Dividend Growth Investors Are Winning!

Charlie_Sheen_2012Charlie Sheen is famous for saying “Winning!”, but I wonder if he wasn’t referring to being a dividend growth investor.

You see, no matter what mood Mr. Market is in, and no matter what he throws at me, I’m technically winning.

If the market’s mood sours and stocks tank, then the stocks I’m purchasing with new capital become cheaper. So the future dividends I’m purchasing with today’s dollars are larger.

Cheaper stock prices mean higher yield, and as such when prices on stocks take a dive my dividend income is actually being built faster. Although some people might claim I’ve been fortunate to start investing as this massive bull market started really taking off in early 2010, the truth is I wish prices were the same as they were back then. Party like it’s 2010?

See, a depressive Mr. Market surely puts me in a great mood! 

However, what if Mr. Market is exuberant? He certainly appears to be in wonderful spirit these days.

Well, I still can’t lose. And I’ll tell you why.

Higher Stock Prices Naturally Make Us Feel Better

Higher stock prices means it’s psychologically easier to keep playing the game. After all, I’m only human, and it certainly reinforces keeping to a strategy when you’re seeing your net worth climb by leaps and bounds every single month.

And this is basically what I’ve experienced since I started investing in high-quality equities back in early 2010. The market’s almost unchecked move north has meant that my stakes in these businesses are worth more than ever. Due to this, I’m all smiles.

I don’t know if Charlie Sheen is winning any more, but I know I am. And I’ll show you how this works in real-life.

Building A Position Over Time And Using Pullbacks As Buying Opportunities

For instance, Philip Morris International Inc. (PM) is one of my largest equity investments right now. With 115 shares of this tobacco giant currently valued at $9,863.55, it’s my second largest investment by dollar value – second only to my first-ever $10,000 investment in Johnson & Johnson (JNJ).

And this investment was built slowly over time with five separate purchases of stock in the company: My first purchase was in January 2011 for 35 shares at $56.22 per share; the second purchase was in October 2011 for 25 shares at $62.51 per share; the third purchase was in January 2012 for 20 shares at $74.43 per share; the fourth purchase was in December 2012 for 20 shares at $84.67 per share; the final purchase was in January 2014 for 15 shares at $79.14 per share.

So you can see I kept buying as the share price rose, watching my net worth rise as Mr. Market continued to value my equity stake in the company higher and higher. Until all of the sudden Mr. Market didn’t.

My purchase in December 2012 at just under $85 per share seemed like a can’t-lose investment as shares in PM continued to rise – peaking at over $96 per share in April 2013. And then the slow descent started. Shares finally rested at $75.28 in early February 2014.

Watching shares fall from that $96 price tag all the way down to below $80 per share in early 2014 might weaken the knees of some investors. After all, I had owned 100 shares at the time, and so that means my investment’s value fell by more than $1,500 in the course of less than a year.

But I realized I couldn’t lose. 

This decimation in the share price was simply an opportunity for me.

Ignore Mr. Market’s Emotions – Focus On Core Business Growth And Dividend Growth

Philip Morris was paying $0.85 per share in dividends to investors in April 2013. At $96 per share that equates to a yield of 3.54% And, of course, this dividend was at this level only after the company continued to raise it like clockwork in the fall since being spun-off from Altria Group Inc. (MO) in 2008. My first purchase of shares in January 2011 were paying $0.64 quarterly per share in dividends, so you can see how lucrative this investment was becoming for me. Obviously, it’s easy to keep buying in when the dividend is being increased, and such is the life of a dividend growth investor. And management was able to keep increasing the dividend due to growth in core operations of the business. Earnings per share rose from $3.92 in 2010 when I first started researching the company to $5.26 in 2013 – a compound annual growth rate of 10.3% over this period of four years.

So after the fall from $96 per share to below $80 I decided to use this opportunity to increase my stake in the company. And I did so at a great time, because the future dividend income I was buying with current capital was larger. And because Philip Morris is committed to growing their dividend, they did so again in the fall of 2013 – from $0.85 quarterly per share to $0.94 quarterly per share. That means the yield on my new purchase of shares in the company rose to 4.75%. So while I was looking at unrealized paper losses that meant nothing unless I sold shares in the company (why would I do that?) my future dividend income was rising significantly because I was reinvesting back into the company at a much more advantageous price, and, therefore, at a more advantageous yield. And the larger yield meant my future dividend income was larger, and financial independence – where I exceed my expenses via totally passive dividend income – was that much closer.

