Author Topic: Investing in several or single stock over time?  (Read 5512 times)

seeking_north

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Investing in several or single stock over time?
« on: March 23, 2014, 12:31:11 PM »
I have some $30.000 each year to save the next 10-15 years.

I want to invest in dividend paying stocks, but I not sure how I should do this. I am looking at 20-30 stocks that has increased their dividends for 10+ years. Most even longer.

I am not sure if I should buy 1 or 2 stocks each year. Or spend, say $1000 on 30 stocks each year? I will reinvest the dividends back into the stock(s) that has fallen the most during the last quarter.

I am mostly interested in yield and dividend growth, not appreciation of the stock ( even thought Im not against it ), as I want it as a income generating asset for the next 40 years.

The companies are the "regular" ones.. KO, GE, WMT, XOM.. etc etc


Whats your thoughts about this?

warfreak2

  • Handlebar Stache
  • *****
  • Posts: 1140
  • Location: UK
    • Music by me
Re: Investing in several or single stock over time?
« Reply #1 on: March 23, 2014, 12:47:28 PM »
Why not just buy a mutual fund which follows the same strategy but on a larger, more diverse scale? You'll be paying a lot less in fees.

That said, I wouldn't go for it. Everyone else also knows that those stocks are consistently increasing their dividends, so the stock price already reflects that information. If they were such good deals, everyone would keep buying them, pushing the stock prices up until they were just as good deals as anything else. It's a safe assumption that this is what has already happened.
I am a mathematician who teaches computer science, makes music and plays Go.

DaveSch

  • 5 O'Clock Shadow
  • *
  • Posts: 31
  • Location: Beaver Dams (living cheap), NY USA
    • Dave's Homemade Radios
Re: Investing in several or single stock over time?
« Reply #2 on: March 23, 2014, 12:49:34 PM »
Dividend growth strategies have always paid off over the long term.
While I use various strategies, dividend payers are my favorite place to be. I don't buy individual stocks, but instead own some shares in the Vanguard Dividend Growth ETF, (ticker: VIG) Just buy some shares each month or quarter and reinvest dividends that are paid to you. I suspect that over the long term you are going to be a very happy camper.

You could try reinvesting in what has fallen the most, but with a couple dozen stocks, you will be burning the midnight paperwork oil if these are in a taxable account. You could pay more commissions than you might like too. This ETF or one similar sounds like a good way to go.

Dave

seeking_north

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: Investing in several or single stock over time?
« Reply #3 on: March 23, 2014, 01:02:28 PM »
The problem with the ETFs and mutual funds is that they are not predictable in raising the dividend. Often it stays the same, as companies are excluded from the index, giving up their place for lower paying companies.

A 2,5% dividend growing at 10% each year, gives

Year
1: 2,5%
2: 2,75%
3: 3%
4: 3,3%
5: 3,66%
6: 4%
7: 4,4%
8: 4,8%
9: 5,3%
10: 5,9%

So, investing in say KO, giving these yields, would give me a YOC at 6% in 10 years time. 9,5% in 15 years. Beating inflation handsomly!

That is why I am wondering about the "lump sum" in one company each year, compared to "dollar cost avaraging" over the next 15 years.

Joel

  • Pencil Stache
  • ****
  • Posts: 714
  • Location: California
Re: Investing in several or single stock over time?
« Reply #4 on: March 23, 2014, 01:04:22 PM »
Why not just buy the vanguard total stock market index fund and it will appreciate with the market and pay a 2% dividend. Well funds as needed to meet your cash flow requirements.

Also, if you have that much cash, hopefully you are already maxing of all tax advantaged accounts.

KingCoin

  • Pencil Stache
  • ****
  • Posts: 783
  • Location: Manhattan
  • Achieved FI @ 30
Re: Investing in several or single stock over time?
« Reply #5 on: March 23, 2014, 02:05:01 PM »
The problem with the ETFs and mutual funds is that they are not predictable in raising the dividend.

But you'd buy an ETF that holds only "dividend aristocrats" (for example SDY), the exact type of companies you're looking for, not just any ETF or mutual fund.

You might also consider companies who use earnings to buy back stock instead of issuing dividends. This results in the exact same return to investors, but with a more favorable tax treatment.

