I have spent most of my adult life in commission sales. The one thing I learned in sales, that carried over to investing, was that you must change tactics as market conditions change.
I can't tell you how many changes I went through in sales regarding products, economy, company failures, etc. When you are on commission, you learn to adapt very quickly.
The one thing I have been consistent on, even when I was having success trading, was that I always said you had to consider, "The Condition of the Market."
We have had two serious bear markets in the past 10 years. The tech crash of 2001 and the financial crash of 2008/09. The latter being the worst since the depression years.
I came to the conclusion that I didn't want to lose years of profits, although I gave some back last year. I don't want to risk another bear crash at a time when I need the income most.
As I was researching various investing styles, I noticed that high grade companies, paying decent dividends, not only raised their earnings per share and sales during those bear periods, but they raised their dividends as well. Even though their share price suffered, they raised dividends. That told me they would bounce back, they weren't going out of business.
The adjustment I have made in my thinking is that I no longer am concerned with share prices or the value of the portfolio on a daily, weekly or monthly basis. My concern is whether the dividends are rising. If dividends are rising, price will usually follow, especially in times when others flee to safety. You just have to show patience.
The dividends received are buying more stocks that pay dividends. And those dividends will be used to buy other stocks that pay dividends.
I read somewhere that the market has shown a 9% annualized return since inception. I think that number is correct, may be off slightly. However, a good portion of that annualized return has been dividends.
I do take some dividends and buy speculative stocks. I took some dividends a year ago and bought AA. I have a profit in excess of 100% on that position. Today I will sell half of that position and buy MO and DEO. MO yielding 6.90%, DEO yielding 4.25%.
I'm also using some dividends to build a position in C. But most of my focus is high grade, high yielding dividend stocks.
If a company has a yield of less than 3%, I insure that they have a good history of increasing dividends. That yield will increase on my original position as the company continues to raise dividends down the road. Patience.
With regard to the condition of the market, I think dividends put a floor under share price. If the market pulls back, most high grade, high yield stocks have low betas. They normally don't pull back as far as growth stocks. And while you wait for price to come back, you get paid. Then you take that money and buy other shares while the market is down.
I try to keep it simple. My success measure is whether dividend income is growing monthly. |