A Cheaper Stock Price Means I Can Buy More Future Dividend Income With Today’s Available Capital

By purchasing 15 shares at $79.14 per share in January 2014, I was investing $1,187.10 in the company. And that $1,187.10 was buying me $56.40 in future annual dividend income at the quarterly $0.94 per share dividend the company was paying.

If I would have instead bought more shares in April 2013 when shares were peaking at $96, I would have only been able to purchase 12 whole shares paying out $0.85 per share in quarterly dividends – for a total of $40.80 in future annual dividend income. And $16 per year might not seem like much until you’re repeating this over and over and over again.

Of course, because Philip Morris is fundamentally fine as a company and Mr. Market has a history of being irrationally emotional, shares in the company are now priced at $85.77 each as of this writing. As such, I’m winning yet again! The investment I made with the company in early 2014 as shares were plummeting is now up 7.7% on paper, before factoring in dividends. And I’ve already received a $14.10 dividend from these shares in April. If the share price rises from here, my investment value goes up and my psyche feels pretty good. However, if the share price falls significantly from here, it just makes it that much easier to increase my stake in the company as I try to pick up shares on the cheap.

It’s important to note here that it’s imperative to focus on the fundamentals of a company. Because Philip Morris is doing fine as a company, continues to raise the dividend, the dividend is appropriately covered, the future earnings growth looks strong, and the company has a pipeline of new products coming out to ensure that future growth, I’m perfectly fine increasing my stake. And because my stake in the company wasn’t overwhelmingly large at the time, there was room in my portfolio for me to up my exposure.

You’re Winning!

Shares on sale? Shopping time! Shares expensive? Business is good, but I’ll buy shares elsewhere. All shares in every company expensive? Unlikely, but business must be really good and/or Mr. Market is extremely euphoric. I’ll collect my rising dividend income with a smile and renew my shopping list. No matter what situation I might find myself in, as a dividend growth investor I’m winning.

So when we’re talking about high-quality companies that have a history of regularly paying dividends and reliably raising those payouts, it’s important to remember to focus on the fundamentals and less the share price, because you’re winning either way. When Mr. Market irrationally slashes the prices on these stocks, it’s time to go shopping for discounts because the future dividend income you can buy with today’s dollars is larger. And how is that losing?

And when your investment thesis turns out to be correct and the value of your equity stake rises over time, don’t fret. Your net worth is increasing, and it’s easy to psychologically ride that high as you continue to invest regularly into other, more attractively valued selections which will, of course, raise your future dividend income even faster.

Charlie Sheen may have won headlines screaming out “Winning!”, but I think it’s us dividend growth investors that focus on valuation and fundamentals over stock prices that are really the ones who are winning. I know I certainly feel like a winner as I’m going to collect more than $5,000 in completely passive dividend income this year. It’s not the millions Charlie was paid from his work on popular sitcoms, but it’s a nice start!

Full Disclosure: Long PM, MO, and JNJ.

How about you? Do you feel like you’re winning? 

Thanks for reading.

Photo Credit: Joella Marano via Wikimedia Commons/Creative Commons License

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63 Comments

  1. Agreed. It’s been great to see values pop this year. Between a new job in fall 2013 with a substantial pay raise, and a lower increase in living costs due to a move to a solo apartment, I’m saving more than ever each month. THEN, the market jumps 10%+ overall from October through May, and my net worth is just skyrocketing.

    Last may, I had net assets of ~$90k and as of today it’s ~$149k. I know I contributed around $4k/mo on average, so that’s over $10k in gains!

    I know it feels good when times are rosy, but I do sort of wish the Dow was back around 15k (12k would be great, I’d be borrowing money like crazy to invest! 🙂

    I suppose as a disciplined investor, the best path to success is to invest consistently, since it’s a fool’s errand to try and time the market. Sometimes, I lose sight of how much more important it is to save/invest regularly than it is to make crazy returns on those investments.

    I’ll be sad when the next slowdown occurs, but at least the benefit will be better share prices!

  2. Hi DM,

    I have been checking your website for a couple of months now and I really love it

    You are trully an inspiration.
    I really hope you start thinking seriously about writing a book I will be one the first to buy it.

    Regarding my investment philosophy I always have been an indexer at heart.

    I am currently invested in VTI, VXUS and BSV rebalancing once a year

    A small chunk of my portfolio I use for what I call my gambling portfolio long BBRY, AMD, VHC, SODA, CRDS, DRAD

    After going thru you website I am also tempted to start investing as well in dividend paying stocks although I am getting around 600 $ quaterly from my ETF I feel it is not enough.