Oh, and you definitely shouldn't buy 1 or 2 stocks a year. If you insist on investing in individual companies, you'll want at least 20 spread across different industries to be considered diversified. Perhaps buy indices until you have $120K invested, then chop it up into 30 companies, $4k each.

hodedofome

  • Handlebar Stache
  • *****
  • Posts: 1110
  • Age: 37
  • Location: Texas
Re: Investing in several or single stock over time?
« Reply #6 on: March 24, 2014, 10:31:31 AM »
If you are serious about doing this, follow dividendgrowthinvestor.com. He does pretty good work on evaluating companies and looking at the bigger picture. A concentrated 'diverse' portfolio of 30-50 dividend growth stocks should outperform a market portfolio of hundreds or thousands of stocks, but also carries higher risk. I believe his returns since just before the financial crisis are in the 12%/yr range, which is about double what the market has done in the same timeframe. However, please realize the amount of work it takes to do it right. If you aren't going to devote at least an hour or two a day for continuous research, you should not expect to ever do any better than an index, and quite possibly worse.

A combination of shareholder buybacks and dividend yields is a much better strategy than just looking at yields or buybacks alone. Companies aren't paying dividends like they used to, as KingCoin said they are moving to share buybacks for favorable tax treatment. Check out Shareholder Yield by Mebane Faber for more research into this. Or, just buy the SYLD etf  on dips and go fishing...


skyrefuge

  • Pencil Stache
  • ****
  • Posts: 999
  • Location: Suburban Chicago, IL
Re: Investing in several or single stock over time?
« Reply #7 on: March 24, 2014, 10:50:29 AM »
So, investing in say KO, giving these yields, would give me a YOC at 6% in 10 years time. 9,5% in 15 years. Beating inflation handsomly!

Very nice! Being able to predict the future sure makes this investing stuff easy, right?

Problem is, 10 years ago, your future-predictor would have told you to use GE in your example rather than KO. How would have that worked out?

This fun article from 2007 (General Electric: The Dividend Champion) helpfully informs us that GE had consistently raised its dividend for 25 years, and at a rate of 11% over the previous 10 years (slightly better than even your KO will do!) That's such a no-brainer!

But then in 2009, they slashed their dividend by 2/3rds, down to the level they were paying out way back in 1998. Oops!

So if you had come here 10 years ago telling us how you were buying GE, with its 2004 yield of 2.5%, your predicted 6.0% YOC in 2014 would actually be.....2.5%. And it would have been even lower than that for half of the 10 year period (and you would have seen significant share price decline on top of that!)

Dividends seem to be a particularly attractive thing amongst moderately sophisticated investors who sometimes understand just enough about investing to be a danger to themselves. While dividends aren't nearly the prize that such investors think they are, they're at least mostly harmless. Except when their lure leads investors to ignore diversification, which definitely appears to be the case in this thread.

Buy a broad market index fund, and preferably one that doesn't specifically focus on dividends. You'll still be buying shares of your dividend aristocrats, and more importantly, you'll likely be buying shares of *future* dividend aristocrats.

KingCoin

  • Pencil Stache
  • ****
  • Posts: 783
  • Location: Manhattan
  • Achieved FI @ 30
Re: Investing in several or single stock over time?
« Reply #8 on: March 24, 2014, 11:18:01 AM »
Dividends seem to be a particularly attractive thing amongst moderately sophisticated investors who sometimes understand just enough about investing to be a danger to themselves. While dividends aren't nearly the prize that such investors think they are, they're at least mostly harmless. Except when their lure leads investors to ignore diversification, which definitely appears to be the case in this thread.

Yes, there's clearly a big psychological allure to dividends for moderately informed investors. But when you think about it, a company can do 3 primary things with earnings:

1) Issue dividends.
2) Buy back stock.
3) Invest in promising, high IRR projects.

Of the 3, issuing dividends is the least compelling option, yet, most blogs focus on a dividend strategy over the others. Perhaps because it's the easiest to understand, or getting an explicit "check in the mail" feels better than a stock buyback, the effect of which is the same but not as transparently observable.

