dividend portfolio. Especially for beginners (or even as an anchor for the more experienced investor’s portfolio) it seems that a low cost ETF such as Vanguard’s VYM may fit well with your strategy. Obviously you can’t isolate companies based on value when buying an ETF but you also pay almost nothing in expenses and many online brokerages now offer free trades on VYM and similar ETFs. Is there any reason to think that an ETF over the long-term would be less powerful than picking your own diverse mix of companies?

    Thanks again for the great work!

  25. Pingback: Why Buy Companies That Consistently Raise Their Dividend?
  26. I just wanted to say hello and how much i enjoy your blog. Reading your blog has made me think alot about my families finances and our future. keep up the good work .

  27. You can always just take your dividend income and buy some Jet’s pizza/salad here in MI. Let the employees of the companies that pay the dividend work hard for you and then collect and pay the bills, eat, and use them for everyday necessities.

  28. Mmmm pizza… ๐Ÿ™‚ I always enjoy your comparisons of dgi with other ways to make money. You make the strategy click in such real ways for so many people. Thank you for continuing to inspire everyone!

  29. DM,

    The beauty of dividend increases and how it compounds. On top of that the capital appreciation. I only wish I started when I had my first job at the age of 15!

    Great Post!

  30. Yeah this is the ONE thing we should have learned in school! How to invest wisely! I sometimes feel like if I had lost the last fifteen years of my life… Having known that fifteen years ago, I could be retired by now!!! Ahhhhh but at least now we know. It’s better now than never I guess!

  31. No doubt… society is all about getting you to spend your money. High School is more about, how to get kids through the door then giving them real skills. FWIW I’ve been trading since ’97 and had some good years and bad years. While I am a proponent of Divy investing be careful…. unless you’ve experienced something like 2008 all emotions take over during a bear mkt. Its easy to forget about that 3% divy when your account is down 35%. I still think good entry points are really important whether you are a divy trader or not or you can be in for a long painful experience.

  32. Investing Pursuits,

    I’m totally with you. It’s great to see customers buying products from companies we’re invested in, and seeing employees work hard for us. It’s wonderful to be an owner, right? ๐Ÿ™‚

    Cheers.

  33. Ravi,

    Owning rental properties is definitely not my idea of passive, but some really enjoy it. I say to each their own. I’d rather just collect my cash without the phone call about a tenant issue, but that’s just me. ๐Ÿ™‚

    Rental properties and dividend growth investing are totally different strategies with totally different risk/reward profiles, in my opinion.

    Cheers.

  34. Tales,

    Haha, or I’ll just use my dividend income to occasionally buy a pizza. That sounds like the way to go right there! ๐Ÿ™‚

    Thanks for the support. Much appreciated.

    Best wishes.

  35. Justin,

    I’m not aware of a screener like that, I’m sorry. I scan through David’s document here and there and just use that. The excel version is pretty good at categorizing certain columns, depending on what you’re looking for (yield, payout ratio, etc.).

    As far as updates go, I believe it’s updated once per month, which is pretty accurate.

    Wish I could be of more help!

    Cheers.

  36. Spoonman,

    Great point there. Rental income increases will generally follow inflation, or slightly above, while dividend income usually rises much faster than inflation. However, even if rental income increased at a rate commensurate with dividend raises I’d still not be interested in managing a portfolio of rental properties. I know my interests and limitations, and as such I’m a great fit for dividend growth investing, but not for managing rental properties.

    And due to that, I’m with you: I’m totally okay with the possibility of leaving money on the table by passing up on rental properties.

    Best wishes!

  37. Frank,

    Papa Jason’s could be a massive success after all, huh? Maybe I’ll rethink my strategy. ๐Ÿ™‚

    I’m not interested in Amazon right now, even factoring in great management. There’s not much profit to speak of, and it pays no dividend. As such, it doesn’t possess the qualities I look for in an investment. That’s not to say it isn’t a fantastic investment here, but just that it doesn’t fit my needs. No cash flow is no bueno for me.

    And I hope to update my watch list or buys soon. I’m a little tight on capital right now due to the fact that I’m considering some changes in my personal life, but it’s sure tough not to deploy capital!

    Take care.

