Wednesday, November 10, 2010

* If Only I Had Known About These Dividend Stocks...

At one time or another, we all have thought, 'If only knew this when I was younger.' I purchased my first dividend stock for income in 2003. Like many newly converted income investors, I was chasing yield. I quickly built a portfolio consisting of Real Estate Investment Trusts (REITs), Master Limited Partnerships (MLPs) and high yield, high risk stocks. My portfolio’s yield was consistently in the low to mid-teens. Eventually, after some unnecessary losses, I learned there was a better way to invest in dividend stocks. Here is what I learned...

Dividend Investing is About Future Yield, Not Current Yield

I was fortunate enough to accidentally buy some good dividend stocks and hold them long enough to figure out the "secret" of dividend investing. It is not necessarily starting with a high-yield investment, but ending up with a high-yield investment. This usually occurs by buying investments with a moderate yield, a history of growing dividends and letting time do its job.

Too often we take a short-term approach, to our long-term detriment. There is a reason we don't see infomercials selling dividend growth investment strategies. For those looking to get rich now, a disciplined approach to investing that focuses on the long-term simply isn't appealing.

Successful Dividend Investing is About Substance, Not Style

In my aggressive growth investing years, I equated dividend investing with old folks and the inept. That was simply not my style. Time and experience have taught me there are no style points awarded in building a winning investment portfolio. In the end the long-term performance (substance) of your portfolio is all that ultimately matters, not how you got there.

I find it interesting that the same people that complain about taking a beating in the market, are the same ones who will ridicule those that follow a dividend growth strategy. For me, I enjoy having a growing income and portfolio, while not having to follow the market's every move.

You Can't Beat the Herd, by Following the Herd

Through the years I have settled down quite a bit. Using well-defined investment allocations, I have set boundaries and guidelines to ensure I don't over expose my portfolio to undue risk and I employ a meticulous process when selecting investments.

Let the talking heads start a stampede to buy a stock after it has seen a significant run up. For me, I prefer to take a contrarian approach and buy stocks when they are cheaper and their yields are higher. My focus is on quality dividend growth stocks with a long record of consecutive dividend increases, such as:

Current Price Yrs of
Company Yield Discount Growth
Weyco Group (WEYS) 2.53% 1.5% 29
Kimberly-Clark (KMB) 4.20% 1.7% 38
Meridian (VIVO) 3.18% 7.7% 19
Abbott Labs (ABT) 3.41% 9.0% 38
Colgate (CL) 2.62% 15.4% 47
Cincinnati Fin. (CINF) 5.23% 16.4% 50
Clorox Company (CLX) 3.49% 20.3% 35
Southside Banc. (SBSI) 4.22% 35.4% 12

Starting in my 40's, I will enjoy substantial investing success. However, if I knew in my 20's or 30's what I know now about dividend growth stocks, I would likely be retired now. The compounding power of growing dividends is tremendous. Start early, at some point time will change from your friend to your enemy.

Full Disclosure: Long KMB, ABT, CL, CINF, CLX. See a list of all my income holdings here.

Related Posts
- 10 Dividend Stocks With Above Target Returns
- The 2010 Dividend Aristocrats
- Protecting Your Dollars With Foreign Currency
- 10 Stocks With 100+ Years of Dividend Payments
- Increasing Dividend Yield Part II: REITs
(Photo Credit)


Tags: [ABT] [CINF] [CL] [CLX] [KMB] [SBSI] [VIVO] [WEYS]

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