During your working years, you get paid for your expertise. When your working years end, you need to find investments that pay you for waking up in the morning. Typically, the most effective way to get paid to own your investments in retirement is to allocate a large part of your holdings to fixed income and high quality dividends. The stock market can be a money making machine for those who are on the winning side of it. But as we have seen too often, the market does not always reward investors. So, how do you get on the winning side and stay there?
There is a misconception that successful stock market investors know how to pick winners in the short run–that they somehow know exactly when to buy or sell at just the right times. This is simply not true. Some of the richest investors in America are not market timers. Peter Lynch and Warren Buffett, for example, are two of the most successful investors of all time. Neither of them placed value on perfect timing. Both of them placed value on selecting companies that had a major competitive advantage leading to exceptional profits, dominant market share, and in many cases, the payment of dividends as a reward for holding their shares.
Dividend investors have multiple ways of making money and they do not have to predict which company will rise the fastest in the next ninety days. Instead, they (or their investment managers) take the time to identify companies that are truly making money in necessary industries, and sharing their profits with share holders (dividends).
Once they have identified this type of valuable company, they take another step and buy only those companies that increase their dividends every year and have done so for not less than ten years in a row or longer.
Smart dividend investors don’t wait for crashes to start their portfolios, they start right away, get their money working, and keep reinvesting dividends right through crashes.
In fact smart dividend investors learn to favor down markets. When they buy only stocks that keep increasing their dividends every year, and keep reinvesting those dividends, the simple math of winning with dividends takes over.
A dividend growth strategy This time tested strategy not only protects you but benefits you when the market falls: your steadily rising dividends keep buying more shares of quality companies at bargain prices. You end up with more shares.
In that sense, you are building MORE wealth at bargain prices. But if you wait for a crash to start before you invest, you will never time it right. The smart investors advice: Get in the game and stay in the game with a clearly defined strategy in a financial bucket dedicated to steady growth over time. It makes sense.
Advice: Keep your fixed income bucket separate and paying you enough income so that you don’t have to dip into your dividends until later.
If you want, you can add to your dividend positions with outside money during or right after a crash but the idea is to put your boat in the water with quality dividend growers and let those growing dividends do their job– buying more and more shares over time—with the long term goal of doubling or tripling the amount of shares you own.
Consider Warren Buffett’s purchase of Coca Cola shares in 1988. He sunk a billion dollars into the company. Today, after splits and steady increases in the dividend of his steadily increasing numbers of shares, Coca Cola willingly and without strain pays Berkshire Hathaway over five hundred million dollars every year, and RISING!. His yield on cost is about fifty percent ANNUALLY! It was less than five percent when he bought the shares.
Remember, a dividend GROWTH strategy can work in your favor during down markets. In fact it is a great strategy because you are constantly buying on the dips, which is what every textbook on investing tells you to do. Only no work is involved.
As the stock price falls, the dividend yield goes up because the cash dividend is a larger percentage of the purchase price of each share. Those higher yields keep buying quality shares at bargain prices, automatically and without emotion. At some point the dividend yield becomes so high on quality companies, that institutional investors with excess liquidity often sweep into the market, buying up the shares and driving up the prices once again. You are putting the cycles to work in your favor.
The Black Diamond Dividend Strategy is a disciplined Dividend Growth strategy. The portfolio buys only those stocks which have increased their dividends every single year for a minimum of ten consecutive years or longer. We have a current dividend yield of approximately 3.6% with every stock in the portfolio continuing to grow the dividend. Our goal is a very strong yield on cost basis, with steady accumulation of shares through good times and bad. Come and see me in Scottsdale.