These growing dividends that beat the market (3/3)

In our first two articles in this series on growing dividends, we looked at the unique qualities of stocks that pay distributions. We first discussed dividend interest in general, before focusing more specifically on which progress from year to year. Today we will talk about the most important key success factor of this strategy, namely: YOU !

You were singing? I'm very happy about it, well dance now! Speculators make easy money quickly, but their models inevitably end up failing and the profits made are very quickly transformed into losses. Dividend gains are less sexy, but, like a good wine, they improve with age. They can also be compared to a diesel engine, less responsive, but solid and durable. There is no point in running, you have to start on time. A bit of a tortoise, a bit of an ant, a bit of a vintage and a bit of a diesel. These metaphors are there to help you understand what type of investor is perfectly suited to a strategy of increasing dividends. Hares, cicadas, big reds and 16V engines, move on, because you will get tired of them and sell too soon.

To be profitable, as with any stock market investment, the investment horizon of a strategy based on growing dividends must be at least five years. However, for the magic of compound interest to work wonderfully, it is necessary double, or ten years. A rentier or a retiree should therefore give priority to higher yielding securities, or, even smarter, mix it up with increasing dividends, which provide good protection for income against price increases.

Over periods of ten years or more, the investor must be able to remain perfectly calm. LThe risk of his titles must therefore correspond to his personality: not "hot" enough, he gets tired, too much risk, he gets scared. For this reason, we always take into account before investing in a security, in addition to the yield and growth of dividends, its volatility. This is a guarantee against emotions, very bad advisers in stock market matters.

In the following text, Marc Fortier gives us an interesting insight into the highly psychological perspective of investing in growing dividends:

For a first-time investor, whether or not you receive a dividend may seem like a minor consideration, given that the investment will likely be modest, as will the amount paid into the account later(...). While the potential for profit with this stock is real, you must admit that the potential for loss is just as real. In fact, the potential for gain (or loss) on your investment depends largely on your ability to identify the right time to buy and sell the stock. Even a seasoned investor surrounded by an army of analysts will have a hard time consistently choosing the "right time". Just take a look at the returns of stock portfolio managers over time to be convinced.(...) This is my point: a savings strategy targeting companies that pay a growing dividend will satisfy the patient investor. Not only will he enjoy a steady and growing income that will help him "batten down the hatches" and ignore the bubbles of exuberance and the winds of panic that inevitably shake the markets, but in addition he will have concentrated his shareholding in top-quality companies, whose market capitalization can only increase over time. As long as he remains disciplined and keeps a close eye on his "business", the investor targeting dividends and growth will be admirably positioned to make money on the stock market. It's as simple as that.

The primary objective of a dividend growth investor is therefore always income, and never stock market capitalization. Not only do they bring him a regular influx of fresh money, but above all They protect him from his investor schizophrenia, constantly hesitating between fear and greed. Paradoxically, this focus on income to the detriment of added value gives better results than the market as we saw in our first two articles.

Let us remember that we do not believe in stock market martingales, at least not in the long term. Dividends, and in particular Yet growing dividends have proven their superiority over long time horizons, even though this is not their primary objective. Perhaps their defensive aspect protects them against the irrationality of the market and investors, thus allowing them to generate better capital gains in the long term...

For more on dividends and dividend growth:

http://www.bourse-investir.com/conseils-dividendes.html
http://www.conseiller.ca/ma-pratique/les-actions-a-dividendes-toujours-les-plus-payantes-28464
http://dividendsngrowth.blogspot.com/2009/01/patience-et-longueur-de-temps.html