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Why I Don't Care About A Declining Share Price

|Includes: LinnCo, LLC (LNCOQ), NMM, O

I should qualify that a bit:

I don't care about the share price until I actually sell the stock.

I am a dividend investor. Not a value or a growth stock investor. Or any combination of those three things.

I consider myself conservative and maybe even very conservative.

I wish I could always do a good job of picking stocks that will increase over time but time has taught me that I can not.

Dividends on the other hand are an easier quantity or actually quality for me to understand. If I buy a stock for $20 per share and the dividend is $2 per share per year I know what I will gain each year on a percentage basis. 10%; right?

That is the amount over and above what I will receive as a return on investment, per year, on my original investment; 10%.

So, to my mind, that is the number that is important to me when I hit the "confirm" icon at Merril

But don't think I simply set it and forget it. Not by a long shot! I always have my eye on two factors going forward. One is the continuation of the dividend. Not the yield, but the actual amount. The $2.00. I want to make sure that the return on my original investment remains the same at 10%. If it dips a little to 9% or goes up to 11% that is the only number that interests me. I do not pull my hair out over bad days or weeks or even months. Or even years! I put in $20 and as long as I get back $2 per year I am happy.

So, now to the share price. Call me crazy but from the moment I purchase my shares, and going forward, I hope and pray that the share price drops! Why?! Dividend reinvest! Otherwise affectionately known as DRIPs. Because I choose to reinvest that $2 per share into new shares, obviously I would like to be getting those shares at a lower price.

Remember, I am watching for news that the dividend will be maintained or changed. But that is all. In the meantime my gains are compounding. The lower the shareprice, the faster they gain. My expectation is because of the compunding, the loss to inflation is mitigated.

But here's the catch: one day I may decide to sell that stock. And at that time I will want my share price to be the same or higher than what I purchased the share prices for. I am growing 10% compounding per year for each year I own the stock and the dividend stays the same. But if the stock price is lower, it takes a serious bite out of the overall return on investment. If it is at least the same, that 10% compounding becomes realized. And if it is higher, even better. Because now I own a lot more shares.

And here's the beauty of being a dividend investor: I may decide to never sell. A growth or value investor has zero return on investment until he or she sells. There is nothing going on in between. So the day the stock is sold better be an up day for that stock. If it's a bad month or year, that investor is up a creek without a paddle. And if the share price after several years of being owned happens to trade at the same price it was purchased for because of market timing, that person has made a bad investment.

If my share price trades at the same price I purchased it for I am up on my original investment. Way up!

Why am I wrong?

Disclosure: The author is long LNCO, NMM.