On December 11th, 2003 I bought my first one Dividend stock. Granted, my motives weren’t pure, and I had no idea what I was doing either. Before that, I was always an aggressive growth investor. I’ve learned a lot in my investment years. However, I would rate these 5 lessons as the most important:
1. Success can be dangerous at times
I invested a sizable amount of money in tech stocks in the late 1990s through early 2000. Back then, almost everyone could make money on the stock market. The formula was simple: buy a tech company, wait a moment for it to double, sell it, and use the proceeds to buy two tech companies – loop to the beginning.
My wife and I began planning a home in 1999 that was heavily funded by the profits I had made in the market. When she found out I was still in the market, she demanded that I get out immediately and not risk losing her dream home. In 2000, I reluctantly got off near the top of the tech run-up and grumbled all the way, “How dare she tell me how to invest?” I am the expert. ‘ Needless to say, she was right, very right. As I watched the tech bubble burst and my previous stock holdings collapse, I thought I was one of the happier people when I got out than I did.
2. The best lessons in life are taught with adversity
When the tech bubble burst, it didn’t hurt me. I lived in a paid house and I began to rationalize the past. “Surely I would have thought the bubble would burst and get out before too much damage was done,” I told myself.
Still a little grim from the near-death investing incident, I’ve retired into mutual funds. Then I switched to dividend stocks, I had read that stocks that paid dividends were more stable, you could sleep at night, etc., etc.
Not all dividend stocks are created equal. As with many new dividend investors, my primary focus when choosing a dividend stock has been yield – the higher the better. Unfortunately, that worked quite well for a while. I had built a portfolio of Master Limited Partnerships (MLP), REITs, subprimes and highly aggressive investments with double-digit returns.
With my newfound dividend investing strategy, I doubled my previous success, at least I thought. Some of the investments began to fall in price, then cut their dividends. I discovered that tracking the foundation and filing taxes on MLPs were big problems. I became a net seller. It looked like I would be able to make gross changes before the losses got too big. I still held onto a few sub-prime mortgage companies – and had an opportunity to bring them to zero. That was painful. Lesson learned.
3. Dividend investments are about future returns, not current returns
I’ve been lucky enough to accidentally buy some good dividend stocks and hold them long enough to find out the “secret” of dividend investing. It doesn’t necessarily start with a high-yielding investment, but ends with a high-yielding investment. It usually does this by buying investments with a moderate yield, a history of rising dividends, and the time it takes to do their job.
4. Successful dividend investments are about substance, not style
In my aggressively growing years, I’ve equated dividend investing with old people and the disabled. It just wasn’t my style. Time and experience have taught me that there are no style points in building a successful investment portfolio. In the end, only the long-term performance (substance) of your portfolio counts, not how you got there.
5. You cannot beat the herd by following the herd
I’ve settled down pretty much over the years. With clearly defined asset allocations, I have set boundaries and guidelines to ensure I do not expose my portfolio to undue risk, and I use a careful process when choosing investments.
My first dividend stock bought was First Industrial Realty Trust Inc. (FR). At the time, it paid a quarterly dividend of $ 0.685 per share. The dividend rose to $ 0.72 per share in December 2007. Then, in December 2008, the company cut its quarterly dividend to $ 0.25 per share and again to $ 0.085 per share the following quarter. I have learned many lessons from this share. One of them is quality if you are looking for an investment that can generate growing income.
Below are my 5 longest-held dividend growth stocks:
Consolidated Edison, Inc. (ED) is an electricity and gas utility holding company serving parts of New York, New Jersey, and Pennsylvania. The company has paid a cash dividend to shareholders every year since 1885 and has increased its dividend payments for 48 consecutive years.
– First purchase: 1/21/2005 @ $ 43.52
– Lifetime return: 8.5%
– Current return: 4.2%
The Coca Cola company (KO) is the world’s largest producer of soft drinks and 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 59 consecutive years.
– First purchase: 7/12/2007 @ $ 26.25
– Lifetime return: 9.9%
– Current return: 3.1%
National Retail Properties, Inc. (NNN) is an equity real estate investment trust that invests in high quality, detached retail properties with long term net leases with major retail tenants. The company has paid a cash dividend to shareholders every year since 1985 and has increased its dividend payments for 30 consecutive years.
– First purchase: 9/15/2005 @ $ 20.06
– Lifetime return: 11.9%
– Current return: 4.5%
Realty Income Corporation (O) is an equity real estate investment trust that owns commercial retail real estate in the United States. The company has paid a cash dividend to shareholders every year since 1994 and has increased its dividend payments for 23 consecutive years.
– First purchase: 05/05/2006 @ $ 22.37
– Lifetime return: 11.0%
– Current return: 4.3%
Wal-Mart Stores, Inc. (WMT) is the largest retailer in the world, Wal-Mart operates a chain of over 10,000 discount department stores, wholesale clubs, supermarkets and super centers. The company has paid a cash dividend to shareholders every year since 1973 and has increased its dividend payments for 46 consecutive years.
– First purchase: 7/19/2007 @ $ 48.83
– Lifetime return: 13.3%
– Current return: 1.6%
The first four stocks were bought for their returns. I’ve held them over the years as they continued to increase their dividends and otherwise met my criteria for a dividend growth stock. Ironically, it was several bank stocks that taught me the value of a good dividend growth strategy. Unfortunately, most of them cut their dividends or merged during the financial crisis.
Travel is a great investment so learn to enjoy the ride!
Full disclosure: Long ED, KO, NNN, O, WMT in my dividend growth stock portfolio.
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