Don’t Abandon Your Written Plan but…
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%
Know Your Flocks & Herds 
Nice read! Would love to see a more detailed break down of your portfolio. No exact numbers but perhaps your diversification across firms and sectors
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Bull Beta: Although it is a bit dated, as I have sold a few positions since I created it, there is a PDF of our holdings on the main page (right side) that says “Wayne’s Holdings”. I can create a new post by sector and weighting, so I will add that as a future post.
https://www.dropbox.com/s/qz6msgh8j5nfhr7/Proverbs27Flocks-Blog-Holdings-2019-12-23.pdf?dl=0
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Very nice article! I enjoyed a lot Reading it. Thanks for sharing.
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Good read! I have always been interested in learning about dividend income investing. I’ve been a passive index fund investor for about 2 years now (coming down from the youthful highs of individual stock selection), but I recently addressed in a post of mine that nearly half of market returns (S&P 500) are derived from dividends. What has your return breakdown looked like over your investments between dividends and overall appreciation? I’d be interested if you’re open to sharing. Thanks!
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First of all, thanks for the comment. I wish there were an easy way for me to answer your question. However, since February 2003 through 03/31/2020, my return from market gains has been 40.2% of my total growth in assets so that means dividends were 59.8%. Read that with a bit of skepticism, as my portfolio and strategy have changed dramatically over the years. I used to keep far too much of total assets in “blended mutual funds” and had far too many dollars is “safe” bond investments. I also switched from mutual funds to individual stocks with a focus on disciplined dividend growth in the last 5-6 years. When I retired, I realized my number one part time job was managing our family investments. As a result, using the things I learned about investing and about business, I changed my requirements and my goal statement. My goal statement stated a specific dividend’s per year dollar amount and a goal to fund all of my RMD’s from dividends so that my need to sell any investment was dramatically reduced. I believe having a good, written investment plan based on a time-based, measurable objective is central and it drives my decision-making. I still value asset appreciation, but I am not chasing overall appreciation as my primary goal. Does that help?
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Thank you so much for the detailed response! To be concise, my answer is yes. This helps paint the picture. I have so many things I am taking away here from the goal statement (I call it my Investment Policy Statement), your investment approach (family stewardship), and where your returns are roughly being derived from under that policy. Thanks for getting into the nitty gritty there for me. I’m assuming the vast majority of these are qualified dividends, which puts you in a remarkably low tax bracket, correct? I also have a new piece of homework (RMD’s). Always something new to learn about isn’t there?
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Yes, the vast majority are qualified dividends. However, in a ROTH IRA it doesn’t matter and in a traditional IRA taxes are at the income tax rate. It certainly matters for our brokerage account and that will matter even more as I take our RMDs (Required minimum distributions.)
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