    Do you think it is wise to start a small position in a couple of blue chips companies(KO, PM, CVX, KMI, MCD…) or are the prices too high right now.

    Thanks and regards

  3. Very well written article.. It definitely shows how you “WIN” when the market goes up via increase in net worth, when the market goes down gives better buying opportunities with higher yields and third way is raising dividends .

    That in a nutshell, is dividend growth investing, when you look at fundamentals to tell you that the company is in good position.

  4. Thanks for the article. I agree completely, you cannot lose in this situaiton. If I invested once on strong financials, why not take the plunge when the same stock has a little bit of a pull back? One of the things I have have to work on in investing is the very subject of this article. Sometimes I focus too much on trying to find a new stock for my portfolio when there are perfectly good opportunities to increase my positions in stocks I already own. Sadly, I did not re-up my position in PM before the bottom out in 2014 and I think I missed out on a great opportunity to increase my income. Sometimes your own worst enemy is yourself. Luckily it was a great learning experience for me going forward.

    Best of luck over the next couple of months. Lanny, the other Diplomat, has shared your story with me and I have been following along for most of the year. You were one of the main reasons/insirations for us to take the jump and share our story. I am looking forward to continuing to follow you path towards independence.

    -Bert, the Other Dividend Diplomat

  5. Another very well-written post! My favorite phrase was “I don’t know if Charlie Sheen is winning any more, but I know I am.”

    I feel the same way! April was my lowest payout month and even that at $100 was able to cover my Internet and utilities costs! I’m not quite to the point where my dividends are “snowballing,” like yours are, but I see that day in the near future!

    Keep up the good writing and best of luck in the move to Michigan. I’m in Wisconsin (family in Grand Rapids) and the weather is just starting to get nice. Summer, though short in the Midwest, really can’t be beat!

    Scott

  6. Great analysis. You win either way in the markets with a long hold dividend growth stock strategy. When markets are down its time to top up while collecting dividends !!! Markets up just hold on and watch your net worth grow and also collect dividends!!!

  7. Lou Mannheim:Man looks in the abyss, there’s nothing staring back at him. At that moment, man finds his character. And that is what keeps him out of the abyss.

    Good luck to your non “real job” life. Try not to get discouraged if it does not workout the first time.

  8. Awesome post Dividend Mantra!

    I absolutely love your attitude towards investing, and the rock solid plan you’ve developed. I feel like you’ve achieved the ‘holy grail’ of investing – being calm, happy and relaxed no matter the circumstances! “Share going up, down, sideways? Who cares! My plan is continuing to unfold beautifully, and I’m grateful for any circumstances the Market wants to throw at me!”. All investors should aspire to get to this place.

    And good luck with the current transition in your life – if you keep the same great attitude you have towards your investments, it’s all going to be a breeze for you!

    Cheers,

    Jason

  9. Ravi,

    Man, it’s good to be you! Sounds like everything is coming together nicely for you, and the increased savings will surely come in handy if/when we see a broader correction. 🙂

    And you’re right about consistency. I’ve written before that consistency is the only real advantage I have, and I try to take advantage of it as much as possible. Great job sticking to the plan.

    Best wishes.

  10. Those are great picks, Zamboni. In my opinion, KMI is the best buy right now, but I don’t follow PM.

  11. Zamboni,

    Thanks so much for the very kind words! I’ve been hearing more and more support for a book, and that’s definitely something I’d love to do one day. I think I could put together something that people would really enjoy. It’s a dream of mine. 🙂

    And nothing wrong with index investing. I prefer my strategy because I enjoy it, but it’s also not for everyone.

    As far as starting out today, I’d look at KMI, PM, and ARCP to start. You’re getting some diversification there with three totally different industries, and you’re also looking at a very attractive yield/growth profile there.

    Hope you stay in touch!

    Cheers.

  12. IP,

    Absolutely. If you’re focusing on the fundamentals and buying high-quality companies when the market gives you opportunities you really can’t lose. In the end, you’re getting paid passive income and regularly getting raises. Life could be a lot worse! 🙂

    Best regards.

  13. Bert,

    Hey, thanks for stopping by.

    I hear you on wanting to expand the portfolio. I’m guilty of that sometimes too, but I try to minimize that desire to look elsewhere. Often, the best picks are the ones you’ve already thoroughly researched and feel comfortable in. If you were okay to buy at $X, then certainly less than $X is even better!

    And I’m so glad you guys decided to share your story. This is a wonderful community, and I’ve found a lot of support by sharing what I’m doing. And the inspiration I give off is just reciprocation of all the inspiration you guys give me. Financial independence is indeed possible for us mortal folk, and I’m going to prove it! 🙂

    Stay in touch.