The one nice thing I can say about dividend investing is that it probably keeps the investor fairly sober rather than chasing after the next pets.com. However, it's also harder to stick to for the long run. Anytime you start trading individual stocks, you have to exercise a lot more decision making, which leads to mistakes. It's much harder (though certainly not impossible) to stay disciplined and systematic as compared to using a passive indexed strategy. There's also a risk that you end up massively overweight low growth megacaps, sacrificing the higher expected returns of small caps.

waltworks

  • Magnum Stache
  • ******
  • Posts: 2515
Re: Investing in several or single stock over time?
« Reply #9 on: March 24, 2014, 11:20:08 AM »
How many times do we have to have the "I can beat the market" discussion?

A: No, you pretty much can't through skill as a small investor. You can get lucky, but then you're just saying you want to gamble.
B: You'll pay a fortune in fees and potentially taxes depending on how you do it.
C: You will waste a ton of your time.

Just buy some Vanguard mutual funds of whatever flavor you want and forget about it.

Of course, you won't listen, just like all the previous people who think they can beat the market. C'est la vie.

-W

MissPeach

  • Stubble
  • **
  • Posts: 185
Re: Investing in several or single stock over time?
« Reply #10 on: March 24, 2014, 12:08:23 PM »
I'll admit I own individual stocks for about 20% of my portfolio. If you are going this route and have identified the companies, the next step is looking at the charts and figuring out what to pay for them. Then put in an order for them and wait for the price to reach that.

You make money in individual stocks when you BUY the stock at a great price - usually when something happens at the macro level (people panicking) or the industry as a whole is doing poorly. Not always, but often times when people pull away from a stock and none of its competitors are being impacted it's usually a sign there is some bad news out there for it. Find it and evaluate how much sense it makes.

I've found most of my bargains when the stock is getting hit over stupid things like a competitor is having a bad day; not when something bad is happening to the company I want to buy. I usually recover my money pretty quickly and start picking up enough gains to insulate me for smaller market drops.

The Boggleheads books cover pretty well why people can't beat index funds over the long term.

seeking_north

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: Investing in several or single stock over time?
« Reply #11 on: March 24, 2014, 01:50:19 PM »
One could always buy an index, but when you need the money, you have to sell off assets.
If you have been saving in a dividend paying stock ( or etf ), you don`t sell of your assets. Its just divs flowing into your account.

Yes, it takes time to find the right companies to invest in, I agree. But, take a look at the top 10 or 20 holdings of almost all the indexes that you are interested in. Most likely all of them will contain the same stocks. Why not purchase those?

You can also DRIP the investments back into the stocks.. And some brokers/banks allow up to 100 free stock purchases each year.



Now, the thing about American stocks, is that its almost sacrilige to cut or lower a dividend. It signals something is wrong with the company and usually ends up with a massive drop in share price. Thats why many dividend growth investors sell of these assets when something happens to the dividend.

There is only some 500 companies in the US stock market of some 15.000 public traded stocks, that has increased their dividends each year, for more then 5 years.

104 have raised them for more then 25 years.
219 have raised them for more then 10 years.
183 have raised them for more then  5 years.

Any failure to raise them, or cut them during a year, and you are excluded from this list.



waltworks

  • Magnum Stache
  • ******
  • Posts: 2515
Re: Investing in several or single stock over time?
« Reply #12 on: March 24, 2014, 02:14:54 PM »
Sounds like you're good to go, then. Check back in 10 years and let us know how it went. I'm guessing you'll be stressed out and slightly poorer than the folks who just dumped $ into index funds.

FWIW, I don't know why you think index funds are illiquid. That says to me that you're really going to take a bath if you try to start picking stocks.

-W

warfreak2

  • Handlebar Stache
  • *****
  • Posts: 1140
  • Location: UK
    • Music by me
Re: Investing in several or single stock over time?
« Reply #13 on: March 24, 2014, 02:16:02 PM »
One could always buy an index, but when you need the money, you have to sell off assets.
If you have been saving in a dividend paying stock ( or etf ), you don`t sell of your assets. Its just divs flowing into your account.
If you buy an index fund, you can have it either accumulate (roll up the dividends into buying more stocks), or produce income (dividends are paid out as cash). But if you want cash instead of more stocks, why are you putting more cash into the account annually to keep buying more stocks? You could achieve the same result by just putting less of that $30,000/yr into the account and keeping some in cash.
I am a mathematician who teaches computer science, makes music and plays Go.