  38. Keeping focus on your plan is very difficult when you experience a huge drop in the value of your portfolio. I know it is mental, but I always try to keep in mind how market drops impact my salary (in this case my dividends). It doesn’t if I buy high quality companies with a history of growing their dividend. Only the number on the paper that is my statement changes. I lose nothing until I sell. In fact, the drop allows me to buy more shares which means I get a raise! ๐Ÿ™‚

    In 2008, everyone at work was in a tizzy asking what to do. I told them I was cutting expenses and buying. If the market it down by 50% then I get twice the shares for the same amount of investment. Can’t beat twice the income compounding at 5% (for our portfolio) every year. Where else can you get that kind of increase in your salary?

  39. JC,

    I’m with you all the way. The easier the business model, the better. That’s why you don’t see me going crazy with tech companies. There’s a lot of stuff out there that I don’t understand, but I do get the hang of toothpaste, oil, medicine, food, etc.

    Cheers.

  40. ed69,

    Great point there. I understand the desire behind owning rental properties, but there are large risks there as well. Overall, I view the risk/reward profile behind investing in real estate directly as greater than my strategy. More potential reward, but more risk as well.

    A couple vacancies and that’s definitely akin to major dividend cuts, especially if your real estate portfolio is small.

    Best regards.

  41. Markus,

    Mmm, pizza! I think I might get some this weekend. ๐Ÿ™‚

    Have fun as you receive some major dividend income over the coming weeks. That sounds like a lot of fun!

    And thanks for the support as well. I really appreciate you stopping by from Germany. It’s wonderful to have readers from all over the world.

    Best wishes.

  42. hallar84,

    Wow, nice job! Saving $3k/month should get you to where you want to go in short order, assuming your family is one of modest desires. Congrats!

    As far as your question goes, it’s tough to say. A market correction will come sooner or later, and exactly how I react will surely be well documented right here on this blog. For better or worse, it’s all public. ๐Ÿ™‚

    Keep up the great work on savings!

    Take care.

  43. Trader,

    I was once invested in Telefonica a while back, but sensed the dividend was in danger and, luckily, sold before the dividend cut. As always, it’s not dividends themselves that are in danger, but rather payouts from individual companies as they may not be able to pay out rising dividends due to inherent fundamental issues. That’s why it’s always important to monitor your holdings and diversify.

    Best wishes!

  44. Aspenhawk,

    Hey, good to see you again. Hope all is well on your side of the pond. ๐Ÿ™‚

    And thanks for the ongoing support. I really do appreciate it. I hope the journey is still going very well for you!

    Best regards.

  45. Allan,

    Thanks for the very kind words. I’d love to expand on this platform one day, if given the right opportunity. We shall see. ๐Ÿ™‚

    And you learned a valuable lesson there. The corporate world is indeed a rat race, because there is never a break. It’s always more, more, more. The race never ends; people just die and are replaced with new people a.k.a. rats. And the wheel goes faster and faster…

    I’m looking forward to jumping off that wheel and taking it easy. Life is way too short!

    Thanks for stopping by and sharing the wisdom.

    Best wishes.

  46. RBD,

    I’d love to go on Shark Tank with my little pizza shop. I love that show, but I also know I’d get laughed off the stage. ๐Ÿ™‚

    And it’s good to see you’ve got your plan all put together. Sounds like you’re definitely on pace to indeed retire before dad. Keep up the great work!

    Cheers.

  47. Viisikymppisenรค elรคkkeelle,

    I’m glad to have you on board as a fellow dividend growth investor. ๐Ÿ™‚

    And I can’t wait to see your snowball really start gaining steam as it grows bigger and rolls faster. That’s when the fun really starts!

    Take care.

  48. Zol,

    We’re on the same page. I’d rather collect the hefty REIT dividends and leave rental properties for those more skilled and interested. If I’m leaving a little money on the table, then so be it. As long as I get to where I want to be (FI by 40) then that’s all that really matters.

    Best wishes.

  49. Kaizen77,

    Thanks for taking the time to post a comment. Appreciate your ongoing readership. ๐Ÿ™‚

    I’ve made purchases as small as ~$800 (SYY) when I first started, so I’m not against the idea. However, I’d try to limit it if possible. For instance, right now values are not abound, so I’d probably rather stick to saving up enough cash to really make a purchase with it. In a market filled with more opportunity it might make more sense to spread the purchases out a bit, especially if it takes you a while to save up that kind of capital. We’re all of different means, and as such capital allocations will be different. As long as your making the most out of your situation and on pace for your goals then that’s all that really matters. ๐Ÿ™‚

    Best regards.

