Whateverrrr…
Two questions:
Does dividend investing beat the market?
Does dividend investing outdo other investing methods?
Short Answer to both:
I have no idea.
Shorter answer:
No.
Longer answer:
Maybe, but I am not taking the time to think about it. It comes down to what is being measured.
If we measure success by comparing the prices of the stocks at the beginning of the year with the prices of the stocks at the end of the year, then that may be something someone is interested in. I am not.
I look at my income from dividends Since I am more than likely to have more income at the end of the year than at the beginning of the year, then my method is successful. If I beat inflation, then all the more successful.
How and Why
Most people buy stock because they expect to sell someday at a higher price. They hope the price will go up between the time they bought and the time they wish to sell. Thus it is a strategy based on hope.
I don’t buy with the expectation of selling. I buy with the expectation that the dividends I receive will continue to grow. That is where my focus is.
Who Thinks What
Others may scoff at my method. They have every right to determine what they wish to do for themselves. I am not going to compare myself or my plan with anyone else’s.
Why I Chose
I chose dividend investing because I wanted a simple, hands-off method that will increase my income over time without needing to worry and agonize over decision-making, If I had bought with the thought I would someday sell, I would forever be perplexed about when to sell. How to determine when is the best time to sell? What about taxes? What if he stock goes up after I sell? If the price declines, do I sell or hold on? And so on.
I avoid all sorts of anxiety by not needing to think about selling. For the most part, dividends increase over time, and thus my income increases. If I choose companies whose tradition is to raise dividends annually, then I am likely to do well.
Others
There are some methods of investing that use dividends as one of several signs that it might be a good investment, along with such things as PE Ratio, good balance sheet, and so on, but still plan to sell in some future time. It is another way, just not mine.
What About…?
Yes, from time to time some company might cut or eliminate its dividend, be acquired or even go out of business. This is not as common as stock prices declining, so at least I am not as subject to as much volatility. On the other hand, dividend cuts or eliminations are real, and part of the reality of investing. A major approach to avoid or reduce income decline is to diversify. It is highly unlikely that many companies will all cut or eliminate their dividends at the same time. But as we all know, there are no guarantees.
I sleep well. I don’t worry about loss of principal because I do not focus on principal. I focus on income.
Where do you focus? Let me know here.
The title page of the book “Relation abrégée d’un voyage fait dans l’interieur de l’Amérique méridionale : depuis la côte de la mer du sud, jusqu’aux côtes du Brésil et de la Guyane en descendant la rivière des Amazones” (Abbreviated description of a trip made inside southern America: from the southern sea coast, to the coasts of Brazil and Guyana by descending the Amazon river) is displayed. Written by Charles-Marie de La Condamine. It was published in Maestricht, Holland in 1778. Courtesy Biodiversity Heritage Library.
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