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Thursday, May 24, 2018

There Are No Guarantees In Life

Nothing in life is guaranteed. One of the reasons why I love dividend growth investing is because it will allow me to retire early. I will be able to do anything I want at that point. I may still work, but I would find something that I truly love and wouldn't have to worry about the salary. The idea of working until you are 65 and then retiring is antiquated. Even with the average lifespan increasing, there is still a possibility of not making it until 65. I don't mean to sound pessimistic, but I'm just looking at the realities of life. My girlfriend's mom passed away before she was 55. She was healthy and it was just a freak thing that happened. I want to be able to enjoy life while I'm still young. Even if I ended up retiring at 50 I would be happy. That is still way better than 65.

Now how does this relate to dividend growth investing? Well nothing in life is guaranteed, but dividends can be very close to a sure thing. A lot of people I talk to about dividend growth investing always say, "well a company could stop paying a dividend at any time." While this is a possibility, the right dividend stocks will continue paying dividends well into the future. I then provide them with examples of certain companies that have been paying and increasing dividends for 10, 20, 30+ years. These companies include Proctor & Gamble (PG), Johnson and Johnson (JNJ), and 3M Company (MMM). There are many more, but these are just a few.

I also don't really care if one or two companies stops paying a dividend or cuts a dividend. That is where diversification comes into play. I've been investing for over four years now and I haven't had one company stop paying me a dividend. I've had a couple companies decrease their dividends, but they have continued to pay and some have started increasing their dividends again.

Even with all the market turmoil over the past four months, these companies have continued to pay me. 

These dividends that continue to accumulate also mitigate risk if a company were to go bankrupt in the future. A great example is my first dividend investment in Verizon (VZ)

On March 14th, 2014 I bought 75 shares of Verizon for $46 a share. 


Verizon is a relatively boring company in the sense that they are not super innovative and cutting edge, but they have a good network and a lot of customers which means they have a good amount of revenue. They have a lot of competition and they don't usually stray too much from earnings estimates. 

The price of their stock has been very underwhelming up to this point, but I still believe in their long term value and their dividend is very attractive. 

When I first purchased the stock their dividend yield was around 4.65%

Their yield now is around 5% and my yield on cost is at about 5.10%

I like to keep track of all my dividends received per company and Verizon has paid me $720 so far! This is a huge number for four years of owning a company. This has guaranteed me a return on the stock. If tomorrow their stock price went to 0, I would have at least come out with $720. If they continue to grow and pay their dividend and stay in business for even just a few more years then I'll have an even higher guaranteed return. I'm betting they will be in business for more than a few more years though... 

This is why I love dividend growth investing. When you invest in these high quality dividend growth stocks you are basically getting a guaranteed return on your money. A lot of people are afraid of investing for fear of losing money. Unless you are investing in risky companies with no dividend then there really isn't a good chance of this happening at all. Can I say there is a 0% chance of this happening? No, but the number is very, very low. 

So far I've made close to $7,000 in dividends from all the companies I own. This is real money that I've used to buy more stock. This number will only compound and grow exponentially. Eventually, I will have made $40,000+ in dividends in just a few more years. Dividend growth investing is a real strategy that does work. If you invest in high quality dividend growth stocks you can create a real passive income stream that you can use to cover your expenses. 


What do you guys think? Let me know!

 

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