Do you know how many people investing and/or trading in equity markets truly succeed over long term? Success here means increase in wealth over their investing lifetimes. This group of people includes individual retail folks and professionals. I am sure many of us would have no clue.  I do not have any hard core reference to share; however, I can recall reading various percentages that range from 1% to 7%. Without going in specific data points, my observation has been every time this is less than 10% of investing population. More than 90% of the folks will lose money in equity markets over their investing lifetime. Quite startling but this is very true.

We as individuals focus too much on one or two big time success or multi baggers, but ignore the importance of sustainability and consistency. We fall into the “Chalta hai” trap. Long term success is not built on few multi-baggers. Long term success is built on multiple average successes that are sustainable over time.

My articles here may seem to be biased towards long term investing, but irrespective of this, I continue to believe that any form of trading and investing, has its own set of pros and cons. It depends upon what context an individual is looking at it. In the end, trading and investing is done to make money (or increase one’s wealth). Some use approach of capital appreciation, some use dividend income, some do trades to generate income. Like everything else in life, here also, we forget that the key is to have a plan and execute it for consistency.

The lack of discipline is what kills individual retail investors. We do not have conviction to execute our own well crafted ideas. Our ideas are for others to execute. When it comes to dividend investing, each one of us thinks of high yields. Indian investing blogosphere is filled with examples of companies that provide high yields. But the missing element is conviction to execute on those ideas. Those ideas of high yield stocks are for others to execute. The missing element is conviction to truly understand what it really means and how it will “help me in my wealth creation”.

There are two overlooked aspect of dividend investing, which are (1) dividends add to your total returns; and (2) it is about capital appreciation in long term. It is my view that:

• good quality of dividends come from companies that consistently generates cash from selling its products, effective use of capital for growth, prudent debt management, and remains focused on its core competency.
• When such companies expand and grow over time, it will grow its earnings and dividends. This growth in company is bound to result in increased value and increased growth (hence capital appreciation).

A good company with a very good business model and excellent execution will consistently increase its operating cash flow, sustain it, and make effective use of capital. Such companies have low downside risk. Even if they get pulled down by other macroeconomic trends, it tends to be a short term event. In general, such companies bounce back very quickly. In addition, the continued dividend payments keep on adding to your total returns. Few examples of dividend paying companies show us how much total dividend have been paid over last few years.

Dividends do not receive much attention in our investing chit chat because, there is no panache attached to it. They are very small and insignificant against few multi-baggers. We all want to talk about the stock of the day or story of the day, whether it matter to us or not. Dividend investing does not mean focus on high yield only. It is about consistency and sustainability which inherently focuses on total returns. I believe it works and I have a conviction to execute it. Just remember, in the end, it’s tortoise that wins the race, and not the rabbit.