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Prospering In Spite Of Market Volatility

Introduction:

My grandfather was an interesting man on many different levels. While he only had a 3rd grade education, he was a prolific reader and someone who loved history and geography. In his library, he had books that many college educated people have difficulty understanding.

One of the things that his reading gave him was a sense of perspective. As a young man, growing up in Italy and being called to World War I, he learned that taking life for granted was a fool's game. He tried to live every day as though it was his last and always found the time to appreciate every kindness and every person that he came into contact with.

In his later years, he took a job as a kitchen helper at Sonoma State Hospital. It was a place where people would institutionalize their Down Syndrome children and the state would take care of them for as long as they lived.

My grandfather was deeply touched by the people who were housed there. They all knew him as "Ted", a guy with a ready smile and an encouraging word. One day he had a young man come to him and ask if he could help Ted in the kitchen. My grandfather showed the young man how to clean and sanitize a big kettle that the hospital used to cook oatmeal in the mornings. When the young man finished his task, my grandfather got his supervisor and showed him the quality of the work done by the young man.

The supervisor was impressed, because like many people, he had considered the folks at the hospital to be unable to function with real life tasks. The supervisor suggested that Ted recruit individuals to train as kitchen helpers. And that was the start of a very successful program that earned my grandfather recognition from Pat Brown, the Governor of California, when the Governor found out about the program.

My grandfather rose through the ranks at the hospital and ended up as the head of the food service department at the hospital, before he retired. The gift that he gave these the residents of the hospital was a sense of purpose and a sense of accomplishment. His own personality was geared toward the notion of "what could be" rather than "it is what it is."

What I Know:

As a Dividend Growth Investor, I have been trying to invest with the notion of "what could be" as opposed to "it is what it is." That means that when I began this journey, I looked to the future and determined what I wanted that future to look like. Once that was outlined, the next question was "how do I get there?"

While I have different investments outside of the stock market, it seemed to me that buying ownership in quality companies with growing revenues and growing earnings was a wise thing to do.

Working at Coca-Cola, I began to buy stock in KO through my 401k program. Traveling in my job and meeting other sales people who worked for companies other than KO, opened my eyes to a world of "what could be" that has served me well. I bought stock in companies like Kimberly-Clark (NYSE:KMB), Procter and Gamble (NYSE:PG), Colgate Palmolive (NYSE:CL), Johnson and Johnson (NYSE:JNJ), and other consumer product companies. Not a diversified portfolio, for sure, but diversification would come later as I began to learn more about investing and markets.

What You Should Know:

I like to buy stock in companies that is priced at a value to the intrinsic worth of the company. While I tend to focus on dividend paying stocks that does not eliminate my investing in companies that do not pay a dividend or that pay a dividend that is below some benchmark. Again, I'm looking for "what could be" as opposed to "it is what it is" opportunities.

I try to focus on revenue growth and earnings growth. In my career, I've been responsible for profit and loss numbers and I've learned that there are different ways to make a bottom line. In my own experience, I learned that "saving" your way to a bottom line, by cutting expenses is a short term method and if you can't increase revenues, you better plan on getting transferred to another job, soon

I take that same approach with company stock. If the company is saving its way to earnings, then in my opinion, the company is taking a short term approach to making their numbers. That isn't someplace that I want to invest long term. On the other hand, if I find a company that is increasing revenue, managing expenses, and delivering earnings growth, then I get very interested in finding out more about the company.

Additional Thoughts:

With the recent pull back in the market, I am sure that there are investors who look at the events of recent days with some consternation. As a DG investor, I look at it from a different perspective.

My goal with my DG portfolio is to increase income for my retirement years. The day to day price changes in the stocks held in my portfolio are just that-day to day changes. The dividend income stream, on the other hand, continues to flow into my portfolio and that income is increasing year over year by a rate that is larger than inflation. After all, that is the end game and the purpose of the DG portfolio.

I am not concerned about the value of my portfolio from a day to day perspective, since I have no intention of selling my stocks in order to fund my retirement living. Instead, it will be the income from the dividends that provides that funding. The stocks themselves will be left to my wife and then to my children.

What We Are Buying Now:

Absolutely nothing.

Yep, that's right. Absolutely nothing. You see the market has not finished falling. There are better bargains to be had in the coming weeks. There will be a rally-but it will be a "dead cat" bounce. Until the economy shows real signs of life, beyond QE transfusions, all bets are off. We are entering a period of time where the market will trend lower, in my opinion, and there will be plenty of opportunities for long-term investors to buy stock in companies at real bargain prices, relative to intrinsic worth. That's a definite "what could be" scenario.

When I consider "what could be" I see a scenario where I will be able to purchase stock in great companies at bargain prices. For a DG investor like me, that means purchasing companies that are priced where I will have a larger yield point than is currently available to me with today's prices.

I see a "what could be" where my income from dividends can go up by a rate that is larger than inflation and that can supply me with an income to last me through the rest of my life. So here's my "what could be" criteria.

  1. I want stocks that are priced at bargain prices. Lately Coca-Cola dropped to $39.15 and a lot of people got excited. At that price, the dividend yield is still less than 3%. I want to add KO with at least a 3% yield. That means a price of $35-$37 a share. That's my target.
  2. I want to buy stocks that have a long history of increasing dividends on an annual basis. That means Dividend Champions first and foremost. Use the list provided by David Fish and add two columns begin your search.
  3. I want to buy stocks that are increasing dividends at a rate that is greater than inflation. That means that I want to own companies that have a 1, 3, 5, and 10 year dividend growth rate that is greater than 5%.
  4. I want to buy stocks that have increasing revenue and increasing earnings. I want these, because I want some sense of the company's ability to continue paying and increasing dividends. Earnings growth with paltry revenue growth means the company is likely growing earnings by "saving its way to success." Need both.
  5. Don't be afraid to pull the trigger when your target stock reaches your buy point. It might go lower, but you aren't buying it to trade are you? You're buying it for the long haul-not a short trade.
  6. Stay the course. Don't lose sight of your "what could be" dream.