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.
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(Photo Credit)
Tags: [ABT] [CINF] [CL] [CLX] [KMB] [SBSI] [VIVO] [WEYS]