KingCoin

  • Pencil Stache
  • ****
  • Posts: 783
  • Location: Manhattan
  • Achieved FI @ 30
Re: Investing in several or single stock over time?
« Reply #14 on: March 24, 2014, 02:17:32 PM »
One could always buy an index, but when you need the money, you have to sell off assets.
If you have been saving in a dividend paying stock ( or etf ), you don`t sell of your assets. Its just divs flowing into your account.

This really only matters when you're living off your assets (you're still in the accumulation phase).  Also, it's unlikely your dividend stream is going to match your expenses exactly, so you're going to have to do some trading regardless (either reinvesting excess dividends or selling to make up for shortfalls), which makes this "issue" a non-issue.

Yes, it takes time to find the right companies to invest in, I agree. But, take a look at the top 10 or 20 holdings of almost all the indexes that you are interested in. Most likely all of them will contain the same stocks. Why not purchase those?

You can also DRIP the investments back into the stocks.. And some brokers/banks allow up to 100 free stock purchases each year.

Managing a large single stock portfolio is more time consuming and discipline intensive than managing a asset class based index portfolio (which, incidentally, will produce a dividend stream as well). The only compelling reason to pick your own stocks is that you think you can beat the market. Given the inability of basically 100% of professional managers to beat the market, it's borderline hubristic to think that you can.

Now, the thing about American stocks, is that its almost sacrilige to cut or lower a dividend. It signals something is wrong with the company and usually ends up with a massive drop in share price. Thats why many dividend growth investors sell of these assets when something happens to the dividend.

There is only some 500 companies in the US stock market of some 15.000 public traded stocks, that has increased their dividends each year, for more then 5 years.

104 have raised them for more then 25 years.
219 have raised them for more then 10 years.
183 have raised them for more then  5 years.

Any failure to raise them, or cut them during a year, and you are excluded from this list.

Other than stating some random statistics, what are you really claiming here? That these companies will outperform other companies in the future? Why do you believe this? Why do you believe that other investors are systematically mispricing these securities? Why do you prefer these companies to companies aggressively investing in promising new businesses? Why do you prefer these companies to companies aggressively buying back their own stock?
« Last Edit: March 24, 2014, 02:19:28 PM by KingCoin »

skyrefuge

  • Pencil Stache
  • ****
  • Posts: 999
  • Location: Suburban Chicago, IL
Re: Investing in several or single stock over time?
« Reply #15 on: March 24, 2014, 02:23:43 PM »
One could always buy an index, but when you need the money, you have to sell off assets.

Yes, but when a corporation needs the money to pay shareholders a dividend, they have to sell off (give away) your assets too. Whether your income comes from the corporation paying a dividend from their accumulated assets, or from you selling some shares, the value of your holding in the company is decreased by exactly the same amount. The only appreciable difference is whether it's you or the corporation that is making the decision to decrease the value of your holding.

If you don't understand how a dividend decreases the value of your holding (and "Its just divs flowing into your account" shows that you don't), that means you don't fully understand what a dividend is, and thus, you have no business investing in individual stocks until you learn more about the mechanics of investing.

(also, most indexes that you invest in will also pay dividends; indexes and dividends are not mutually exclusive. Though most wise investors during the accumulation phase see those dividends as an undesired effect if they have to pay taxes on them.)

Now, the thing about American stocks, is that its almost sacrilige to cut or lower a dividend. It signals something is wrong with the company and usually ends up with a massive drop in share price. Thats why many dividend growth investors sell of these assets when something happens to the dividend.

Which means those investors are probably selling at a loss then. Brilliant.

So why would you not have bought dividend aristocrat GE in 2007?
« Last Edit: March 24, 2014, 02:28:16 PM by skyrefuge »

seeking_north

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: Investing in several or single stock over time?
« Reply #16 on: March 24, 2014, 02:57:46 PM »
I am not talking about beating the index.. I want a steady stream of income when I reach FI.

As I showed earlier, if a stock costing $50 with a 2,5% div, increases it at a slower pace, say 8% each year. After 15 years, that Yield on Cost, gives me 7,34% on initial price.

The stock price could fluctuate from $10 to $100 and I would not care, as long as it still is paying out its dividend and increasing it each year ( I should ofcourse put more money into it in a weak market).

If I have $10.000, reciving $250 each year. If I dont reinvest a single cent of earned dividens or from my paycheck, after 15 years it will pay out 7,34% or $734.

