My primary focus is not a stock’s price.
As a dividend investor, what do I think about if I don’t want to focus on share price? Well, of course I look at price, especially when purchasing shares. And after that as well.
But I don’t use price as the sole determinant to see if I am “doing well” financially with that stock. I use dividends.
Needless to say, there is a very high danger in “chasing yield.”
What is Chasing Yield?
The term “chasing yield” means that someone purchases stock because the dividend yield is high. High yield might sound good, but there is a danger. High yield means high risk. High yield can mean there is something bad going on. Sometimes, if the stock declines and the dividend has not been cut, the yield increases to startling numbers.
A high yield may also mean an opportunity. Sometime business conditions are such that a price decline means a stock can be purchased as a discount to “normal” times. It all depends on the health of the company, the health of the economy, and the health of the industry.
So What Do I Look At
Even though I do not purchase stock with the intention of selling for a quick profit, I do pay attention to the price. I do want to avoid a high PE Ratio. There are many opinions as to what PE is reasonable. 20 is a benchmark, although there are exceptions; and these days there are many, many stocks with PE significantly higher than 20.
There are so many other measurements to take into account, which is beyond this discussion.
My Personal View
Since I am not in competition with anyone else, my own measures of positive movement is what matters to me. While most of my holdings are set to dividend reinvestment, with some companies I get the dividends in cash (direct deposited into a checking account) which I use to dollar-cost average purchase shares in other companies.
Among other things, I look at how many shares my reinvested dividends purchase each quarter. This is obviously not any kind of objective financial measure, but it is one that brings me satisfaction.
My first major goal in most cases is to get at least one share per year from reinvested dividends. The next major goal is to get at least one share per quarter. After that, it is multiple shares per quarter. Once I see that I my reinvested dividend earnings purchase more than one share per quarter, I know that my holdings for that company have increased to the point where things will grow exponentially.
You can download a free copy of the spreadsheet (StockSpreadsheet.xlsx) with which I track my dividend investments here.
Needless to say, growth in my dividend income is partially dependent on many factors beyond my control: The price of the stock, the ability of the company to pay dividends, and so on. And there are things within my control: primarily. how much I invest when purchasing shares. This mix, of things outside of my control and things within my control, are what makes dividend investing interesting, to say the least. If I have chosen good companies that are succeeding and that usually increase dividends annually, I am reasonably confident of future growth.
How to you track dividend income? Let me know here
The illustration of Sterculia quadrifida is from “Comprehensive catalogue of Queensland plants, both indigenous and naturalised. To which are added, where known, the aboriginal and other vernacular names; with numerous illustrations, and copious notes on the properties, features, &c., of the plants” by Frederick Manson Bailey, published in 1909. Courtesy the Biodiversity Heritage Library at The Smithsonian Institution.
Wikipedia explains: “Sterculia quadrifida, also known as the peanut tree, or red-fruited kurrajong is a small tree that grows in the rainforests, vine thickets, and gallery forests of New Guinea and northern Australia…. Seed pods are orange outside and orange or red inside when ripe. These pods contain up to 8 black seeds that are edible and taste like raw peanuts.”
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