Don’t Abandon Your Written Plan but…

Is it time to abandon ship? I don’t think so.

Adjust Your Goals and Expectations

Don’t abandon your investment strategy. Examine it and adjust it as you learn new things. Sometimes the proper response is to jettison some individual stocks but don’t run for the lifeboats. Work on what is working. Patch the leaks and continue sailing.

I am not surprised by the “revelation” that dividend growth will slow due to the pandemic. It is important to remember a couple of things related to dividend growth. One is that dividend growth will be variable based on many factors. This is true even if there is no coronavirus to impact income and earnings growth. It will also be impacted by companies that reduce or suspend their dividend payments. I have already seen five companies in my portfolio reduce or suspend their dividends due to the coronavirus. I sold some of them and kept some based on what I believe are data-based, long-term expectations.

The second thing to remember is this: Dividend growth is still a good long-term strategy and I believe should be a part of an investor’s written investment plan. The reason is simple. A good chunk of the overall market gains over time are related to dividends. As dividends are increased, long-term investors are attracted to the stock. I have many examples of this in our investment portfolio.

The image on this post shows the dividend growth of our five accounts at Fidelity Investments. You will see that 2020 is not looking like a growth year. This is due, primarily, to the impact of selling some positions that used to be dividend growth, but the company suspended their dividends. Most of the time when I see a dividend cut or suspension, I sell the position. I have altered that approach for two positions. One was Ford. I am not selling my Ford stock.

I am not selling my Ford stock. I also have been buying small lots of dividend growth investments and added to my VYM holdings.

This University of Chicago article is worthy of a couple of minutes if you are interested in this type of investing. University of Chicago paper sees U.S. dividend annual growth sinking 28%