Q. When you write about dividend investing, you say to choose companies that have been paying dividends for “many decades.” Why “many decades?”
A. There are several things to consider when determining how to approach investment.
First, I choose dividend investment. I choose to buy stock to obtain the dividends. This is different than buying stock for the purpose of selling it later.
Dividends are much more stable than stock prices. Consider the daily volatility in stock prices. Then compare that to the relative stability of dividends. For me, the stability and general growth of dividends makes it an easy choice.
Secondly, time is a factor. Dividends usually grow slowly. Stock prices can vary widely. Prices fluctuate, sometimes rapidly. As a result of the fluctuations there is opportunity and also danger. One can easily make as well as lose money. I choose the low volatility of dividends over the frequent opportunity to lose money by buying and selling.
Why Many Decades?
I look for dividend payers who have successfully paid, and often increased, dividends over many decades. I want to choose companies who have been able to withstand the changes that occur over many kinds of business cycles. It is only the companies that can withstand the opportunities and pressures of many business cycles that have the possibility to maintain dividends through thick and thin.
We often see how many companies find themselves in a predicament when times are tough and resort to cutting or eliminating their dividends. While this sometimes seems inevitable, the lost momentum can have a deliterious affect on one’s wealth. By choosing long term dividend payers, we increase the odds of maintaining and increasing wealth over the long term.
Q. Where do I find these “many decade” dividend payers? Where do I find companies that have paid and increased dividends consistently over time?
A. There are several way to easily find longer-term dividend payers. Here are some:
Dividend Kings: These companies have been paying and increasing dividends for more than 50 years.
Dividend Aristocrats: These companies have been paying and increasing dividends for more than 25 years.
Dividend Contenders: These companies have been paying and increasing dividends for 10-24 consecutive years.
Dividend Challengers: These companies have been paying and increasing dividends for 5-9 consecutive years.
A simple internet search can show the names of companies in each group.
I should add that simply because a company is on one of these lists does not make it an automatic buy. There are many other factors to consider, such as price, PE ratio, Dividend Payout ratio, sales and profit trends, competitive position, and so on. You will need to do some research to determine when and if a specific company is right for you.
What are your choices? Let me know here.
The illustration of a comet is from 1587 by an unknown author in a hand-lettered book entitled Kometenbuch (Comet Book), subtitled (in translation) “Comets and their General and Particular Meanings, According to Ptolomeé, Albumasar, Haly, Aliquind and other Astrologers.” It is currently in Universitätsbibliothek Kassel (Kassel University Library, Kassel Germany). License: Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).