Can A Dividend Growth Investor Be A Trader?

by: David Crosetti


There are many reasons why people invest in the stock market. The reasons for investing in the market are as varied as the people who take the time to invest. Many of us start out as stock market investors at our place of employment. We are introduced to a 401k plan and once we become eligible to participate in that plan, we select from the mutual funds available to us and have the company begin deducting money from our paychecks to fund the 401k investment.

When I got started in the 401k vehicle, it was while I was working at Coca-Cola. My intent was to save money in the plan, avoid current taxation of that money, invest in company stock and mutual fund offerings, and building a nest egg to supplement my retirement program that Coca-Cola offered its employees.

As my investing experience and knowledge grew, I learned that there were a number of different strategies for investing money. There was growth investing, with the goal of increasing capital; there was the value form of investing, which is purchasing companies that were priced at a value relative to their intrinsic worth; and there was even something called a "blended" strategy that combined growth with value.

The one thing that stood out in my personal portfolio was the performance of my The Coca-Cola Company (NYSE:KO) stock. While the mutual funds paid me dividends and distributions of capital gains, my Coca-Cola stock paid dividends. I realized that the only way to enjoy the capital gains that my mutual funds were giving me was to sell stock, just like the mutual funds would do.

But, I never sold my Coca-Cola stock, and pretty soon, with stock splits and dividends reinvested, I found myself owning a lot of Coca-Cola stock and since the company was able to provide me with a statement that showed me my cost basis for my shares, it dawned on me that my cost basis was incredibly lower than the current price of the stock at the market price.

Some Random Thoughts

After a number of years of reading investment guides of various sorts, I came to a rather simplistic opinion. There were, within the expanse of "investment strategies," basically two investment camps, as they pertain to stocks.

Those two most basic stock market strategies are trading and investing. While on the surface, categorizing every investor as either a trader or an investor might invite criticism, I'd like you to hang with me on this for a moment or two.

A trader tends to look for capital appreciation. A trader will purchase a particular stock and his expectation is that at some period in time, he will be able to sell that stock for more than he paid for it. He might keep the stock for a week, a month, three months, a year, or even a longer period of time, but his end game is to capture a profit with a growth in the price of the stock. The trader takes that profit he makes from a particular stock and moves that money to his next viable stock candidate.

An investor, in my opinion, tends to purchase companies often times with the same goals in mind as the trader. But an investor does not always have, as his main objective, selling the stock when he gets a price increase. The investor tend to search for a value priced entry point and if the fundamentals of the stock are holding up, he will often add additional shares to his portfolio, as he is looking at accumulating a larger interest in the particular company that he is investing in.

What I Know

As a Dividend Growth investor, I am looking to invest in companies that happen to pay a dividend, that have increased those dividends at a rate that is greater than inflation, and that increase those dividends annually. My strategy is to purchase companies at a value entry point and as long as fundamentals for the company lead me to the conclusion that I want to continue my ownership in that company, I normally will not be a seller.

But, might I sell a position that had a 30% gain in less than a year? I might. Now, that may sound like a cop-out, but it's not, really. In September 2010, I purchased a Dividend Champion stock, Exxon Mobil Corporation (NYSE:XOM). I bought my position at $61.15 a share. At that particular point in time, the dividend from XOM gave me a 3% yield point.

It didn't take very long for Exxon to increase in value as oil prices began to spike. In April 2011, the market had priced XOM at $87 a share, which represented a gain of 42%. So, like some traders do, I elected to sell my position and lock in a very healthy gain. Later that year, in September, Exxon was priced under $70 a share and I purchased a new position in the company.

What I Think You Should Know

The other side of the equation is this. I also hold what I consider to be "core-holdings." These are Dividend Growth stocks that meet my investing criteria and they are stocks that I will not sell, but instead I am inclined to hold "forever."

What are these core holdings? They are Coca-Cola, Kimberly Clark (NYSE:KMB), Colgate-Palmolive (NYSE:CL), Procter & Gamble Co. (NYSE:PG), McDonald's (NYSE:MCD), Altria (NYSE:MO), Reynolds American (NYSE:RAI), AT&T Inc. (NYSE:T), Verizon Communications (NYSE:VZ), Johnson & Johnson (NYSE:JNJ), Abbott Laboratoris (NYSE:ABT), Wal-Mart Stores, Inc. (NYSE:WMT), Waste Management, Inc. (NYSE:WM), Intel Corporation (NASDAQ:INTC), Microsoft Corporation (NASDAQ:MSFT), Southern Company (NYSE:SO) and SCANA Corporation (NYSE:SCG).

I have invested in these companies and do not trade these companies. Why? Because I believe that these companies reflect all of the things I look for in a stock. They are market leaders, they pay annually increasing dividends, and they grow those dividends at a rate faster than inflation.

On the other hand, companies like Exxon, Chevron Corporation (NYSE:CVX), Nucor Corporation (NYSE:NUE), Caterpillar Inc. (NYSE:CAT), Cummins Inc. (NYSE:CMI), Emerson Electric Co. (NYSE:EMR), Illinois Tool Works Inc. (NYSE:ITW), Target Corporation (NYSE:TGT), and many others are the ones that I use in my portfolio to generate cash, through buying them at a value entry point and trading them when they reach an appreciation target.


There are an infinite number of investment strategies. I don't believe that any one of them is any better than another. What is important to me is that I understand what my core philosophy of investing is all about and that I stick to the principles intrinsic to that core belief system. Every investor is different and has different goals. When we ignore the realities of the market, we tend to develop a narrow view, and in doing so, often miss opportunities that present themselves.

For me, the overriding principle has been to find the best run companies that I can find, invest in them regularly, watch the income stream grow, and as money and time permit, increase those core holdings to a point where my income stream will become larger than my income needs in retirement.

Disclosure: I am long ABT, CVX, KMB, MSFT, INTC, SCG, VZ, JNJ, MO, RAI, KO, SO, WM, CL, MCD, WMT, XOM, NUE, TGT.