In my last post, I discussed about two important but overlooked aspects about dividend investing. Today, I am discussing few tidbit that I have learnt over the years.

Dividends provide stability in your portfolio: Companies that are generating profitable cash and sharing with shareholders are the ones that do not go bust. Even in down market they give you cash dividends. While your portfolio’s capital values go down, your dividends are positive return to you portfolio. I crave for such a scenario. I position myself to make sure I have enough cash to buy such companies at lower valuations. I see downturn such as early 2009 as an incredible buying opportunity.

Dividends to investors cannot be manipulated: Companies demonstrate profit in their books which fuels the market price. But can you as an investor spend company profits? Profits can be generated from financial engineering, ROC or ROE can be engineering, but cash flow from operations or dividends to shareholders cannot be manipulated. As an investor you need cash to spend, and not company profits. The company you work for gives you cash (and not profit statement). Will you be willing to work for profit statement? Probably not!

Good quality dividends are proxy for measuring company health: As the time moves on, the dividends from the company should grow. You may occasionally have an issue, but then over time it has to be an increase trend. The stagnation of dividends is an early indicator; get the hell out of it.  You expect your employer to give you a raise periodically, Right? So why not expect the same from your investments?

Dividend portfolio is like a mango tree: It takes seven to eight years to grow the tree and have the first mango crop. But after that you keep harvesting the fruit, without cutting the tree. It keeps giving your fruits for 20+ years. Dividend investing is like growing a mango tree farm.  In few years, it will start your dividend cash flow. Most the successful business men grow their mango tree. They grow their business which takes few years to develop. But once done, they keep enjoying its fruits. How many well known, wealthy, and successful traders do you know? Probably you can count on fingers? Now try to count successful business owners? Your fingers are not enough to complete the count! These business men are wealthy can easily throw few crores in market to make quick buck. But they know it is a worth less exercise. Instead, they throw their time and money to focus on growing their businesses. I hope you get the message.

Dividend portfolio requires low maintenance: Once your mango tree grows, you spend less time nurturing it. You can do something else. Similarly, a good well diversified dividend portfolio will require low maintenance. You can enjoy your time in doing something else. So now you know how come these big business men get time to do other leisure activities.

We individual investors fail to realize these aspects. We get carried away by market chatter, tipsters, an advisors around us. In our quest for making that quick (but often elusive) buck and without hard work, we lose focus from our long term objectives. Don’t look at one or two profitable trades. Look at your overall results. The lack of investing vision and patience to execute your own investing process is the biggest reason for our failure. Our perpetual and eternal objective of becoming wealthy is never full filled. Success always keeps eluding use. And by time we realize its too late.

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