Dividends For Consistent Returns
“I wish they would end the strike. It’s just stupid,” lamented Mark. I just met him on the golf course and we were in deep discussion. He joined our golfing group and turned out to be a pretty good golfer. As we chatted, we discovered we would also be at the same New Years Eve party. It’s a small world.
Like most encounters with new people, discussions drifted toward careers.
Mark is connected to the television and movie industry. He is far from a big-shot Hollywood star but when he speaks about his work he clearly has passion. His career started with a popular sit-com in the 80s and eventually he worked on a few movies. He plays an integral part in getting these shows to the screen.
Now, the writers’ strike has been going on for awhile. Predictions of a short strike and quick return never materialized.
As such, the strike went on.
Guys like Mark are proud and strong. He would never admit it but some of his colleagues are struggling. Incomes have gone to zero and opportunities to find temporary employment are few and far between. Mark took a long overdue vacation. Now the relaxation he experienced has been replaced by stress.
Clearly some are faring better than others. Before the unions agree to a settlement, we could see many more months pass by. Now, this situation begs the question:
How can striking workers like Mark hold out until their demands are met?
I spoke with Mark extensively about his career and financial predicament. He had an interesting way of molding his financial needs to his investing strategy. He realized early on that he needed to focus his investments on income generation. In a word, he needed dividends.
Now, it’s not an exotic solution. Dividends won’t turn people into millionaires overnight, but they’re traditionally safe and stable. And that’s something Mark and his colleagues desperately need at the moment. The prospect of not having an income for awhile can be very frightening.
So how did he stabilize his life and fears?
Mark focused on using his investment dollars to replace part of his lost income with dividends. I know, it sounds easy but believe me it’s not. The key is not to rush out and just buy the highest yielding dividend stock you can find in the Wall Street Journal.
That will only get you into trouble. If you did that a month or so ago,
you would be holding stocks like Washington Mutual. Stocks that had artificially inflated dividends due to their stock price falling off a cliff. 9 times out of 10, these companies cut their dividends.
Instead, I recommend focusing on long-term dividend growth. Look for companies who’ve paid dividends for years and increase them over time. These are typically solid businesses that provide very stable returns and reasonable growth. Reinvesting the dividends also provides a nice boost to yields down the road.
Mark was smart to start this investment strategy a few years ago (as strikes are a constant in his business). He allowed his investments in dividend stocks to grow slowly over time. Now he has the confidence and security of knowing that dividends have replaced much of his lost income. That’s how he’s surviving the strike (and taking care of his financial future at the same time).
If and when things get more turbulent with the stock market and economy, dividends may play a role in helping investors see through it. They have in the past and you can bet they will in the future.
Category: Dividend Stocks