If I put it all at once
100K : $7340
200K : $14.680
300K : $22.000

KingCoin

  • Pencil Stache
  • ****
  • Posts: 783
  • Location: Manhattan
  • Achieved FI @ 30
Re: Investing in several or single stock over time?
« Reply #17 on: March 24, 2014, 03:26:31 PM »
I am not talking about beating the index.. I want a steady stream of income when I reach FI.

In that's the case, there's no difference between selling off shares to raise income and receiving dividends (we could walk through why this is if you're not convinced, but trust me, it's true). In fact, selling shares is preferable because both the time and size of sales can match your needs perfectly (unlike dividends). Selling shares once and month, for instance, will cost you a minimum of time and expense.

You might be worried about having to "sell at the wrong time", but this concern doesn't really makes sense either. By receiving dividends from companies at depressed levels, you're forgoing reinvestment at depressed levels, which is functionally equivalent to selling off some shares at those levels.

Bottom line, dividends aren't some sort of free lunch. In fact, they can cause you to incur tax liabilities where there's no reason to.

warfreak2

  • Handlebar Stache
  • *****
  • Posts: 1140
  • Location: UK
    • Music by me
Re: Investing in several or single stock over time?
« Reply #18 on: March 24, 2014, 03:51:25 PM »
To make it even clearer, what do you think happens to the stock price when the company issues a dividend? Does it stay where it was? If it did, I would buy stocks one day before dividend-payout-day, and sell them the next day, no point holding them for the rest of the year when I could swap them for stocks which pay out a dividend tomorrow.

The stock price in fact drops exactly by what the market expected the dividend to be. (Since you're investing in stocks that you think will pay out predictably larger incomes, your plan is to get dividends at that market expectation). So a dividend is basically a forced payout; your holding in the stock decreases by exactly the amount that you are paid in cash. It's equivalent to selling an amount of stock that isn't decided by you.
I am a mathematician who teaches computer science, makes music and plays Go.

seeking_north

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: Investing in several or single stock over time?
« Reply #19 on: March 24, 2014, 04:33:41 PM »
If I where to use my example of $50 stock, yielding 2,5% and increasing that dividend each year with 8%.

These are conservative numbers.

For the company to keep that 2,5% dividend, the stock price would have to increase 8 % each year to match that dividend. The price would of course fluctuate, but investors would buy more as its dividend where rise to 3-4% ( stock price falling ), and would stabalize around 2,5% again.

So, after 15 years, the stock I purchased at $50, is now worth $159, still yielding 2,5% ( or $3,97 ) "right now", but my yield on cost is 7,94%.

Now, if I where to increase this amount with reinvesting my dividends, my numbers and dividends would increase each year.


So the stock has trippeld in value, and payed me $38 for just holding onto it during those years. If I needed to, I could sell it, like one would do with index fund.. but if its a healty company likely surviving for another 100 years, why not just let the dividends come in each quarter?

KingCoin

  • Pencil Stache
  • ****
  • Posts: 783
  • Location: Manhattan
  • Achieved FI @ 30
Re: Investing in several or single stock over time?
« Reply #20 on: March 24, 2014, 05:27:04 PM »
So the stock has trippeld in value, and payed me $38 for just holding onto it during those years. If I needed to, I could sell it, like one would do with index fund.. but if its a healty company likely surviving for another 100 years, why not just let the dividends come in each quarter?

There's absolutely nothing wrong with dividends or having the dividends "come in each quarter".  They're just not any better than companies who use earnings to buy back stock or invest in business opportunities. All should make you the same amount of money over time. The whole premise of your post is that you want to buy dividend issuing companies (especially very large cap dividend issuing companies) at the exclusion of other types of companies. This substantially complicates your investing activities without offering any benefits.

beltim

  • Magnum Stache
  • ******
  • Posts: 2751
Re: Investing in several or single stock over time?
« Reply #21 on: March 24, 2014, 05:53:02 PM »

There's absolutely nothing wrong with dividends or having the dividends "come in each quarter".  They're just not any better than companies who use earnings to buy back stock or invest in business opportunities. All should make you the same amount of money over time. The whole premise of your post is that you want to buy dividend issuing companies (especially very large cap dividend issuing companies) at the exclusion of other types of companies. This substantially complicates your investing activities without offering any benefits.

