1. Success Can Sometimes be Dangerous
In the late 1990's into early 2000 I was pouring a significant amount of money into tech stocks. At that time most anyone one could make money in the stock market. The formula was easy: buy a tech company, wait a short period of time for it to double, sell it and buy two tech companies with the proceeds - loop to beginning.
My wife and I started planning to build a house in 1999, heavily funded by the profits I had made in the market. When she learned I was still in the market, she demanded I get out immediately and not risk losing her dream house. I begrudgingly got out in 2000 near the top of the tech run up, grumbling 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 former stock holdings collapse, I considered myself to be one of the more fortunate people by getting out when I did.
2. Life's Best Lessons are Taught With Adversity
When the tech bubble burst it caused me no pain. I was living in a paid for house, and began to rationalize the past. 'Certainly, I would have figured out the bubble was about to burst and would have got out before too much damage was done,' I told myself.
Still a little somber from the near-death investing incident, I eased back into investing with mutual funds. Then I moved 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 the same. Like many new dividend investors, my primary focus when selecting a dividend stock was yield - the higher the better. Unfortunately, this worked quite well for a while. I had build a portfolio of master limited partnerships (MLP), REITs, sub-primes and highly aggressive investments with double-digit yields.
With my new found dividend investing strategy, I was duplicating my prior success, or so I thought. A few of the investments started to decline in price, then they cut their dividend. I discovered that tracking the basis and filing taxes on MLPs were major hassles. I became a net seller. It looked like I was going to be able to change coarse before the losses got too bad. I still held on to a few sub-prime mortgages companies - and had the opportunity to ride them to zero. That was painful. Lesson learned.
3. 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.
4. Successful Dividend Investing is About Substance, Not Style
In my aggressive growth 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.
5. 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.
My first dividend stock purchased was First Industrial Realty Trust Inc. (FR). At the time it was paying a quarterly dividend of $0.685 per share. The dividend rose to $0.72 per in December 2007. Then in December 2008 the company cut its quarterly dividend to $0.25 per share and once again cut it the following quarter to $0.085 per share. I learned many lessons from owing this stock. One of which is quality matters when looking for an investment that can provide a growing income.
Below are my 5 longest held dividend growth stocks:
Consolidated Edison, Inc. (ED) is an electric and gas utility holding company serves 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 41 consecutive years. See full analysis.
- First Purchased: 01/21/2005 @ $43.52
- Lifetime Return: 9.88%
- Current Yield: 4.0%
Health Care Property Investors, Inc. (HCP) is an equity-oriented real estate investment trust, based in California, has direct or joint venture investments in health care-related facilities across the U.S. The company has paid a cash dividend to shareholders every year since 1985 and has increased its dividend payments for 29 consecutive years.
- First Purchased: 03/21/2005 @ $24.08
- Lifetime Return: 13.78%
- Current Yield: 4.9%
National Retail Properties, Inc. (NNN) is an equity real estate investment trust that invests in high-quality, freestanding retail properties subject to 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 23 consecutive years.
- First Purchased: 09/15/2005 @ $20.06
- Lifetime Return: 13.14%
- Current Yield: 4.4%
Realty Income Corporation (O) is an equity real estate investment trust that owns commercial retail real estate properties in the United States. The company has paid a cash dividend to shareholders every year since 1994 and has increased its dividend payments for 20 consecutive years.
- First Purchased: 05/05/2006 @ $22.37
- Lifetime Return: 12.06%
- Current Yield: 4.7%
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 supercenters. The company has paid a cash dividend to shareholders every year since 1973 and has increased its dividend payments for 40 consecutive years. See full analysis.
- First Purchased: 07/19/2007 @ $48.83
- Lifetime Return: 15.58%
- Current Yield: 2.2%
The first four stocks were purchased for their yield. I have held them over the years since 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 stock strategy. Unfortunately, most of them cut their dividends during the financial crisis or were merged out of existence.
Great investing is a journey, so learn to enjoy the ride!
Full Disclosure: Long ED, HCP, NNN, O, WMT in my Dividend Growth Stock Portfolio. See a list of all my dividend growth holdings here.
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