  50. ValueJoe,

    Thanks for the kind words! Glad you enjoy the blog. I do stay quite busy here at Dividend Mantra, but it’s something I truly enjoy.

    I’ve written about index investing vs. dividend growth investing before, and you can find that article here:

    https://www.dividendmantra.com/2013/04/why-i-vastly-prefer-dividend-growth/

    Succinctly, while I think index investing is preferable for most people due to ease and diversification, dividend growth investing appears, at least to me, as far superior. There are benefits and drawbacks to both strategies. If time is the utmost concern, than index investing is probably best. I simply enjoy managing my portfolio, but I can definitely see how it would be a chore to others.

    Best regards!

  51. Dave Z,

    Thanks so much for stopping by and offering up the kind words. Comments like that make my day. Thank you! ๐Ÿ™‚

    Hope you continue to stop by and stay in touch.

    Cheers.

  52. SWAN,

    Ahh, Jets. I love the deep dish BBQ Chicken pizza with Sweet Baby Ray’s. Mmm, that’s some good stuff. Their pizza is a nice substitute for Buddy’s.

    And I’m definitely in favor of letting others out there work for me and send me a piece of the profit. That’s the name of the game. ๐Ÿ™‚

    Best wishes.

  53. Ryan,

    Thanks for stopping by! I’m happy to inspire others, because everyone that stops by, like yourself, inspires me. We have a great community here, and I’m happy to give back. ๐Ÿ™‚

    Best wishes!

  54. Ron,

    Although I started relatively young, I wish I had started way younger. For instance, if I had started when I was 20 I wouldn’t have wasted away an inheritance and I can only imagine how far ahead I’d be right now. But we live and learn, and I’ve certainly become a much better person because of my mistakes.

    The key is to give it 100% day in and day out moving forward.

    Take care!

  55. Chuck,

    I totally agree. Emotions are not based on theory, but occur in real time. As such, it’s hard to predict how one will fare in a major market correction. While I’m not looking forward to a major bear market per se, I am wondering how I’ll personally fare. It’ll be documented here, so we’ll see how I do!

    And I couldn’t agree more regarding entry points. I would never encourage overpaying for any securities, no matter how high-quality they may be.

    Cheers!

  56. itsme,

    Nice job focusing on the long term there and buying up shares on sale! I can imagine how difficult that is when everyone around you is screaming and going crazy. Nice job keeping your cool! ๐Ÿ™‚

    Best wishes.

  57. My wife and I went through the dot com crash and the 2008 crash. The first crash we did not focus on dividends and were physically ill when we lost over 40% of our portfolio. Almost thought about cashing everything out. However, we kept buying and I began to notice a trend. Looking at a plot of our portfolio value you could see a change in slope when the market began to increase again. I think this was due to all of the money we put in while share prices were low. In 2008 same kind of trend. Big drop, kept investing and the slope changed again.

    We’ve now completely settled on dividend growing equities. When I have doubts, I go back to JNJ’s investing page and look at the cost calculator. Turning $73000 into $7100000 with only dividends, time stock splits and reinvesting. Makes me feel confident that I’m on the right path.

    http://www.investor.jnj.com/calculator.cfm

  58. itsme,

    You’ve got a great story there. And all of your hard work and foresight is playing out now. Good for you!

    On a separate note, I believe you emailed me but I seem to have lost the email. Shoot me one back if you have time. It’s rare when I lose an email or don’t respond, so my apologies.

    Best wishes!

  59. I sold the last of my non-dividend-payers this month. Put the proceeds into….Visa. I couldn’t resist the cash flow, lack of debt or the 40% annual dividend growth. That and a ridiculously wide moat.

    Only non-dividend stock on my watchlist now is Berkshire.

  60. Hi x_markus_x,

    Would you mind sharing some names of German companies for DGI?

    I live in Switzerland and my own portfolio is a mix of US UK and Swiss DGI companies.

    Thank you!

    J-L

  61. Personally, I would need a higher expected return from Visa (or any payments company) due to the intense competition in the area. Between Mastercard, Amex, and countless startups in recent times, there is a lot to be worried about. However, they are widely used right now and have lots of room for growth in developing economies.

    I wish I knew more about it, but I see Visa as more of a growth stock (from an investment standpoint) than as a buy and hold forever type stock.

    I looked at recent history, and 40% dividend growth is nuts… in a great way!!