    Best wishes.

  14. Scott,

    Thanks! Glad you enjoyed it. 🙂

    And you’ve got a great attitude there. Even back when I was receiving $40/month (not that long ago) I realized that was covering my internet. That was one bill I no longer had to worry about. It’s a slow start, but it will start to snowball for you faster than you might think. And then it’s two bills, three bills, and four bills covered. Of course, you then want to cut expenses even more to have more capital to invest, and boom! It’s a really fun process.

    Thanks for the well wishes. I haven’t experienced a Midwestern summer in many years now, and I’m really looking forward to it. Fall is really nice as well. Apple orchards and festivals abound! And GR is a great area. I’ve never been to Wisconsin, but I hear good things about Milwaukee and Madison.

    Take care!

  15. Yeah, I think by and large we have a win-win situation. These days I’m personally feeling relieved that DLR’s price is going up a bit. Normally I wouldn’t care about the share price, but I am just glad that the market has finally decided to stop bullying that stock. The dividends keep rolling in just fine, so I’m happy for that as well.

    These days I pay less attention to the market. I check prices of the stocks in my portfolio to monitor drastic raises or drops in the share prices, which sometimes warrant special attention. A 2-3% change in the share price doesn’t make me blink at all.

    I hope things are going well with your new life!

  16. Chuck,

    Thanks for that! 🙂

    I’m not easily discouraged, but this change will be a test of my character. Although, I have little to lose. My worst-case scenario of going back to work is most everyone else’s best-case scenario. But if I’m able to write and actually make a living from it I’ll be incredibly happy. I’m going to give it my best, and in the end that’s all I can really do. I know no matter what I’ll have no regrets.

    Cheers!

  17. Good article Jason. I’ve been wrestling with this question myself for the last year. I’ve been reading “market’s gonna correct big time” articles for the last 3 years. It almost scared me away from investing… almost. Read a good qoute once that basically said “Don’t spend 80% of your time waiting for a 20% correction (or something to that affect)”.

    Things are definitely getting frothy and i have a really hard time finding value but its still there. And i have to remind myself that sometimes “fairly valued” is just that… fair. If i’m investing and dollar cost averaging into the market, especially focusing on dividend income which is nowhere near as volatile as price. Im pretty happy and sleep well at night. I think people got a little spoiled in the 90’s and forgot that bear markets do infact occur.

    http://fc.standardandpoors.com/sites/client/generic/axa/axa4/Article.vm?topic=5991&siteContent=8116

  18. You better keep us updated on any new writing adventures!

    For instance i must have missed that you publish on dailytrade alert. I have no idea how your click through / advertising income works but if I see one of your articles pop up i certainly click it (even if i’ve read it).

  19. Jason,

    The holy grail, baby! I’m not sure if I’ve achieved it or not, but I don’t really get emotional over price quotes. The market is a crazy place, and it’ll eat you alive if you let it. I just try to focus on my (tiny!) ownership stakes in high-quality companies and collect my portion of the profits. Of course, we’ll see how zen I am when the next major bear market hits! 🙂

    I think one limitation I’m going to have going forward is less income. It’s easy to stay calm when you have thousands of dollars every month to invest. At that point you can maneuver around the market and stem the bleeding. I’m not going to have that ability here, at least not for a while. So that could put a dent in my mood because a major pullback would leave me wanting more capital to invest and pick up cheaper shares. I wouldn’t feel “panicked” per se, but I’d certainly be anxious to get capital to work.

    Thanks again for the very kind words! And it’s good to hear from another Jason. 🙂

    Best regards.

  20. Spoonman,

    DLR would have been another great example to use for this article. I was going to use that stock, but I’ve had more purchases with PM that were a bit more linear, so it made it easier to illustrate my point. However, DLR has been a fun little roller coaster too! And I don’t know why, but I was just never worried about them. Of course, that last dividend increase certainly helped me stay on board. 🙂

    And things are going wonderfully! I couldn’t be in a better position. I’m not financially independent yet, but I’m pretty much living how I would if I were right now. And going home is only going to make things better in that regard. So I’m really happy.

    Thanks for all the support! I’m looking forward to hearing of your adventures later this year.

    Cheers.

  21. Asset-Grinder,

    Absolutely, my friend. Couldn’t have said it better myself. Collect rising income either way, and just buy more when the market is giving you the opportunities. Scale back when things are expensive and bask in the glory of your rising wealth. 🙂

    Cheers.

