Tuesday, February 25, 2014

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 many of the same people that complain about taking a beating in the market, are the same ones who will ridicule those of us 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:

Exxon Mobil Corp. (XOM), formed through the merger of Exxon and Mobil in late 1999, is the world's largest publicly owned integrated oil company. The company has paid a cash dividend to shareholders every year since 1882 and has increased its dividend payments for 31 consecutive years.
Price Discount: 2.91% | Yield: 2.7%

Cracker Barrel Old Country Store (CBRL) develops and operates the Cracker Barrel Old Country Store restaurant and retail concept in the United States. The company has paid a cash dividend to shareholders every year since 1972 and has increased its dividend payments for 39 consecutive years.
Price Discount: 3.13% | Yield: 3.1%

The Coca-Cola Company (KO) is the world's largest soft drink company, KO also has a sizable fruit juice business. The company has paid a cash dividend to shareholders every year since 1893 and has increased its dividend payments for 52 consecutive years.
Price Discount: 5.08% | Yield: 3.3%

Occidental Petroleum Corporation (OXY) is of the largest oil and gas companies in the U.S., OXY has global exploration and production operations. Its subsidiary, OxyChem, is one of the largest U.S. merchant marketers of chlorine and caustic soda. The company has paid a cash dividend to shareholders every year since 1975 and has increased its dividend payments for 11 consecutive years.
Price Discount: 7.42% | Yield: 3.0%

Target Corp. (TGT) operates nearly 1,800 Target, SuperTarget and CityTarget general merchandise stores across the U.S. and about 125 stores in Canada. The company has paid a cash dividend to shareholders every year since 1965 and has increased its dividend payments for 46 consecutive years.
Price Discount: 15.17% | Yield: 3.1%

Microsoft (MSFT), the world's largest software company, develops PC software, including the Windows operating system and the Office application suite. The company has paid a cash dividend to shareholders every year since 2003 and has increased its dividend payments for 12 consecutive years.
Price Discount: 17.24% | Yield: 2.9%

Chevron Corporation (CVX) is a global integrated oil company (formerly ChevronTexaco) has interests in exploration, production, refining and marketing, and petrochemicals. The company has paid a cash dividend to shareholders every year since 1912 and has increased its dividend payments for 26 consecutive years.
Price Discount: 19.59% | Yield: 3.5%

Digital Realty Trust, Inc. (DLR), a real estate investment trust (REIT), that owns, acquires, repositions and manages technology-related real estate. The company has paid a cash dividend to shareholders every year since 2005 and has increased its dividend payments for 10 consecutive years.
Price Discount: 28.96% | Yield: 6.2%

Helmerich & Payne, Inc. (HP) is the holding company for Helmerich & Payne International Drilling Company, an international drilling contractor. The company has paid a cash dividend to shareholders every year since 2005 and has increased its dividend payments for 10 consecutive years.
Price Discount: 50.08% | Yield: 2.6%

Having starting in my 40's, I will enjoy a substantial income when I finally retire. However, if I knew in my 20's or 30's what I know now about dividend growth stocks, I would been retired for many years. 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 XOM, KO, OXY, MSFT, CVX in my Dividend Growth Portfolio, and long DLR in my High-Yield portfolio. See a list of all my dividend growth holdings here.

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- A Disciplined Approach To Dividend Stocks

(Photo Credit)


Tags: [XOM] [CBRL] [KO] [OXY] [TGT] [MSFT] [CVX] [DLR] [HP]

2 comments:

  1. This is unfortunately true.
    "If only knew this when I was younger"

    Now I´m 40 years old - and only since last year I have understood the power of dividend growth investing!
    I wish someone has told me that 5 or 10 years ago...

    But ok, now I´ll put a lot of money into the portfolio as fast as I can.
    I belive I can win the race! :-)

    Best regards
    D-S

    ReplyDelete
  2. Great advice in this article. I think everyone (no matter when they start) always regrets not starting sooner! I was fortunate enough to catch on to dividend growth investing and start while still in my 20's but I always wish I would have started with my first part time job in high school!

    I think you hit the nail on the head. The key is buying the best companies in the world and having the patience for the investment to pay off over the long term.

    ReplyDelete

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