    In my opinion, of the traditional payment merchants, I would prefer Amex because it is valued much lower and sports a higher dividend.

    My greatest concern with Visa is the “wide moat”. All of the traditional payment companies included…

  62. That’s a good way of explaining your strategy, Jason. The dividends are the fruit, so to speak, not the vine. To answer your question: we do buy these companies, but as part of an overall index.

  63. Ravi,

    I agree with you. I think Visa is an outstanding investment, but for me at this moment it just doesn’t fulfill a lot of my entry criteria. However, I said the same thing when it was less than $100/share and I really regret it!

    And I also think American Express might make more sense for me. Better yield and valuation, while still investing in a similar company. However, it also has lending operations so it’s not exactly the same as Visa.

    I do have some concerns over the credit card companies because many retailers loathe the relationship, from what I’ve read, due to high fees. If a new technology came out that made it even easier and cheaper for retailers at POS it would be a big hit to Visa and the like. However, due to huge entrenched networks around the world I don’t see this happening very soon.

    Best wishes!

  64. DB40,

    Absolutely. My portfolio is a tree, and each position is a fruit-bearing branch. I want to pluck the fruit every month instead of cutting the branch piece by piece. ๐Ÿ™‚

    Thanks for stopping by!

    Best wishes.

  65. DM,

    I have been desperately searching the internet for help with a huge financial decision I need to make. I found your blog and cannot tear myself away from your educational information. If I could please get any piece of advice or where to turn I would appreciate it. I have taught for 27 years and have decided to step out of the classroom. I don’t have the years in my pension (married to a military member-many, many moves) nor am I close to retirement age, but at 52 years old, I am ready to make a change. I have roughly 81,000 in an ING 457 account. If I withdraw this account now, I will pay a 3% early withdrawal fee and then 20% for taxes. I can leave this in until I am 59 1/2, but I am not happy with the 0.85% fees I am paying. Do you have any suggestions on the best route to take with this money? I love that you do all of your money management on your own and would like to go that route if possible. I don’t trust the middleman.

    Thanks for your help!
    Mojo

  66. Not sure if I can answer exactly, but in order to get back to where you are at now, you would have to pay taxes + withdrawal fees of $18,630 immediately, leaving you with $62,370.

    With that $62k, you would need to earn ~30% in returns to just get back to where you were to begin with (18,630 / 62,370 = 29.87%). At a 7% annual return, it would take 4 years to just get back to even.

    The stock market’s avg return is probably 7%, but that means you would have to be fully invested as if you have a long time horizon (i.e. you may hit a downturn in 8 years and have to wait for it to normalize).

    Can you roll over the account to another brokerage? There’s no reason you can’t pick your own place. I know it’s easy for a 401k, but I’m not as familiar with 457 rules. Perhaps something to read into, since taking a 23% hit is RARELY a good idea.

  67. Mojo,

    Thanks for stopping by! And I’m glad you enjoy the blog and what I’m trying to put together here. ๐Ÿ™‚

    I would not recommend withdrawing your funds right now. The 23% you’d be paying is more than 23 years of fees, not factoring in the time value of money or compounding. You’re only 7.5 years away from normal retirement age, so this makes no sense for you.

    I would look into rolling it over into a IRA, if it’s eligible. At that point, you could manage it yourself and formulate a strategy that better aligns with your goals. Furthermore, I’d highly recommend setting up a Roth, and if you have the funds a taxable account as well. You’re off to a late start, but it sounds like you’re incredibly motivated and ready to do what’s necessary. From here, there’s a lot of hard work ahead, but if you can save a good chunk of your net income (at least 50%, but more is better) and start really allocating some serious capital you have a good shot at getting to where you want to go.

    I wish you luck! And I hope you stay in touch. ๐Ÿ™‚

    Best regards.

  68. Thank you, DM! I thought it would be best to leave it in, but worried that I might need the money. Thank you for your information. I am headed into a journey of less stress and healthier lifestyle, but not prepared like you. As I was waiting for a reply I looked at your media sight, and am more in awe of you. Best of luck in your journey!

  69. My rent is going up by $9/mo this year, but they are offering a $100 bonus (and free carpet cleaning) for signing a new lease. Back out the $100, and I effectively have to pay an extra $.67/mo (.1% increase). Ha! Seems like land lording wouldn’t be so hot in my area.

