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Steven Dotsch
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From a very young age, Steven learned the value of money and saving. He started saving money when he was only five, washing his father’s car and started to invest in Dutch shares when he was fourteen. Following university in Amsterdam, Steven pursued a career in merchant banking in The... More
My company:
EMAR Publishers
My blog:
Dividend Income
My book:
Guide to Dividend Investing
  • Dividends - The Gift Of Perpetual Income 0 comments
    Nov 27, 2012 5:37 AM

    Many people increasingly find that the income generated by their money held in bank accounts is insufficient to meet their needs, or to keep up with the long-term effects of inflation. Although inflation has gone up and down sharply, the last few years, interest rates have remained very low.

    The combination of occasional periods of high inflation, combined with very low interest rates can significantly reduce the purchasing power of savers' money. Holders of interest bearing government bonds are facing similar difficulties.

    In this environment, savers and investors are increasingly recognising the appeal of regular inflation-beating dividend payments to provide them with an income in the medium to long-term - perpetual income - perhaps for example to supplement their pensions.

    The gift that keeps on giving

    Generally investors have the choice of many companies in which they could purchase shares.

    Often, once companies have started paying a regular dividend, they will often go to considerable lengths to maintain its size, even if they suffer a setback to their profitability or when stock market conditions have become tough with share prices moving up and down, as the cancellation, cut or freeze of a regular dividend is usually viewed negatively by investors.

    Historically, the ability to maintain the size of their dividend payments, or, indeed, increase them, has come about because some companies have been able to increase the prices they charge for their goods and services while keeping their costs in check, helping them to maintain and increase their profits and allowing them therefore to pay increasing dividends.

    While long-term dividend income investors are usually drawn to the most profitable companies or to those companies that pay out a high dividend yield they have not necessarily purchased these shares at the right moment.

    The gift of paying the right price

    Generally many investors are not paying enough attention to the prices of the shares they buy.

    Instead they get seduced by reports in the media regarding companies with a low price earnings ratio and 'high' dividend yields. Always remember that earnings and any metrics with an 'earnings' element in it do not provide you with any information whether a company is truly 'profitable', i.e. cash rich, and, therefore whether they are able to maintain or, even, increase their dividends on a regular basis.

    Truly successful long-term dividend income investing is very much depended on the price at which you buy your dividend paying shares rather than always being 'fully invested'. This means: you may not invest at all in dividend paying companies during periods when there are no high quality dividend paying companies that are historically undervalued.

    Unfortunately, many investors buy shares when they are regarded 'safe' and therefore by definition 'expensive'. Generally, when you invest in dividend paying shares when they are not priced at the 'right' share price (based on our long-term historical undervaluation investment methodology) the end result is that you are unlikely to generate good long-term returns.

    The gift of long term returns

    A truly long-term investor has a time horizon of several decades if not more before drawing returns from his or her investments.

    When you invest in historically undervalued dividend paying companies you have the choice to cash in your dividends or to re-invest the dividends in order to boost the value of your share portfolio by the purchase of additional shares in the same or similar historically undervalued high quality dividend paying companies (at the time of purchase).

    Using your dividends to buy more shares - with those shares producing more dividends - to buy more shares, and so on, and so forth, allow you to grow your perpetual income exponentially from your income generating share portfolio until the time you start drawing an income.

    Christmas gift from Dividend Income

    As a long term dividend income investor I invest in high quality dividend paying companies but only when they are historically undervalued as well as when they are financially strong as per our in-house developed dividend share valuation and financial strength investment methodology

    With the potential to provide a regular and increasing income, as well as capital growth over the long term, investing in dividend paying shares when they are historically undervalued is the gift that keeps on giving which I want to share with you.

    A Merry Christmas and a Happy New Year

    Steven Dotsch - Managing editor - Dividend Income

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