Let’s look at how dividend investing works. That will tell us more about how to know when the best time to buy is.
How It Works
To me, dividend investing is fairly simple. I buy stocks that pay dividends. On the face of it, that’s it. But of course there is more to it.
What
I want to buy stocks in companies that have been around a long time, that hopefully will be around a long time, that pay a decent dividend yield, that will increase their dividends over time.
How
When I buy dividend stocks, I set the account to “dividend reinvestment” if that option is available. It usually is. Dividend reinvestment means that dividends are used to purchase additional shares in the same company stock. That means that once I initiate dividend reinvestment, the number of shares I own, and the amount of dividends I am receiving all normally increase automatically over time.
Where
I own shares via two places. One is though a broker, the other through each company’s transfer agent.
When
When to buy stock is always a good question. The first answer to this questions is when I have the money. I cannot buy stock if I don’t have the money on hand. Don’t Wait For Later . Of course, after that, there is the question when to buy additional shares. Since I am using dividend reinvestment, my holding increases automatically each quarter, but when is the best time to buy additional shares?
For a few stocks, I engage in dollar cost averaging by automatically investing a set amount monthly. This makes it easy, I don’t need to do anything special to increase my shares. A set amount is deducted from my bank account monthly and invested in specific stocks.
There Are Two Answers
Let’s look at how dividend reinvestment works in different kinds of markets. Since I am using dividend reinvestment, my dividends buy more shares when the price declines, and less shares when the price increases, as mentioned in the post Why I Consider Buying In A Declining Market Can Often Be A Good Thing . Item One is obvious. But despite items Two and Three being somewhat counter-intuitive, note the following determinations when the best time to buy stock for dividend investing:
[1] When I have the money
[2] Just before a major decline
[3] During a major decline
As mentioned in The Mechanics of Money (Part 3): How I Invest and since in Always the Casino, Sometimes the Roller Coaster and A Bear Market Is Coming!, Time In The Market Beats Timing The Market. So I hold my stocks when the market is up, is down, and is sideways. All along, the dividends buy more shares each and every quarter.
If I want to maximize my investments, I consider buying in declining markets. I cannot expect I will know in advance when a major decline is imminent (item Two), but certainly know from the news when a major decline is in progress (item Three).
This Bernard Baruch quote describes the situation: “I had never experienced a depression before. But even then I began to grasp dimly that the period of emergence from a depression provides rare opportunities for financial profit.” He was speaking about the U.S. depressions of the late 19th century, but it holds true for all major recoveries.
And More
There are also endless metrics which can be used to assess a stock. Which are useful? Many. Which are prescient? Not many. Which should one use? That’s a open question.
When is you best time to buy? You can let me know here.
The illustration of samples of marble is from “Marmora et adfines aliquos lapides coloribus suis exprimi” (Illustrations of marble types and some related stones) by Adam Wirsig, 1775. Courtesy The Saxon State and University Library Dresden (full name in German: Sächsische Landesbibliothek – Staats- und Universitätsbibliothek Dresden), abbreviated SLUB Dresden.
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