  70. Hi Jason,

    Thank you for writing such an information and inspirational blog; I’ve been lurking for a while now and this is my first post on any blog ever. And while I’ve been investing for a couple of years now, I’ve felt like I’ve been wandering along a road without much direction. Reading your blog has been like finally seeing a signpost displaying an awesome destination and inspiring me to start my own story.

    I agree with you that cashing in and starting a business would be too much work and risk. While I admire people who start their own companies and acknowledge that the rewards might be much higher; I personally am content knowing that each morning ~ 130,000 employees of KO are working hard to make a profit and return value to me as a shareholder.

    But what I did want to ask is how you view your online income; since last month it was higher than your dividend income and I imagine it’s like having your own company. Obviously, you’re being paid for doing something that you love and the income helps the roll the snowball along – but has it changed how you view early retirement since I can’t imagine you’d stop blogging after retiring?

    Keep up the great work!

  71. Hello JL,

    we don’t have that much DGI classics like in US or UK. German stocks don’t have the history of rising dividends every year because we do not have a “stock culture” here in Germany. Investing in stocks for most germans is “gambling and responsible for all the evil in the world”. ๐Ÿ™‚ But of course there are also several reliable dividend payers with an attractive yield.

    I am currently invested in:
    BASF (DE000BASF111) – worlds largest chemical company
    Munich RE (DE0008430026) – one of the largest re-insurance companies in the world, no dividend cut since 1969
    Freenet (DE000A0Z2ZZ5) – service provider for telecommunications

    I am also invested in E.On and Deutsche Telekom despite the recent cuts in dividends. For me it is a long term investment because I have very attractive entry levels but no recommendation for DGI at the moment. ๐Ÿ™‚

    Interesting as well are maybe (I don’t own yet but hopefully soon ๐Ÿ™‚ ):
    Drillisch (DE0005545503) – service provider for telecommunications
    Siemens (DE0007236101) – german version of GE
    Henkel (DE0006048432) – german version of Unilever and P&G, low yield but very attractive growth rate, for me it’s a buy after a crash
    BMW (DE0005190003) – no explanation needed, I think ๐Ÿ™‚
    Deutsche Post (DE0005552004) – one of the largest logistics companies in the world

    I am also fond of several Swiss stocks but still afraid of the withholding tax (Quellensteuer). But with Nestle, Swiss Re, Roche and so on there are some nice candidates.

    regards from Germany
    Markus

  72. CI,

    Thanks for the perspective there.

    My experience has largely been the same. For instance, my rent has gone up from $900/month to $925/month over the last three years – an increase of 2.8% over that time period. Obviously, I’m doing better in my income growth than my landlord is. And I’d like to keep it that way! ๐Ÿ™‚

    Hopefully, my landlord doesn’t read this blog.

    Best wishes!

  73. Dividend Life,

    Thanks for stopping by and dropping a comment. And I really appreciate the kind words. I’m here to inspire, so it’s always a huge compliment for me when people find themselves motivated and inspired by my actions and words.

    And that was exactly the point behind the article – would you rather have five or six employees working for you, or hundreds of thousands? The answer, I think, is quite obvious.

    The online income has been a surprise, but a wonderful one at that. I definitely didn’t see it coming; however, it’s most welcome. For me, this is a passion and a hobby. It’s not work for me in the traditional sense, but there is certainly a large time commitment. I guess I could liken it to someone who loves coin collecting and then stumbles upon an income source trading coins or speaking about coin collecting or something. Is it work for that person? Certainly, there’s some additional time now, but if it’s something they love doing anyhow, how do you classify it? I would LOVE to get to the point where all of my income was sourced from writing, and then at that point I still continue to save and invest my way to financial independence, but I think I’m a long way away from such a lifestyle. In the meanwhile, I’ll just continue to write and do my best to inspire, entertain, and educate, while also being inspired, entertained, and learning from you readers. ๐Ÿ™‚

    And by the way, glad to see you just started your own blog. I hope you find the same degree of satisfaction and passion from it as I do. And best of luck on your journey. From what I can see, you’ve already got a pretty solid net worth!

    Best regards.