  22. Zol,

    That’s a great quote there. Worrying about the stock market is a total waste of time, in my opinion. I do my fair share of worrying, but it’s about product launches, regulation, profit cycles, waning demand, and stuff like that in regards to the companies I own a slice of. If I roll into a Target store and it’s dead, that worries me. Target’s stock price going up or down by 2% or whatever has no affect on me.

    And I hear you on valuations. I’m an optimistic guy, but even I’m having a hard time making the stretch right now. Of course, it couldn’t come at a better time for me because I’m a bit light on capital right now due to all the changes in my life. Good fortune continues to find me, although I still wish I had more capital to invest with! 🙂

    Thanks for sharing.

    Take care.

  23. Zol,

    Absolutely!

    It’s not like me to advertise things or broadcast where I’m writing, but I should do that more. I guess I’m just a modest guy when it comes to stuff like that. But if you guys enjoy what I have to say, then certainly it might be nice to read those words elsewhere. I’ve been writing for DTA since the beginning of the year, and it’s been great. I write one article per week where I discuss what stocks go ex-dividend next week and then I analyze one company in particular to see if it’s a buy, sell, or hold. It’s a different format for me, but it’s a fantastic opportunity to spread my wings a bit.

    And any new opportunities or sites I write for I’ll definitely let you know! 🙂

    Best wishes.

  24. When i talk to coworkers, relatives, ect i feel like i’m the only bozo in the room who is actually HAPPY when the market pulls back. Then again i’m probably the only one with an actual retirement plan and who can read a quarterly statement.

    Infact, i will often get mocked for being such a tightwad from 3 younger siblings. They thought i was rich because i was making a decent salary and the thought of not blowing it was totally foreign to them. Often get the “Dad didn’t start saving until he was in his 40’s and he is doing just fine.”. Nevermind i’m EXTREMELY doubtful his spending habits can be funded by what he has saved going into retirement (you know, since i can do math). I gave up a long time ago and just smile and know that i will always need yardwork/plowing when my knees dont work anymore. I have hope for one of them though, a few years working for the man instead of partying and he doesnt like it all that much, go figure 🙂

    I wish i had Jason’s fortitude to be as frugal as he is. But i also don’t have as an aggressive as of a retirement date. Getting there tho and the older i get the more i realize faster is better ha!

  25. Jason,
    You pretty much nailed the joys of dividend investing. It’s so much easier emotionally to take an up market, but there is a satisfaction in getting a good sale price, too.

    BTW, after reading all of the comments on CLX, I have initiated a starting position. And another of my holdings (NOV) just announced an increase in the quarterly dividend from $0.26 to $0.46. Not bad when you consider they increased from $0.13 last year. The yield in now 2.25%, and oil field equipment is not a bad place to put a few dollars.

  26. Hi Zamboni,

    I wouldn’t go for KMI. I know it is a high yielding stock but their payout ratio is well over 100%. I prefer to buy stocks that might not be high yielding today but are fast dividend growers. One of my fav at this point in time is AFL. Nice PE, low payout ratio and a 10+ years of annual dividend growth of about 16%. That’s what it’s about. Dividend growth and not necessarily current dividend yield. The other stock you mention are all fine, just look at the current PE’s.

  27. DLR, my first triple down choice. I’m not dissatisfied. I find it’s actually better (for me psychologically) to have a larger portfolio. Having just 3 stocks i was biting my fingernails. The target (30-50) may be too many to track but it also intrinsically add’s in a fudge factor for my own possible stupidity.

    Maybe with more time i’ll pare down. But just actively monitoring over multiple years has provided me much needed real world learning experience. It’s different when its your own portfolio instead of a fake one if you know what i mean.

  28. College in Madison and currently working/living in Milwaukee. If you ever make it here let me know and we can grab a drink. I know a few good places!

  29. KeithX,

    So glad to have you on board as a fellow CLX shareholder! I don’t think it’s a steal or anything, but one could do worse than investing in a solid business at a fair price. 🙂

    But as I was pointing out in this post, if CLX’s share price falls while the fundamentals remain strong then that’s simply an opportunity. Now, if CLX is unable to grow the dividend because profitability retreats then that’s a problem. Share price really matters not unless you’re using it your advantage.

    Best wishes!

  30. DivHut,

    AFL is another fine pick. Their dividend growth has been a little lower as of late, but I think that’s a great insurer for the long term. I think it’s a very solid buy at today’s price, although I’m already fully allocated to the duck. 🙂

    However, KMI’s payout ratio isn’t over 100%. Like REITs, you don’t use EPS to determine profitability for MLPs due to large depreciation and amortization expenses that are non-cash. Be careful when using a P/E ratio across all assets because the E (EPS) isn’t always applicable.

