The Dirty Little Secret Keeping Dividend Investors From Making Big Bucks

Dividend growth investors can be a dogmatic bunch. 

No offense, but it’s kind of dumb really. Holding onto a style of investing as if it’s a political belief. The sense of loyalty people have to owning not only dividend stocks, but dividend stocks with long dividend increase streaks bewilders The Juice.

This approach is different from buy-and-hold investing where you own an assortment of stocks and ETFs and watch them grow. This is that, but with rigid limitations around the type of dividend stock you’re allowed to buy.

Too many dividend growth investors leave money on the table and sell themselves short. 

This might sound weird coming from a newsletter with an unabashed love for dividend stocks, but hear us out.

Here’s the deal—

We think that if you own no other stocks, you should absolutely own dividend stocks. That said, we also think — quite strongly we might add — that you should: 

• Own other stocks! 
• Buy stocks that don’t pay dividends (and maybe won’t anytime soon, if ever) 
• Buy stocks that don’t pay dividends, but will likely start too soon
• Not live with the fantasy that you’ll create a dividend income stream you can live off of. 

It’s that last point that really irks The Juice. It makes our pulp boil. 

Because there are people in all corners of the internet selling this dream that if you buy dividend stocks, they’ll pay your bills one day. 

While it could happen, it’s not likely. These people selling the dream aren’t telling you the truth. 

The math doesn’t lie. Let’s run the numbers using the 7 seven dividend stocks we discussed last week (for the link, see today’s Freshly Squeezed section at the bottom of the page) that The Juice would start any dividend growth portfolio with. 

In this table, we list each stock, the approximate market value of 100 shares and the dividend income you can expect to receive on each and in total on these 700 shares of stock. All else equal. We’ll get to the parts that aren’t “equal” in a minute.

So let’s put this in perspective. 

• You own nearly a quarter of a million dollars’ worth of these 7 stocks. That’s $213,960. 
• And you’re only collecting $2,283 in annual dividend income. We say “all else equal” because this doesn’t count quarterly dividend reinvestment, which grows your position and, subsequently, your dividend payment. 
• That said, just using the $2,283 number on a market value of $213,960, you are yielding about 1.1%. 

One-point-one percent. 

Again. Put that in perspective. 

Because you can’t sell these stocks and still collect that dividend income, you’d be better off with $213,960 in a high-yield savings account if your goal is to live off of investment income. Dividends while in stocks and interest in a savings account. 

Heck, 1.1% of $1 million is just $11,000 a year. To get even $40,000 you need to up the yield to 4.0%. That would be nice, but the other thing the dream sellers fail to disclose is that achieving a 4.0% yield isn’t easy. Particularly if you want to own stocks that are going up. 

Of course, when you consider context and take away the sole focus on income, you’re better off in the stocks because you’re accumulating unrealized capital gains that, one day, you can realize. 

But — make no mistake — there are dividend growth investors who all but or even completely ignore stock prices simply to collect the dividend. It becomes a game, if not an obsession. 

They chase yield. Foolish. 

They leave money on the table by not trimming or outright selling winners here and there. That’s profit they can live off of or reinvest in another stock. 

They ride a stock lower as long as the dividend remains intact. Often, it doesn’t remain intact. That’s a rude awakening. A waste of time, not to mention, and a loss of capital. 

The Bottom Line: Buy dividend stocks. Absolutely. But spread your buys out across mature payers (PG, LOW, MCD), up and comers (MSFT, AAPL) and new entrants (META, GOOG). That’s how you make money — over time — in more ways than one. 

And never — ever, ever, ever — avoid a stock because it doesn’t pay a dividend. If you have a long-term time horizon. That strategy would have missed out on META and GOOG and dozens, if not hundreds of other names.

• 7 Killer Stocks To Unlock Wealth And Own For Life
• Diversify Your Portfolio: Beyond Stocks
• Growth Stocks Paying Dividends: Is This A Bad Sign?
• Check Out The Juice’s Favorite ETF Screen