In principle that's true but in practice company (mis)management usually mistimes stock buybacks and business opportunities, while a dividend (assuming it's paid out from earnings) enforces a certain level of discipline.  Over the past 40 years, companies that grow their dividends have much better performing stocks than (in order) stocks with no change in dividends, stocks that don't pay a dividend, and stocks the reduce their dividend.
http://www.thomaspartnersinc.com/why-dividends_dividends-matter.html

KingCoin

  • Pencil Stache
  • ****
  • Posts: 783
  • Location: Manhattan
  • Achieved FI @ 30
Re: Investing in several or single stock over time?
« Reply #22 on: March 24, 2014, 06:36:47 PM »
In principle that's true but in practice company (mis)management usually mistimes stock buybacks and business opportunities, while a dividend (assuming it's paid out from earnings) enforces a certain level of discipline.  Over the past 40 years, companies that grow their dividends have much better performing stocks than (in order) stocks with no change in dividends, stocks that don't pay a dividend, and stocks the reduce their dividend.
http://www.thomaspartnersinc.com/why-dividends_dividends-matter.html

Interesting study. Any from unbiased sources? They don't really elaborate on their methodology, and they have a dog in that fight.

I'd be surprised if they continue outperforming (assuming they have in the past). Beating the market has never been that easy.

seeking_north

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: Investing in several or single stock over time?
« Reply #23 on: March 24, 2014, 06:43:11 PM »
Add to beltim:

Its true that most buy backs occure when the stock is overvalued. The company is expanding fast, has to much cash on hand and buys up their own stock.. I have seen some scary examples from the largest companies in the US buying up their own stock, hand over fist, at the height of the stockmarket.

If they cant spend it wisely, or recive higher return on plants, equipment, training their workforce, give it back to their owners ( ie. shareholders ). Buy backs is OK, after, say a significant down turn, when the company is obviously underpriced.

The shareholders are the owners of the company. Give them back a return on their investment!



And, also to beltims link. I have seen similar calculations like that on several other sites. Even Jack Bogle stated that dividend paying stock has accounted for most of the growth in the stock market!




And just a note on fees.

If I where to purchase 50 stocks ( most likely lower ), lump sum buying them, it would cost me 0,2% of my total capital.
If I don`t reinvest more money, only using the dividends to pay, once per quarter, thats 4 purchases the following years, and say I increase my stake in 3 stocks each quarter, 12 purchases it would cost me, 0,05% each year to "rebalance" my account.

hodedofome

  • Handlebar Stache
  • *****
  • Posts: 1110
  • Age: 37
  • Location: Texas
Re: Investing in several or single stock over time?
« Reply #24 on: March 24, 2014, 09:30:23 PM »
It seems you are dead set on your strategy. Nothing wrong by that, just don't expect to get a lot of encouragement from a message board dominated by Bogle heads. I'd suggest reading everything you can about investing. Turn off the tv and read every evening. Read all of Berkshire Hathaway's annual letters. Buffett and Munger have said being a successful investor is fairly simple but most people won't do it. Just read several hundred pages a day and you'll figure it out. I think Buffett reads about 500 pages a day and Munger even more. They spend 85 percent of their time in the office reading. If you are willing to discipline yourself to match your passion for investing, then I say go for it. Don't look for approval from anyone else, most people will say you're crazy anyways. They won't understand because they haven't put themselves out there to achieve something that most say can't be done. It might be a lonely road but it will be worth it in the end.

innerscorecard

  • Pencil Stache
  • ****
  • Posts: 590
    • Inner Scorecard - Where financial independence, value investing and life meet
Re: Investing in several or single stock over time?
« Reply #25 on: March 24, 2014, 09:53:40 PM »
I think what a lot of people don't realize is that even non-professional investors like Jason at Dividend Mantra who buy individual stocks in fact do a lot of analysis. He spends a lot of time doing fundamental research. If you aren't willing to do that for a few days each week and have no financial background, then indexing is far superior for you.
Inner Scorecard - Where financial independence, value investing and life meet: http://www.innerscorecard.co/

beltim

  • Magnum Stache
  • ******
  • Posts: 2751
Re: Investing in several or single stock over time?
« Reply #26 on: March 24, 2014, 11:48:17 PM »
In principle that's true but in practice company (mis)management usually mistimes stock buybacks and business opportunities, while a dividend (assuming it's paid out from earnings) enforces a certain level of discipline.  Over the past 40 years, companies that grow their dividends have much better performing stocks than (in order) stocks with no change in dividends, stocks that don't pay a dividend, and stocks the reduce their dividend.
http://www.thomaspartnersinc.com/why-dividends_dividends-matter.html

Interesting study. Any from unbiased sources? They don't really elaborate on their methodology, and they have a dog in that fight.