    Cheers!

  31. Zol,

    30-50 stocks might be a lot to track with a full-time job sucking up your resources. Trust me, I know. However, I always looked ahead for what I might be doing once I’m financially independent. And not only would I have plenty of time to track a portfolio like that, but I’d actually enjoy it and gladly take the time necessary to do so. Besides, tracking 30-50 stocks when most of them are blue chips isn’t really all that difficult anyhow. Now, if it’s 30 or so start ups or micro-caps that’s another story.

    And as you mention, having a larger portfolio mitigates mistakes. And mistakes will be made! 🙂

    Cheers.

  32. Excellent article once again, nothing brings a smile more than seeing the dividends roll on like clockwork. What do you think of JNJ at over $100/share? This stock is certainly on my buy list but I am wary about purchasing it near its all-time highs. I am hoping for a pullback of 10% at least but this may easily keep going up.

  33. Yeah I totally hear you on the frustration of not having capital to invest when you really want to! I get anxious just waiting for my next pay check so I can add to my (already fully invested) portfolio straight away! But hopefully if a major drop does happen, you’ll be able to refocus all your energies on all the other great things going on in your life, especially with your move back home, and just let your portfolio keep chugging along in the background!

  34. Thank god i’m not there yet with that number of positions to monitor. Someday maybe. But like you said, level of necessary research is pretty low when they are high quality divi’s. Short of the portfolio page i don’t skim articles on a daily basis for those spots. It’s a “oh it dipped 4%, well thats interesting… should i add more?” scenario.

    I have 1 or 2 growth positions and they are on my front page daily email portal. They get a lot more attention but even then that’s the gambling money. If they go to zero, it was shame on me not anyone else who might have recommended them.

  35. Winston,

    I’m totally with you. I feel ecstatic whenever I log into my brokerage account and see fresh dividends deposited. A $50 dividend impacts me emotionally way more than a $1,000 swing in account value. Funny how that works. I guess that’s because the dividend is a permanent change in wealth because it then gets reinvested and purchases new equity – equity that can’t be taken away by Mr. Market’s emotions.

    As far as JNJ goes, I think it’s fairly valued here. And you could do worse than buying a high-quality company like JNJ at a fair price. I’m already fully allocated to the business as it’s my largest position, but if I wasn’t I’d definitely take a look here for exposure to healthcare.

    Best wishes!

  36. Jason,

    I’m on the same exact page. I used to get paid one big commission check every month, and it was hell just waiting to collect that one big payout so I could invest it as soon as possible. That’s been my M.O. for years. It’ll be tough to do things a bit different for the time being, but I’ll be back at it as soon as possible. 🙂

    And thanks for the perspective there. It’ll be important for me over the next couple months to focus less on my disappointment in my inability to accumulate assets as fast as my past rate, and instead focus more on the new time I have with family and friends. Thanks for that!! 🙂

    And let’s hope our portfolios both keep chugging along!

    Best wishes.

  37. DM – I know most dividend growth investors rarely sell their holdings, but what is your thoughts of cashing in some of the gains and reinvesting into a different stock or sector and effectively rebalance or otherwise reduce your exposure in a particular section? After all, you can always purchase more down the road if the stock price drops.

  38. Totally agree with you DM. Looking for some cheap stocks, I found on things the world will run short of: APD and PX (helium), COP, STO and SORL (Oil) BF.A, (Agave or Tequila) , HSY (Cocoa) MON (Fertilizers), LMT, AWK, (Water).

    Thanks for reading.

  39. Speaking of winning… I want to see you win, Jason. As you make this bold career leap, I will be sure to visit your site more often as well as click on the ads of your sponsors since your online income is ultimately dependent upon such. Happiness is key and I want to see it return to your life in fullness. In a similar note, I recently turned down a $75K job for a $30K job precisely because the latter will surely lead to much better work-life balance and lower stress. I’m perfectly fine to work a few years longer before FI if it means the journey TO FI is more enjoyable. Wishing you all the best…

    Josh

  40. Makes a lot of sense if you think the stock is way overvalued. As a dividend investor, selling a stock to take gains and reinvest, with the possibility of buying in again if/when the stock becomes more reasonable is sort of like “shorting” the stock.

    I’m going through a similar situation with AAPL, which I bought in 2013 ~$440, and it is now dancing around $600. As tempting as it is to take some gains, I think I’ll roll the dice and see how things play out over the next few years. I am confident that they will be able to create new hardware that people want, and they have the finances to pay me to wait.

