I’ve mentioned before that I can invest for income (dividends) or I can invest for a quick flip (capital gains). Investing for income is less work.
I research the company ensuring that I’m getting a good solid company at a bargain price. A company that isn’t paying out too little cash (less money in my pocket) or too much cash (the company could run out of money and have to…gasp…scrap paying my lovely dividends). I like companies that have a steady history of slowly raising dividends.
Slowly raising dividends is the same as getting more money for the same work. If I invest $20 and get $1 a year in dividends, my return is $1/$20 or 5%. Say the company does well and increases that dividend to $2 a share. My return is now $2/$20 or 10%. Even tiny increases year after year eventually adds up!
After I’ve purchased a stock for dividends, I check it about once a month to make sure nothing has changed with the business (any significant change prompts me to look at the company with new eyes, evaluating whether I’d still invest in it).
But I couldn’t care less about the stock price. Why should I? The only time to care about the stock price is when I go to sell. I don’t plan to sell it. I plan to sit on my derriere collecting my dividends month after month.
Warren Buffett, the second richest man in the U.S. and a devout value investor, is known for stating “If the market closed for years, we wouldn't care.” Buffett is in it for the long term haul, the dividends, the income that the companies produce.
And dividends pay. From 1926 to 1999, dividends accounted for nearly half of the unmanaged S&P 500 Index's total return.