I'd be surprised if they continue outperforming (assuming they have in the past). Beating the market has never been that easy.

Unfortunately not.  I had seen a figure like that from another source before (and I know it was a different source because I remember one of the categories being negative), but I only found the one I linked after a surprising number of google searches.  I'll probably look again sometime though.

wtjbatman

  • Handlebar Stache
  • *****
  • Posts: 1323
  • Age: 34
  • Location: Missouri
Re: Investing in several or single stock over time?
« Reply #27 on: March 25, 2014, 12:52:42 AM »
If you're going to follow a dividend growth strategy, make sure you are doing enough research of both the strategy, and individual securities you're investing in, so that you can make informed decisions. It is not as easy as index investing, but that doesn't mean it can't be just as rewarding. And I mean that more than just monetarily.

innerscorecard

  • Pencil Stache
  • ****
  • Posts: 590
    • Inner Scorecard - Where financial independence, value investing and life meet
Re: Investing in several or single stock over time?
« Reply #28 on: March 25, 2014, 02:06:22 AM »
Yeah, I do think dividend growth strategy is much easier to grok intellectually than indexing. That's not to be under-appreciated.

It's mentally very satisfying to have your entire iDevice budget for the year covered by your AAPL dividend, or all your beverage purchases covered by your KO dividend.

I've actually been thinking weird fanciful thoughts about a potential portfolio whose dividends proportionally matched ALL expenses. So REIT dividends for paying your mortgage and XOM to pay for your gas, but for everything. Would be kind of fun as an intellectual experiment.
Inner Scorecard - Where financial independence, value investing and life meet: http://www.innerscorecard.co/

wholeinone04

  • 5 O'Clock Shadow
  • *
  • Posts: 9
Re: Investing in several or single stock over time?
« Reply #29 on: March 25, 2014, 09:55:12 AM »
Investing is complex, if you don't understand the the mathematical theories behind an investment you should not be investing in that asset class.  The following are facts:

1.  When a company pays out a dividend it's share price is reduced by the same amount, otherwise we'd all just buy dividend stocks right before they pay out dividends.

2.  If you take a dividend paying company and a non-dividend paying company, the returns after X number of years will be equal assuming the same amount of capital investment(if you don't know what this means, you don't understand dividend investing).

3.  Dividends are taxed yearly while the capital appreciation portion of index funds aren't taxed until you sell -> therefore index funds are more tax efficient than dividend funds.

So you get less return with dividends than index funds due to taxes, so why would you ever invest in them?  Anyone disagree with my math?

That being said, investing in dividend funds is not a bad strategy.  There are much worse things you can invest in and you might even end up right around an index fund but don't think that mathematically it's a superior investment because it's not.  If you're going to do it, at least invest in a dividend index fund.

More details here:  http://yourpfpro.com/young-professionals-invest-dividend-stocks/

Vjklander

  • 5 O'Clock Shadow
  • *
  • Posts: 50
Re: Investing in several or single stock over time?
« Reply #30 on: March 25, 2014, 10:22:32 AM »
I have some $30.000 each year to save the next 10-15 years.

I want to invest in dividend paying stocks, but I not sure how I should do this. I am looking at 20-30 stocks that has increased their dividends for 10+ years. Most even longer.

I am not sure if I should buy 1 or 2 stocks each year. Or spend, say $1000 on 30 stocks each year? I will reinvest the dividends back into the stock(s) that has fallen the most during the last quarter.

I am mostly interested in yield and dividend growth, not appreciation of the stock ( even thought Im not against it ), as I want it as a income generating asset for the next 40 years.

The companies are the "regular" ones.. KO, GE, WMT, XOM.. etc etc

Whats your thoughts about this?

I would put ~$10k in 3 different stocks each year. A good start would be CHD, POM, and VZ.  If you can tolerate a little more risk, try LNCO.

Vjk