  74. Companies that pay dividends are generally stable and almost always profitable business. Companies that raise dividends are stable, profitable, and growing businesses! Sounds like a winning strategy to me…and seeing the progress and success you’ve had these past few years, I’d say that you are living proof! Keep it up…you are an inspiration to many dividend investors out there, including me. ๐Ÿ™‚

  75. Im new to Dividend Investing, and I completly agree with your point of view, it is the sane way to go about the stock market. Its no coincidence that the most sucessful and consistent investors on the long run go for a quality proven business. I started investing a year ago, and I am long im KO, XOM, SU, MCD. I also invest a bit in peer to peer lending. However my main problem so far is the currency risk, because I consume in Eur, but just cant seem to find any Euro stock of superior quality that even compares to US companys. Their dividends are erratic. Nevertheless I enjoy reading your articles, its good to know someone that thinks like me about investing, there are so few of us out there.

  76. Frugal Family,

    Stable, profitable, and growing. I like the sound of that! ๐Ÿ™‚

    Thanks for the very kind words. While I’m inspiring others out there, those that stop by here and add to the community continually inspire me. It’s a wonderful, supportive circle.

    Cheers!

  77. Nuno,

    There was a comment earlier in this thread where another reader really gave a nice listing of high-quality dividend stocks available to Europeans. While I agree your choices are more limited than mine, the key is to maximize the potential of what you have available. For instance, most Northern European countries have wonderful social programs and a very high quality of life. Where you lack access to some of our capitalistic opportunities, you make up for it in less hours at the office and what not. Take advantage of your surroundings and you’ll do fine.

    I save so much and invest aggressively because I live in a society that rewards that. If I were in a different society I would find the inherent advantages and take advantage of them.

    Best regards!

  78. Thanks for taking the time to highlight your journey here. A few comments and questions: With 105 Dividend Arstcts, it appears on the face, pick 50 companies that you like, buy in at the lowest possible transactional cost — and sit back. After all, they’ve raised their dividends years consistently for years. And while I would have loved to buy 2, 4, 5, 10 — even 20 years ago, I didn’t have the $$$ or the sense. While the market MAY go down (it will) or up (it will) your buying the dividend increase PERCENTAGE over inflation, regardless of when you buy. Am I missing something here??

    My dilemma: I have a small mount of money ($200k), and I need to put it to work now. I can wait, and hope for another 2008 opportunity, but that seems foolish. Where can you park funds to be productive while you wait? And this raises a tangential, related question: as for generally waiting until you have $1400 to $3000 before buying, to keep transactional costs low, amortized over 5,10, or 15 years, that ‘1x trading cost’ seems low compared to mutual funds that charge year after yer. It seems negligible. Where do you park your holding funds to keep your powder dry so to speak?

  79. Jason, with owning those stocks you are a partial owner of those companies and thus an entrepreneur already! So, why opening a pizza shop, when you already own a business like Coca Cola, JNJ and others ๐Ÿ™‚ ?

  80. Great article and great website! I’m in the process of building out a quality earnings/dividend portfolio myself. It’s at roughly $200k right now in 15 positions with an average yield of only around 3% (no reits). Question, do you DRIP all your dividends or do you accumulate cash for more active stock selection?

    -Wes

  81. Not sure if you watch Shark Tank (I imagine you would at least know about it, one of the few shows on TV worth the time), but Kevin O’ Leary was on CNBC the other day and explained why he only buys dividend paying stocks. http://www.nbcnews.com/video/cnbc/54897474#54897474

    The part with him talking is only the first minute, definitely worth watching. Great story about his mother.

    Spencer

  82. DG,

    I wouldn’t recommend just buying 50 companies and sitting back. Companies change all the time, and so one must always monitor their holdings and react accordingly. I don’t sell often, but you can read about some of my sales over the years. Occasionally, pruning a dividend branch is necessary to make the tree stronger. Furthermore, it’s difficult to just go out and buy 50 companies in one shot. It’s taken me a little over four years to get to the point where I’m at now; it’s been a long, hard journey full of a lot of hard work. And I’m still not to 50 companies quite yet.

    As for your question regarding capital parking, I simply park mine in my brokerage cash account. I usually don’t have thousands of dollars just sitting around for months. Typically, I get paid one large commission check toward the beginning of the month. I then transfer over much of that capital to my brokerage account and either buy right then and there, or I will pick my opportunities as the month drags on. But we’re talking about 2-3 weeks at most, so I’m not trying to earn blockbuster returns on this cash. I could do better by sweeping it back and forth from a MMA, I suppose, but I just don’t find it worth the trouble. Your experience may vary from mine.

