After the financial crisis, many "experts" questioned if stocks should be the main portion of your investment portfolio. Some looked to bonds after their meteoric rise as interest rates fell. While others foresaw an apocalypse, with gold as your only safe place for your investment dollars. In the end, you could find support for virtually anything you wanted to do. With the benefit of hindsight, we can see that stocks have done quite well since 2009.
Investing With Conviction
If you invest without conviction, it is a recipe for disaster. Time has shown that emotion is an investor's worse enemy. To paraphrase Warren Buffett, emotion will make you greedy when you should be fearful and fearful when you should be greedy. So how do you overcome this?An asset allocation model was designed to help investors overcome their natural instinct of doing the wrong thing. The basic formula for success in the market is buy low and sell high. An asset allocation model helps you achieve this goal. When a segment declines, you have two choices to get your allocation back in line, buy more of what declined (buy low) or sell what didn't (sell high). But to do this, and go against your emotions, requires a belief in your asset allocation and your investing process.
Herein lies the problem. Many investors don't have a process, an allocation and thus, have no conviction. They read an article where something has been very successful, then follow it until it loses money, at which point they sell and start the process again. This continues until they become frustrated and pull out of the market. They will later reenter the market when it appears that 'everyone is making money.'
A Dividend Growth Stock Conviction
My conviction is dividend growth stocks. I have researched and found it to be successful over long periods of time and in many types of markets. Also, dividend growth stocks provide you positive feedback each time one pays or raises its dividend.Below are several bellwether stocks that are found in most hard-core dividend growth stock portfolios, and have increased their dividends for decades:
3M Co. (MMM) provides enhanced product functionality in electronics, health care, industrial, consumer, office, telecommunications, safety & security and other markets via coatings, sealants, adhesives and other chemical additives. The company has paid a cash dividend to shareholders every year since 1916 and has increased its dividend payments for 60 consecutive years. Yield: 2.3%
Johnson & Johnson (JNJ) is a leader in the pharmaceutical, medical device, and consumer products industries. The company has paid a cash dividend to shareholders every year since 1944 and has increased its dividend payments for 55 consecutive years. Yield: 2.5%
The Procter & Gamble Company (PG) is a leading consumer products company that markets household and personal care products in more than 180 countries. The company has paid a cash dividend to shareholders every year since 1891 and has increased its dividend payments for 60 consecutive years. Yield: 3.5%
The Coca-Cola Company (KO) is the world's largest soft drink company, 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 55 consecutive years. Yield: 3.5%
AT&T Inc. (T) provides telephone and broadband service and holds full ownership of AT&T Mobility. The company has paid a cash dividend to shareholders every year since 1984 and has increased its dividend payments for 35 consecutive years. Yield: 5.4%
I am so confident in my process that I gleefully welcome downturns as buying opportunities. Let the others flee to whatever the pundits are recommending this week, a scared market provides cheaper stocks. To be a long-term bear in U.S. equities, one must believe the underlying companies are flawed. And if that is the case, which I do not believe, then the U.S. and the world economies have bigger problems than the equity markets.
Full Disclosure: Long MMM, JNJ, PG, KO, T in my Dividend Growth Stocks Portfolio. See a list of all my Dividend Growth Portfolio holdings here.
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