There are a number of ways to invest successfully. I have friends who are very successful value investors. Most of their returns are earned through capital appreciation. They spend a great deal of time looking pouring through 10-Ks and 10-Qs of companies off the beaten path. The potential returns are high, but so is the effort put in their craft.
At the other extreme there are successful traders. They look at their charts to determine entry and exit points for the day's transactions. Little-to-no time is spent analyzing the underlying fundamentals of the company since it likely will only be held for a very short period of time.
I would put investors in dividend growth stocks somewhere between these two, but much closer to the pure value investor. Like the value investors, our time-frame is long-term. Although we carefully research potential companies, our emphasis leans more toward fundamental metrics needed to sustain annual dividend growth, with less emphasis on current value.
There are successful investors in each of the above groups and they share a common trait. This trait is found in most all successful people - it is their secret to success. Fortunately, this trait can be learned and mastered.
The secret to successful investing is... discipline.
A person that moves from one investment strategy to another lacks the discipline to be successful. Very few people are born with the raw intellect that allows them to just pick winning stocks out of the air.
For the rest of us, we have to rely on our discipline to do what's necessary to identify stocks that will provide us with our best opportunity to succeed, and we have to remain focused on quality over the long-term. Our portfolios include stocks like:
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 59 consecutive years. Yield: 2.4%
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 54 consecutive years. Yield: 2.7%
Genuine Parts Co. (GPC) is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products. The company has paid a cash dividend to shareholders every year since 1948 and has increased its dividend payments for 61 consecutive years. Yield: 2.9%
Cisco Systems, Inc. (CSCO) offers a complete line of routers and switching products that connect and manage communications among local and wide area computer networks employing a variety of protocols. The company has paid a cash dividend to shareholders every year since 2011 and has increased its dividend payments for 7 consecutive years. Yield: 3.7%
Obviously, we must do our due diligence to determine an appropriate entry point for any stock purchased. It is important to remember that the process does not stop there. We must also monitor our holdings to ensure they remain solid investments that will provide us a rising income in the future.
Full Disclosure: Long MMM, JNJ, GPC, CSCO in my Dividend Growth Stocks Portfolio. See a list of all my Dividend Growth Portfolio holdings here.
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(Photo: Steve Woods)
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