And The Beat Goes On: Lessons Learned From Dividend Investing

by: David Crosetti

You know, I've worked for a number of companies over the last 40 years. I started working for my dad in the grocery business, but soon got that old wanderlust. I wanted to be a salesman! So, I shared my goals with a friend of mine who worked for Pillsbury. Six months later, I was a Pillsbury sales representative, with my own territory!

I worked very hard at Pillsbury. The guy I replaced didn't take his job very seriously and he spent as little time as possible doing his job. But, I had something to prove to myself and to my dad. I needed to prove that I could do this job and be successful at it. So unlike many of the other reps, I worked 6 days a week, 12 hours a day. I was building relationships with my store managers by resetting their cake sections, building displays, putting up point of sale materials and letting them know all about our special price offers.

Now, I started off at Pillsbury for the grand sum of $825 a month in salary. I got a company car. Not a brand new Mercury Marquis like the other sales reps, but a 5-year old Plymouth that was a left over vehicle from another time. I didn't care. I still busted my butt.

One day my boss told me that he wanted to meet with me on the following Monday, at Denny's. So, I met him and he told me that he had some "fantastic" news for me. The executives at Pillsbury had seen what a great job I'd done and to reward me, they were going to do something that they had never done before. They were going to give me a raise after only 6 months, instead of making me wait one full year.

Was I happy or what? You bet. All that hard work, all that effort, all those hours worked, all the butt kissing that I had to do to make store managers like Pillsbury again-and I was being acknowledged with a raise! Then my boss said, "David, we are raising your salary to $850 a month - a $25 a month raise! What do you think about that? I thanked him, politely.

Two weeks later, I took a job as a District Manager for a food brokerage company at a starting salary of $1500 a month, with a new Ford Thunderbird, bought by the brokerage. I never said anything snarky to Pillsbury, but I decided then and there that my first loyalty was to myself and that I would never allow anyone to control my salary ever again.


While I have worked for a number of companies, the way I've always approached my job was that I was self-employed. I worked every job as if I owned the company. The decisions that I made were decisions based on how it might affect me as the owner of the company and as a result, I think I ended up making better decisions than someone who took a different approach to running their companies.

Every company that I worked for, including Pillsbury, offered a retirement investment plan of some kind. No matter where I worked, I made the decision that I would maximize the allowable contribution that I could make to the retirement plan. The reason?

The food broker that I went to work for after Pillsbury was a guy named Jim Ahrens. One day, over a few beers, many years after I had moved on from the brokerage, Jim told me his "key to success."

He told me that the key to success was to put aside enough money so that when times got tough, you could look your boss in the eye and say, "I'm out of here." The polite name for Jim's plan was "Have enough I'm out of here money put aside." So I took his advice and never looked back.


By now, from reading my articles, you may know that I am a Dividend Growth investor. While I have a job where I am a commissioned sales rep, I also have a job where I am a financial planner. The financial planner job is managing my portfolio.

I manage it for one purpose-to provide me with an ever increasing income. I want to get a raise every year and I don't want some silly putty $25 a month raise and have someone tell me how grateful I should be for receiving it.

Nope. I'm going to control my own destiny, my own income and no one is going to keep me from getting that raise every year. Plain and simple.


While the bulk of my portfolio is made up of Dividend Champions, Contenders, and Challengers, I also own stocks that have not made those particular lists. These stocks usually pay a dividend, were bought at a value price, and have the potential to become CCC stocks at some point in the future.

The chart below is a listing of the CCC stocks that I currently own in my own portfolio:

There are 32 companies in this portfolio that have been increasing their dividends a minimum of 5 straight years, [Baxter International (NYSE:BAX)] and as many as 55 years, [Emerson Electric (NYSE:EMR) and Procter and Gamble (NYSE:PG)].

What that means is that every year since I've owned these stocks, my income from owning them has increased. I've gotten a raise that was bigger than 90% of the raises I ever got from working for someone else and at the same time, these companies have appreciated in value to such a point that I no longer worry about market "crashes."

My long-term holdings with companies listed above have experienced the phenomena of splits. The initial investments in those companies have appreciated accordingly over the years. In my opinion, I think splits are a thing of the past, but I hope not. Good companies usually continue to grow and the split experience that I've enjoyed is increased value for my portfolio.


