A reader asks:
Q. You write a lot about dividends and seem not to focus on stock prices. Do you care about the price?
A. But are they important?
For people who trade stocks, price is the most important thing. Since the ideal is to buy low, sell high, the price is the all dominant factor, there is nothing else.
Different?
Is there another way? Is there a method of investing where stock price is not the only dominant element?
The Other Way
As a dividend investor, my goal is to grow my income by obtaining and holding dividend paying stocks. The primary goal is to obtain an ever-increasing stream of dividends. To me, dividends are the most important aspect of this method.
The Point of Price
When making my first investment in a stock, or when making additional purchases, price is important. I would not want to overpay. I look at numerous facts about the company and the stock, such as Price/Earnings ratio, dividend paying history, price range of the stock, the company’s industry, and so on.
If I decide to purchase the stock, then once it is purchased the price becomes a secondary factor. The dividends I receive now occupies the central focus of my attention. Since dividends are generally issued quarterly, and often remain constant for several quarters, dividends provide much less volatility than prices. Since prices vary every moment the markets are open, following dividends is far less stressful.
I do keep an eye on prices. Since I usually have most of holdings set with dividend reinvestment, so the price at which the dividends purchase additional shares is significant. If the stock or the company has changed to an extreme financial position (for example, a very high PE or a very high Dividend Payout Ratio), I may change my reinvestment strategy such as receive the dividends in cash for a time. This occurs only rarely, but being alert to changes is helpful for my investing comfort.
What is important to you? Let me know here.
The painting “Lemminkäinen and the Cowherd” (1919-20) is by Joseph Alanen, and is said to have been inspired by The Kalevala, the epic poem of Finland.
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