The Power of Long-Term Dividend Investing

Before going to the main subject, I would like to give you my take on the Trump presidency, as a lot of my clients were asking me for my opinion. I told them a story of my father and I, which took place when I was working with him. I didn’t like certain businessman that we had to do business with and the conversation went something like this:

Me:      I don’t like this guy.

Dad:     Are you going to marry his sister?

Me:      Hell no!

Dad:     Are you going to marry his daughter?

Me:      No way!

Dad:     Well then, it is all about the business, so don’t lose focus.

So, to all of the Trump critics (and this does not apply to US citizens), I say “It’s about business and making money, so don’t lose focus.”

And now back to the main topic of long-term dividend investing. Let’s start with the question of which type of equity performed the best over the last 15 years. The answer lies with the following chart:

 

Data from: Seeking Alpha

 

As you can see, investing is best done with long-term investment objectives in mind. With regards to the stock market, volatility is often neutralized by diversification and a wide investment horizon. Such a set-up will not only boost chances for capital appreciation, but also allow the investor to gain from dividend-paying stocks.

When publicly listed companies (the large ones, specifically) turn a profit, they usually offer a share buyback or pay out dividends (typically every quarter) to investors. For the latter option, it can potentially provide stockholders with a good asset growth machine by investing the money back into the company.

Dividend stock investing may serve as a shelter for most investors because they are relatively stable even during turbulent times. The slow compounding nature is countered with generally lower volatility over time. The steady and periodic payments that dividend-bearing securities offer make them an attractive asset class to include as a component in any investment portfolio during both tough and thriving economic times.

 

Taking Emotion out of the Picture

Stock investing makes people vulnerable to emotional shifts as they are directly exposed to severe market fluctuations that can happen in a span of just one day. Anxiety can overwhelm the heart when prices plummet, while excitement can lift the spirits up when the market becomes bullish.

In long-term dividend stock investing, such emotional extremes are reduced. Investors see their asset more as a breathing, growing piece of security rather than just a vehicle to make immediate money. This way, they are able to ignore the relatively slow growth rate as it may translate to bigger yields at the end.

 

The Snowball Effect

Reinvesting dividends will increase the stocks’ incremental payouts building equity in one’s position, which in turn produces bigger profits in the succeeding payouts.

Dividend-paying stocks are favored by many veteran investors because they create another, more stable form of capital growth strategy outside share price increases. For the investor, it is a very convenient method of reinvesting.

In summary, the financial success of a dividend stock investment is not based on the impulses of the market itself, but rather on the long-term success of the company. To know if this kind of investment matches your needs, goals, and risk profile, contact ihab.azab@lom.com now.

The information contained in this article is for information purposes only, and represent the views of the author. It is not intended as specific investment or financial advice, or a recommendation or solicitation to buy or sell any security. Any investments or strategies listed in this article may not be suitable for all investors. Past performance is not indicative of future performance, and as with any investment, prices may fluctuate. It is recommended that advice is sought from a qualified investment professional prior to implementing any financial plan. LOM has made every effort to ensure that the contents herein have been compiled from sources believed reliable, however LOM does not warrant the accuracy, adequacy, timeliness, or completeness of this information expressly disclaims liability for errors or omissions in this information.