    I would phrase a question to you: For your portfolio overall, do you feel you can accurately identify overpriced stocks and efficiently reallocate them to better values consistently? If yes, good luck!

    The most important question is whether the business has changed, for better or worse. That should really be your primary indicator to sell into something else.

  41. AFFJ,

    I don’t do that often because I’ve traditionally been able to save so much every month that I can “outmaneuver” the market – picking up on deals when stocks are discounted and rebalancing elsewhere with fresh capital. So I’ve always believed in building a balanced portfolio, but using buying, rather than selling, to do it. However, I recently sold LO and picked up CLX to reduce risk and exposure in tobacco and pick up exposure in a more stable business. This is unlike me, but I did it because I don’t know how much fresh capital I’m going to have for the next few months.

    So I would say I don’t believe in selling to rebalance or try to lock in gains for the most part. I would say be very choosy about how you do that because it’s incredibly difficult to time the market and get in and out appropriately. Furthermore, it’s tough enough just to value stocks for the long haul, and trying to then add in determining when a stock is too expensive and allocating that capital elsewhere just adds to the difficulty scale, not to mention adding in commission fees and potentially taxes. It’s not necessary at all to buy and sell your way up the ladder because buying and holding high-quality businesses and reinvesting the dividends already works so well. And so if it’s not necessary, why bother? Why add in the time needed to perform these actions when buying and holding is much easier and less time-consuming – not to mention that you might be actually causing detriment to your own portfolio?

    I choose the path of less resistance because I already know it works and I’ll be able to accomplish my goals with it.

    Best wishes!

  42. Josh,

    Thank you so much for that! Very kind of you. And I appreciate the support! I don’t actively hawk a bunch of products here, so the passive ads are how I make my living. 🙂

    And congrats to you for turning down the $75k job for the $30k job for a better work/life balance! That’s such a fantastic choice, yet so fundamentally misunderstood by society at large. It’s just all about the money for most people and they don’t even really take the time to factor in what they’re trading in for that money. I easily could have continued working at my dealership job for the $50k or so per year, but the time and happiness I was giving up wasn’t worth it anymore. Sure, it sucks to not be able to accumulate assets at such a prodigious rate, but I’m so much happier now. It’s a choice I’d make 100 times out of 100 opportunities. Good for you for seeing the light!

    wishing you all the best as well. Enjoy the better balance while still collecting a fantastic income when compared to what most people around the world earn. 🙂

    Best wishes!

  43. Ravi,

    “I would phrase a question to you: For your portfolio overall, do you feel you can accurately identify overpriced stocks and efficiently reallocate them to better values consistently? If yes, good luck!”

    Absolutely. It’s incredibly difficult to do that on a regular basis, and that’s why everyone treats Warren Buffett like a rock star. Besides, it’s not really necessary to do that to achieve financial independence or even great wealth in life. Jumping in and out of stocks will surely get your broker rich, but will you benefit? I’ve heard that a portfolio is like a bar of soap – the less you handle it, the more of it you’ll have. And I agree with that. The world is littered with people who thought they could trade in and out better than the next guy and ended up broke, but how often do you run into someone who buys and holds blue chip stocks for decades on end while reinvesting dividends and they end up broke at the end?

    Cheers.

  44. Its all true, everything you’ve written, think I may well have found my spiritual home when I first stumbled across your blog last week. When I talk (Not for long.) to friends and relatives about investing you can see their eyes start to roll, I can clear a room in 5 minutes talking about investing, 2 minutes when I mention how inflation errodes capital values 🙂

    I too buy on dips, bought a few more Barclays this morning for the divi account, still a bit of a dog but its been good to me in both the trading account and the divi account, I’m winding down on the trading side of things now and am hopeful that Barclays will come good in a couple of years time, should make a nice YOC divi.

  45. travelswithmymotorbike,

    So glad to have you on board as a reader. I really share my inner thoughts and emotions with you guys, so to have some appreciation and common ground there means a lot to me! 🙂

    And I hear you about having an audience. My own family pretty much never stops by here, even after I was featured in national media like USA Today. This stuff is completely boring for them. But it’s all good. We have each other here!

    I wish you the best with moving from a trading strategy to a more buy-and-hold strategy where you collect and reinvest dividends. I’m confident you’ll find the latter more profitable with less work over the long term.

    Take care!

