In Cormac McCarthy's book, The Crossing, the famous author poses the rhetorical question, "If people knew the story of their lives, how many would then elect to live them?" I think this quote ties in to one of the more fascinating criticisms of dividend growth investing, which goes something like this: Even if I get that million dollar fortune, and that can be a big if, what good is it if I'm 80 years old when I get the chance to enjoy it? In other words, are the delayed gratification demands of dividend growth investing worth it?
In trying to comment on this, the first thing I'd like to do is divide long-term investors into two camps: those who truly enjoy the process of it, and those who don't. As is true in almost any endeavor, the folks who enjoy the process of long-term investing---the steady accumulation of a portfolio filled with Coke (KO), Pepsi (PEP), and Johnson & Johnson (JNJ)---are at a tremendous advantage. This is because they do not view setting aside $300 each month to purchase shares of ExxonMobil (XOM) as a chore---it's how they would desire to spend their money anyway.
When these types of people purchase 100 shares of Wal-Mart (WMT), they look at the $39.75 quarterly dividend check and think, "How could I think of doing something better than dividend investing with my discretionary income?" And if they personally do some of their shopping at a Wal-Mart Store, they might even experience a quiet thrill when they enter the store, knowing that for every dollar in profit that Wal-Mart generates anywhere in the world that day, they are entitled to 100/3,400,000,000 of it, about a third of which will be sent to them in the form of cash. Because these investors enjoy not only the prospect of owning big blocks of stock, but the process of it as well, dividend growth investing comes easy because this is how they would willingly spend their money anyway.
But what if you fall in the other category-not the one that enjoys the process of investing, but does it out of necessity? Hey, not everyone enjoys eating broccoli. These are the type of people who recognize the fall of the three-legged stool of retirement investing, and put aside money for investment because it is the responsible thing to do. If these investors had their choice, they would gladly take a pair of Nike (NKE) shoes over a share of its stock any day of the week, and would consider anyone crazy for preferring 4 shares of Apple (AAPL) stock to a brand new Mac laptop. But because these investors recognize the need for money later in life, they choose to invest out of this obligation. For them, the question becomes: Is dividend growth investing really the best way to maximize utility in my life?
For these investors, the answer comes down to some variation of whether they'd prefer to spend $1 in 2012 or defer so they can have $4 in 2030. If I fell into this camp that considered long-term dividend investing a personal struggle, I would take my dividends in cash along the way, so that I could both build wealth (albeit at a slower pace) and enjoy the here and now. I would think like this: Okay, over the next thirty months, I'm going to build up a $10,000 position in Washington Real Estate (WRE), and then be done with it. That means I would need to come up with about $333 each month to make that happen. Once I made that initial sacrifice of putting aside $333 for about 2.5 years, I'd think: "Okay, I did my part. Washington Real Estate, it's your turn to work for me." Based on current market prices, a $10,000 investment would give me 340 shares. That, in turn, would give me a check for about $147 every three months. I could use that money to stock up on groceries, buy about a month's worth of gas, take a girl out on a fancy schmancy date, or catch a St. Louis Cardinals playoff game. The choice would be mine. Assuming I chose my companies to invest in wisely, this would continue every three months indefinitely. Four times each year, I would be rewarded with $147 for my decision to temporarily delay my gratification, and I could spend that money on whatever brings me the most satisfaction, all because of that initial sacrifice.
Some people might caricature dividend growth investors as fuddy-duddy creatures that are only a step or two away from making a cameo appearance on the ABC series Extreme Couponing. But that's not the case at all. Every day, with every dollar that we choose to spend or invest, we are deciding whether it is in our best interest to enjoy the fruits of our labor now, or postpone it in the pursuit of reaping even more rewards later. We don't have to frame the debate in terms of wondering whether it's worth it to be the 80 year-old miser with $2 million in assets, because it's not all or nothing. We have choices along the way, and with every dividend payment declared by the companies that we own, we get to decide: Do we want to spent the money now or try to have even more later?
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.