Why Be A Dividend Growth Stock Investor?

In Tuesday’s Juice, we made a prediction for 2024: 

• A return to dividend-paying stocks. 

In that installment, we provided details on the poor performance of dividend stocks in 2023. If nothing else, our discussion around the out-sized gains of tech’s top performers, as well as our two biggest picks of 2022 and 2023, Uber (UBER) and DoorDash (DASH), underscores the recent dividend versus non-dividend stock reality. 

As fund company WisdomTree pointed out on its blog: 

Companies that paid no dividend just had the greatest 20-year bout of outperformance over the biggest dividend payers on record.

Absolutely, out of the stocks we mentioned yesterday, UBER, DASH and the Magnificent Seven, only Apple (AAPL) and Microsoft (MSFT) pay a dividend. And these nine stocks — seven of which pay no dividend — are among the cream of the crop on the aforementioned outperformance. 

But does this make you an idiot if you’ve been a dividend growth investor (see this link if you’re unsure exactly what dividend growth investing is) for the last 20 years or plan to become one now or in the future? 

The Juice thinks not. 

Because it’s never as simple as 20/20 hindsight. It’s not even as simple as being right about the future. 

However, it is as simple as your goals and mindset. 

A few thoughts to this end:

• It’s easy to look in the rearview mirror on stocks. 
• As they go up, especially the way it seems many tech stocks have in recent times, there’s a sense with some investors that they can’t keep going higher. 
• This is the same way some people view housing. They don’t buy, because they have this sense that they’ll be buying the top. 
• Of course, these are both false senses. 

But, this is how a large number of investors act — psychologically. This mindset dictates their investing. And it absolutely should. While you can draw a straight line on tech stock returns, there has been considerable volatility. Quite a few scary pullbacks. 

Don’t forget that in November, 2021, the Invesco QQQ ETF (QQQ) traded for nearly $400. Now, it’s around $395. Granted it was closer to $150 five years ago. 

Tesla (TSLA) took even more of a rollercoaster ride. 

So, a lot of this has to do with timing and balls of steel. If you jumped into QQQ in November 2021, you had to have stomached the bottom falling out to enjoy 2023’s upside. And, after it all, you’ve only ended up back where you started. If you were in since 2019 — or earlier — you might have taken profits along the way. 

People shake themselves out of positions for all sorts of reasons. Some practical. Some psychological. It’s tough to judge an investor for making a move, even if it turns out they left money on the table or were objectively wrong. 

Which brings us back to dividend stocks: 

• If you only buy stocks that pay dividends, you might have owned AAPL and MSFT all this time, collecting and reinvesting the dividend, while watching the two stocks soar about 367% and 250%, respectively, over the last five years. Not bad, an income investor who participated in the tech rally. 
• You might not have the stomach for volatility or the feeling you can’t shake that we’ve seen the top. This is enough reason to follow your psychology. It’s better than tossing and turning every night. 
• Maybe it’s consistent and reliable income you’re after. While there are no guarantees (see Disney (DIS), the fourth most searched dividend stock in our Trackstar database), some people place a steady stream of income over share price appreciation. 
• Sounds dumb to a lot of investors, but not the retiree who simply needs his portfolio to throw off X amount of money each month and literally can’t afford a wild ride. 

Absolutely, you would have been better off buying Tesla or some other high flier five years ago with every last penny and nimbly taking profits along the way. But you also should have bought that Victorian in Nob Hill for under a million bucks 25 years ago. 

All easier said than done when you already know what happened and you take emotion out of the equation. 

The Bottom Line: Every investing approach has pros and cons. We often advocate a SPY and QQQ-focused, all-ETF strategy. It’s solid for long-term investors, but certainly not perfect. Same goes for dividend growth investing. 

You simply gotta do you as long as it isn’t something reckless like holding your breath on a meme stock.

In the coming days and weeks, The Juice will offer more sample ETF portfolios and introduce some dividend-focused stock portfolios, one that will include a blend of stocks, all names we would love to own for the next 25 years.

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