    Of course, I’m in a different position from you. I’m not sitting on $200k, which, by the way, is a wonderful position to be in! I’d recommend strongly considering your asset allocation and where you want to be over the long haul. If it were me, I’d feel better about deploying that capital slowly. Others would recommend you get your asset allocation correct right away and so you’d be buying equities, bonds, and whatever else you eventually want to hold. If I were deploying slowly I would be buying short-term Treasuries or CDs with any capital I know I’m not deploying right away.

    Just my thoughts! Best of luck. You’re in a great spot! ๐Ÿ™‚

    Best wishes.

  83. Martin,

    That’s exactly my point. ๐Ÿ™‚

    Why bother going through all of the work to open some small, fledgling business, when I could just as well be a part-owner in a few dozen of the highest-quality companies in the world? I’d rather let hundreds of thousands of employees employed by the likes of Coca-Cola, Aflac, and the like work for me rather than work my butt off.

    Thanks for stopping by!

    Best regards.

  84. Wes,

    Congrats on a very nice portfolio there! You’re producing ~$6,000 in totally passive income that is likely going to rise at a rate faster than inflation over the long haul. That’s something to be proud of and excited about! ๐Ÿ™‚

    As far as your question regarding dividend reinvestment is concerned, I just very recently wrote an article about this:

    https://www.dividendmantra.com/2014/03/selective-dividend-reinvestment-vs-drip/

    I hope that helps.

    Best wishes!

  85. Spencer,

    I love Shark Tank and I look forward to watching every Friday night! ๐Ÿ™‚

    And I actually watched that clip. I actually seen it at work, as we have a television in the break room and I usually tune it to CNBC for background noise. I seen it live when it occurred.

    I also shared that video with readers in one of my recent articles:

    https://www.dividendmantra.com/2014/04/weekend-reading-april-12-2014/

    But thanks for reminding me of it. ๐Ÿ™‚

    Cheers.

  86. Jason,

    Haha well I guess I was a little late to the party with that one. I can imagine the smile on your face when you saw it. Which actually makes me wonder (and i’m sorry if you have talked about this before), but what do your co workers think of your site and how open you are? Do they talk to you about it on a regular basis? and also, is it awkward to be that transparent about your life with people you see every day? I mean, the internet at least offers some sort of anonymity, me being in Arizona means I’m not gonna bump into you in the grocery store any time soon.

    Sorry for all the questions, just curious I guess.

    Spencer

  87. Danke sehr Markus! I will have a serious look at each of the companies you mentioned.

    Some Swiss stocks have no 35% witholding tax because dividends are paid from reserve. I guess it is similar whether you are located in Switzerland or abroad. Two stocks come to my mind if you want to have a look:

    ABB (CH0012221716) and Zรผrich insurance (CH0011075394)

    Of course, no guarantee that dividends will be paid from the reserve but it is common practice for the two above.

    Best,

    J-L

  88. J-L,

    bitte sehr. ๐Ÿ™‚ I will check out these companies as well. I read in a German forum that it is not that difficult to get back the Swiss withholding tax. On the contrary, it should be quite easy compared to France, Spain, Italy and so on, even if these countries are in the EU and Switzerland is not. It will take around 5 months and the request can be send in German. So I guess the fear of the withholding tax should not prevent me from investing. ๐Ÿ™‚

    regards und einen schรถnen Abend ๐Ÿ™‚
    Markus

    P.S.: I also found the following article about 15 german stocks with rising dividends. Maybe you will also find some inspiration there.

    http://www.wiwo.de/finanzen/boerse/anlagestrategie-die-verlaesslichsten-dividendenaktien/9493450.html#image

  89. Spencer,

    You know it’s really funny. Even though my co-workers are aware of what I’m trying to do and the success I’ve had so far I haven’t run into one yet that has any interest in any of this. Most of them state that they admire my conviction, but also have no desire to follow in my footsteps. To each their own, I suppose. Actually, I should take that back. One co-worker did approach me a year or so ago and we had lunch at McDonald’s (I’m a shareholder after all!) and we discussed some strategies. I offered him some of my knowledge and in return he offered to teach me tennis; I’ve always had a desire to learn how to play, and he’s quite good. However, it seems that neither of us have taken the other’s path seriously: I’m no better a tennis player then I was before his lessons (I’m too busy to train often), and he’s no further ahead in building wealth. Such is life.

    Best wishes!

  90. Hi Dividend mantra, is it best to reinvest dividends or have dividends accumulate in your cash/money mkt acct. Thanks.

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