Many articles critical of DG investing make the same flawed arguments time and time again.

Elimination of investment choices: Not really. There are more than 400 stocks to choose from in the Dividend Champion, Contender and Champion list. These companies are large cap, mid cap and small cap. It is actually a nice cross section of stocks to select from.

Creating a diversified portfolio from the members of the CCC lists, is not an impossible task at all.

Dividend Growth investors are not concerned with value pricing: Again, not true. When a DG investor says that he is looking to buy xyz with a 4% yield point, that doesn't mean that he is looking at the yield point only. The DG investor still practices stock analysis and the mention of a yield point is relative to a price point (which is the value price).

Let's face it, there is nothing quite as much fun as buying something at a significant discount to the intrinsic value of the purchased commodity, be it stocks, bonds, automobiles, houses--or anything else we purchase.

DG investing takes on more risk than is necessary: Again, not true. Most of the stocks in the CCC lists are low beta stocks. They don't offer up any more or any less risk than other stocks do. Are they all risk free? Absolutely not. There are companies in the CCC lists that present major risks. PG, KO, MCD, JNJ, ABT, KMB, CL, are not particularly risky in my opinion.

With every investment, there is an element of risk. You can't avoid risk, but you can minimize it. The trick is not to be caught in the notion that the dividend in and of itself is the driver behind the purchase.

DG investors don't care about capital appreciation/capital retention. Again, not true. The value of a portfolio is relative to its cost. For example, if you own a company with an average cost basis of $20 a share, and today the stock is selling for $60, are you concerned about the stock dropping in price to $50? $40? $30? I'm not. My income stream keeps coming every quarter and increases every year.

My growth in value of MCD and KO has allowed me to take money off the table and fund the investment in other companies. I like to purchase a company at a value price, watch it grow very quickly to a large capital gain and have to consider locking in the profits and coming back at a later date to recreate my position. Nucor (NUE) was one of those companies that filled that scenario last year for me.

DG investors never sell. Not true. We sell because we need to rebalance our portfolio weightings. We sell when a company reduces its dividend. We sell when the reasons we purchased a company in the first place change. We sell when a stock becomes overvalued.

I rebalance twice a year. Not a complete rebalance, but a controlled rebalance where it makes sense. I am an active investor and look to maintaining some semblance of equal weightings between positions. As I get older, I am more aware of the need to rebalance and attempt to minimize large fluctuations in my portfolio.

DG investors think theirs is the only way to invest. I am sure that you can find someone out there who believes that. But, by the same token, many DG investors are not totally locked into one strategy alone. Many of us buy stocks for other reasons. I know I buy stocks in a trading account for the purpose of generating capital growth. Pure and simple. There are variances to every investing strategy.

With my own investments, I like to purchase companies for no other reason than they present an opportunity for capital appreciation, so that I can use the gain to fund more income producing purchases for my portfolio. It is a growth oriented strategy and I have been doing it for many years. Just because my primary focus is DG, doesn't mean that I never invest for capital appreciation.


I am a Dividend Growth investor. I have been practicing this strategy for 30 years. In that time, I have built a very nice portfolio of DG stocks. This portfolio has increased in value, has seen shares sold to lock in significant profits, has had profits reinvested into other positions, has been actively managed, has had investments that went bad (BAC comes to mind), and has been through the ups and down market cycles that have hit the market over the last 30 years.

Right now, this portfolio is throwing off an income that is larger than the salary I earn at my job. I currently pay no taxes on this dividend income, because this money is invested in my IRA account.

When I retire, in three years, my biggest current expense item will be gone. The house will be paid for. More than likely, we will sell this house (as the kids are getting ready to go off to the real world) and we will relocate to our farm in Central Mississippi (which is also paid for).

We will begin to draw around 80% of what I am currently making and continue to invest the remaining dividend income in the stocks we own. Every year, we will increase the amount of income that we draw from the account, but we will continue to reinvest the surplus back into the market.

Meanwhile, my wife, who is 14 years younger than I am, wants to continue working at her job. She will continue to fund her Roth IRA at the maximum rate and when she retires, she will be able to live off her state pension, my IRA dividends, and never have to touch the principal.

Our estate planning has provided for the children to inherit the stock and other property at a stepped up basis and without inheritance taxes. They can reinvest dividends until they retire and as Sonny and Cher said, "And The Beat Goes On."