Why Dividend Growth Investment Is My Strategy

I should say that I was in a special mood when writing the blog post about DGI and if it was right for me.

When choosing a strategy that one will focus on the next 10 – 50 years, I think it´s only natural to be critical. Let’s see what I figured out.

14 days ago I was contemplating if I should follow the Dividend Growth Strategy or just do indexing. So, the point about this blog is the show others what´s going on inside my head. The blog will also work as a memoir when I get older. As long as I write it down, talk with people, I can improve or learn from it.

Another important part about the blog is that I want to be honest so that other people can learn from it. Since it´s anonymous, I don´t need to think about losing character (the investing world and it´s society is a place where uncertainty is looked upon with contempt).

It´s not that I am perform bad, or that my stocks are moving one way or another. I´m making money and the stocks are performing well, but I don´t really care about that. It´s short term. I want to know my strategy by heart.

However, I found out that DGI is right for me. Here’s why

I´ve used the last two weeks to think about DGI, how I should do it, if I´m doing it right, and pros and cons. After some great conversations with other DGI investors, I´ve realized these things:

It´s much harder starting with the DGI strategy than continuing the strategy.

That´s because in the beginning, you should find the best companies that you want to hold on to for a very long time. After a while, once the portfolio is stable and you have your companies, it´s easier.

You don´t need to look for more companies, stay updated on stupid financial news or care about noise. The companies you have chosen (if you have chosen the right ones, later on this topic), will manage best in their industry in any storm. Therefor it´s normal to be doubtful in the beginning.

Dividend Growth Investment works. Just got to stay focused and think about the long-term goal. It’s hard in the start, but easier once the dividend income rolls in.

I´ve tried to use a strategy that makes things more complicated than necessary. I´ve talked with a lot of great investors, read a lot of books and tried to come up with a strategy that compiles all this information into one bulletproof strategy.

But, I came to realise that what I´m doing is something like trying to make a great dinner by making a meal that consist of different parts.  Some from the french cuisine, the Italian cuisine and the Arabic cuisine. Yes, all of these are great dishes alone, but trying to mix them isn´t smart.

You end up with a dish that tastes a bit like everything, and it´s unclear what you just ate.

Therefor I have to make some changes to the portfolio. DGI is the main focus, and the portfolio should reflect that.

What now?

I have always been aware of these companies, and the terms, but I haven´t really thought about it in the best way.

This is how you should think about the DGI Strategy:

Make a list of the HIGHEST quality stocks you can find (30 should be enough) that are likely to still be around in 40 years time.

Build these positions over the next 40 years by the dollar cost averaging method.

Never sell. Reinvest all dividends.

Tune out ALL noise (Especially Trump Tweets!) as it is only short-term.

DO NOT BE SIDETRACKED.

When you retire you will have a very nice income stream from dividends, backed by a very, very nice capital position.

Concentrate on building the income stream.

Remember prices will go up & down, but over 40 years they are only going one way, and that is UP! 

When dollar cost averaging and choosing a company, invest as follows

Add on dips or add after quarterly earnings if the company has beaten earnings and raised guidance going forward. 

Don’t waste much time following the value of your portfolio, stock prices or listening to financial news. Use your time reading investment books (carefully!)

So, throughout the next couple of years, just wait until these companies are undervalued or fairy valued, and then add them to your portfolio.

All of the following information can be found at http://www.simplysafedividends.com/ (a wonderful site)

Which sector should you focused on?

Dividend Aristocrats

Dividend Kings

How about size? How many positions? Let´s use some information from SSD:

Now What?

Now that we know all this, let´s just relax and think for a second.

How does my portfolio look like?

Well, it´s nothing like this. I am heavily under represented in the two best performing sectors.

I´ll change this very soon. The game is on.

I´ll continue with REITs, because I love REITs. They are such a great income machine, but there will be a change.

Part 2 of this blog post theme (DGI, why it´s right for me) will focus on the issues about being a DGI, and what we should look for, because now it´s decided!

Do you have any other company that should be included? Feel free to comment!

See you,

Stockles

10 comments

  1. Thanks for reinforcing the DGI way for me. I still wonder why so many question the validity of this long term strategy for building wealth/income streams.

    1. I suppose it´s just how humans work. We can´t rap our minds around things that are too far away. It becomes unmanageable, so instead we focus on what´s going on right now, which plays in our hands (us DGIs). It´s also something about choosing a stratety on something that you have little experience with. Books are great, but like in almost everything, theory isn´t enough. One need to experience it yourself, and you can´t really experience DGI before it´s been at least 5 – 10 years. I suppose that´s why.

  2. Stockles,

    This is a great article and reinforces a lot of what I believe. The one point I would make though is that while you are invested in companies, it’s good to periodically check to make sure that the reason you bought the company still applies. For example, if you want to invest in only Dividend Aristocrats, make sure the company is still a Dividend Aristocrat. HCP, for example, lost its Aristocrat status recently because it was forced to cut its dividends.

    Otherwise, I think you make great points in your post.
    Data Lore recently posted…April 2017 Major Update: Dividend Portfolio Freedom FundMy Profile

    1. Hi Data Lore,

      Very true. It’s easu to get fooled here, so it’s a very important thing to keep in mind. Luckely I get automatically updates on all of my stocks regarding dividend changes (positve and negative), but it’s a very good point. Thanks for commenting!

  3. This article hit home for me. I’m glad you found what works for you and a strategy you can buy into. I love the part about how you transitioned from a complicated strategy to a simpler dividend investing theme. There isn’t anything crazy, complex, or insane about dividend investing. The name of the game is to pick great dividend growth stocks.

    Best of luck and I’m looking forward to following your journey!

    Bert

    1. Hi Bert!

      I´m glad that you liked the post. I try to be as honest as I can be, because it´s important to share emotions emotions and thougts when investing. That´s why I love our small community. I really appriciate your comment.

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