Now that you have hopefully read part one of this two-part series, I wonder how many of you thought I was simply throwing caution to the wind with my simple approach to dividend growth investing?
Actually, after looking as so many different metrics and so many different investment strategies, the most compelling reason why I have embraced my own approach is also very simple:
Say what you want about how I might be ignoring many fundamental and technical issues, but the fact is that historically, the entire market, the Nasdaq, the Dow Jones Industrials, and the S&P 500 have all trended higher basically throughout history. That is basic and fundamental enough for me!
Let's Take A Look At The Charts
1) The historical chart of the Dow Jones Industrials (DJI):
From the beginning of recorded history, the Dow has always headed up, period. There can be no dispute. While there have always been bumps in the road, corrections, depressions and recessions, the end result as of right now is that the average is higher.
My belief is that this trend will continue for as long as charts are kept and investing is part of our financial lives.
2) The historical chart of the S&P 500 (SPX):
^SPX data by YCharts
The same can be emphatically stated by a broader measure of many stocks and sectors. The S&P 500 reflects basically the exact same trend as the Dow Jones Industrials.
Since this covers about 500 different stocks, the argument that only the top Dow 30 has this sort of historical record is irrelevant. I also believe that this trend will continue far into the future, and I am comfortable with its simple statement.
3) The historical chart of Nasdaq (NDX)
^NDX data by YCharts
This index does not have the longevity as the other two major indices, but the trend is nearly the same. Given the fact that many of the newer tech companies are on this exchange (or have been), the dot-com bust in 2000 cut the head off of this index, but as the years roll by, I would be willing to bet that after 100 years, the trend will be very similar to the two major indices.
I Do Not Have A Crystal Ball
I am not about to say that this approach is infallible, and it certainly can just blow up in my face, but all kidding aside, I have never found a metric that is more compelling than the three noted above.
We often hear that the trend is our friend, right? Well, these trends have been our best pals for as long as I have been alive! Markets have ups, downs, and sideways moves over brief periods of time, but as you can easily see in the long run, the markets are always heading higher.
Anyone can point to a problem with any company for a period of time and even offer evidence of highflyers that have gone all the way up and then crashed and burned; however, I would argue that by investing in the greatest companies on Earth, while collecting dividends that are increased year after year after year, no matter what issues a great company faces for a brief period of time, the trend will reflect the historical trend of the markets themselves.
Let's Look At The Charts Of Some Favorite Dividend Aristocrats
JNJ data by YCharts
Johnson & Johnson (NYSE:JNJ), Procter & Gamble (NYSE:PG), Coca-Cola (NYSE:KO), Exxon Mobil (NYSE:XOM), Con Ed (NYSE:ED), AT&T (NYSE:T) and Realty Income (NYSE:O) are all dividend aristocrats and have a long history of consistently paying and increasing their dividends year after year, decade after decade. These stocks are all enormous companies with huge amounts of cash and incredible cash flow to keep doing what they have done and wind up with a higher share price in the years ahead.
Am I suggesting that these are risk free investments? Of course not! ANYTHING can happen, and when one places their money in any stock at any time, the worst CAN happen. That being said, I am comforted by the history of each of these companies and can sleep just fine knowing that I have decades upon decades of history through good times and bad, thick and thin, and ups and downs that I am taking a risk that I can live with.
I suppose it is not a coincidence that I used the core positions of the model Team Alpha Retirement Portfolio since that is the model I am now using to illustrate my simple approach. As you can see, the trend has ALWAYS been UP. To me, that means if I apply my buying strategy to these core positions, I might NOT be getting shares at the cheapest price, but I will be buying at fair prices that have always seemed to move higher after a relatively short period of time.
OK, But What About Selling Shares?
As a dividend growth investor, especially now that I am retired, I will reluctantly sell a position if the following circumstances occur:
- I am in desperate need of the principal to pay for extraordinary life events.
- The company either stops or cuts its dividend.
- I have too much allocated to a stock and find it prudent to trim SOME of the shares held.
The longer time horizon investors can and should tweak their portfolios from time to time in order to expand them with more great stocks, and even take a risk every so often if their tolerance allows them, to invest in the likes of an Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Tesla (NASDAQ:TSLA) or even a few Bitcoins! Having time on your side means that you can recover from complete loss in higher risk stocks as long as you are younger and getting a nice paycheck.
The risk stocks can also be traded if you can figure out a way to do it and make some money.
As for us older and retired folks, we will just have to be happy that we will continue to receive our dividend income, which in all likelihood, over a 30-year period or so, should sustain a very comfortable lifestyle!
The Bottom Line
I hope I have been easy to read and understand in this series. Of course, my approach does not mean it should be yours; however, it just might be something to consider to see if it fills your own financial needs for the future.
Happy investing, and your feedback is always welcomed!
Not To Bore You, But...
Knowledge is power, and many folks shy away from the investing world because that very world makes it more confusing each and every day in an effort to sell you something: stock picks, technical strategies, books, videos, subscriptions with "secret ideas," gadgets, and even snake oil.
My promise to you is that my work here will remain free to all of my followers, with the hope of giving to you some of the things that took years for me to learn myself. That being said, let me reach out to you with my usual ending:
**One final note: The only favor I ask is that you click the "Follow" button so I can grow my Seeking Alpha friendships. That is my personal blessing in doing this, and how I can offer my experiences to as many regular folks as possible, who might not otherwise receive it.
Disclaimer: The opinions and the strategies of the author are not intended to ever be a recommendation to buy or sell a security. The strategy the author uses has worked for him and it is for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance. The long positions held are based upon what the model portfolio holds and I personally could have held all of the stocks noted at one time or another.
Disclosure: I am/we are long AAPL, APO, ED, F, JNJ, KO, MAIN, MO, MSFT, O, OVBC, PG, T, XOM.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The portfolio is for educational purposes only, and not an actual portfolio. The long positions are based on the model portfolio