  46. Thanks for another thought-provoking article. I’m still working on differentiating price and valuation as well as focussing on the general concept of investing in a business rather than looking at stock price alone. The process of educating myself about DGI is fun and rewarding. I appreciate your sharing your thoughts and experiences. It makes the concepts more tangible.

    I wonder if you would share the actual mechanics of your orders (e.g., limit, market, stop-limit) and how you set a stop or limit, if you use them. I tend to use limit orders set somewhat by a “target” yield number.

  47. DM,

    Good chance I will be in Flint-Lansing area morning of June 27. Would love to buy you coffee if you’ve got the time to meet at local McDonald’s or wherever.

    I’m one of your readers who has suggested you write a book, and I have written books myself. We could talk about that or whatever is of mutual interest including dividend investing.

    You have my email address, so we can take this off line if that’s better.

    Jim

  48. Greg,

    Separating valuation from price is something we all struggle with. There’s always a sense of self-doubt that creeps in when you value a stock, purchase it, and then the market starts to hammer it. It’s just human nature. The key, however, is to refrain from acting on those emotions.

    As far as orders go, I’m a simple guy. I use market orders only. The amount of money we’re talking with on my purchases ($1,500 or so a pop) isn’t enough to where a 0.05% or so change in price is really going to make a big difference for me. I generally am analyzing a company or two at any given time based on current fundamentals and price. Often, the price action doesn’t change that much and I buy when capital comes my way. However, sometimes the price does change quite quickly (like GIS did after the Heinz deal was announced) and I’m priced out quickly. In those cases, I just look for opportunities elsewhere.

    Best regards.

  49. Jim,

    Sure, that sounds great! I’ll be living in Durand for the time being, which is right off of I-69 between Flint and Lansing. And I don’t have anything planned for that day, so I should be free.

    I’ll send you an email here and we’ll make plans for a time and place. There is a local McDonald’s right off of the freeway, so that might work nicely. Being a shareholder, I always prefer meeting there when possible. I’m weird like that. 🙂

    Look forward to meeting up!!

    Best wishes.

  50. Hi DM! I have read your blog for a couple of months and appreciate your writing. I invest mainly in Swedish large-cap stocks but I also have some US. Keep up the good work and thanks for sharing your thoughts and vision.

  51. Hello DM,

    Nice article.

    I live here in Brazil the market is down, bear market since 3 consecutive years, a general market goes low only when the results of the companies are not like Mr. Market expects.

    As the quotations accompanying profit stock prices fall.

    You just forgot to mention that the dividends come from earnings and profits fall dividends also fall

    With the bear market if you buy cheaper receive less dividends too.

    sorry my bad english

  52. I own McDonald’s too, so we’ll consider it a joint investment but the coffee is on me!

    Jim

  53. Sensim,

    Thanks for stopping by!

    And I appreciate your readership. I’m not real familiar with the Swedish stock market, but I know your economy over there is pretty strong and quality of life very high. Sounds like a great place to be. 🙂

    Stay in touch.

    Take care!

  54. Damon,

    No worried with the English. I just appreciate you stopping by.

    Well, in the article I did talk about focusing on fundamentals. If a company’s profit isn’t able to support the dividend, then the dividend will likely be cut. However, I don’t believe a bear market in itself means you’ll be receiving less dividends. That all depends on the individual companies in question. Most of the companies I’m currently invested in continued to raise their dividends through the recent financial crisis, although banks in particular had it rough.

    Cheers!

  55. Your site has become a regular stop for me, I am really impressed by your effort in writing, advice and discipline! Very inspiring. Yes! Sweden is indeed a very very nice country to live in. Great (almost) free healthcare, free university, fantastic nature and a good stock market with many interesting companies to follow – to name just a few reasons to pick Sweden as a place to live. Stockholm is a beautiful capital, like Venice in the north 😉

  56. Sensim,

    Sweden sounds really wonderful. I’ve often thought the Nordic region there with Norway, Finland, and Sweden is probably the best place in the world to live in. You have really great economies, low crime, natural resources, and very cheap healthcare. Not much to dislike. I envy you, but I hope to be able to travel later in my life and see Stockholm. I hear Oslo is also really nice.

    Cheers!

  57. That is Stockholm! My place, I love it! It was an interesting film, and they also mentioned some of the challenges we are facing at the end.

  58. Andrew,

    I don’t typically keep much cash in reserve. I usually have around $5k or so in cash that serves as both an emergency fund as well as cash I can dip into if the market really turns south. However, most of the time I’m what I would consider fully invested – meaning, all the cash I have available for investing is invested.

    I’d rather let time and compounding work at maximum capability than try to time the market. 🙂

    Cheers!

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