Dividend investing – chill like a dude

Dividends and dudes? Have I gone mad?

So what is this all about – and why am I the Dividend Dude?

I invest carefully for cash flow and I love dividends and distributions. I’m also calm and relaxed about my investments and market swings. Talking with colleagues at work, you can tell who has a portfolio more closely in ‘growth’ or ‘tech’ as they get jittery as markets gyrate and plunge.

My temperament is more relaxed. I am always reminded of the Dude in the 1998 movie The Big Lebowski – relaxed, unfazed, and unrattled. I’m a dude when it comes to investing – I put my money to work and sit back and collect dividends and distributions. I’m not worried if prices go down; if anything, I’ll sit up and I will be interested in picking up some shares on the cheap. If I can pick them up when prices are declining, a careful selection will be buying shares in a company that will continue to increase its dividend with time, meaning I will buy the future flow of dividends at a lower price.

My colleagues may be facing price declines of 50% or more. However, my dividend-focused stocks tend to have a lower beta and lower downward pressure. Ultimately, with people like me watching them, if they go too low, then people will buy simply for the future flow of dividends, creating a floor and support for stock prices. In many cases, some of the companies I invest in are utilities (which people need to use every day) or REITS, providing the facilities people need.

So, my colleagues see their portfolio values swing wildly while my portfolio budges less.

They have nothing to look at while the stock prices go down except for increasing losses. Meanwhile, I have a steady flow of dividends and distributions flowing into the account, even in times of turmoil and disruption.

Add this together and I have the opportunity to maintain a calm attitude to the market and investments. This is, in a nutshell, why I like dividend-paying stocks. I can sit back, calmly collect dividends, and keep on moving forward in my life.

Examples of stocks that make this happen:

In my portfolio, I have a core of legendary dividend payers, such as Johnson & Johnson (JNJ) which I just added a small portion to lately. It has paid for decades and will continue to pay. It increases the dividend like clockwork every year. It is not particularly ‘cheap’ at the moment, but historically, it never gets cheap. It is, however, a financial powerhouse and a consistent dividend payer and grower. It pays 2.8% and has a 5Y dividend CAGR of 6.1%. If we use the analysts’ estimates of earnings in 2024 and use the normalized P/E ratio, we might expect about 25% total return during that time, or just over a 10% annualized rate of return (Figure 1).

JNJ-2022-09-analyst estimates for dividend growth investor
Figure 1. JNJ future returns are based on analyst estimates. Source: FAST Graphs.

I also have other positions that are more speculative. Some I cover on Seeking Alpha, where I provide additional insight into risk factors that need to be considered. Some are smaller or have less certainty in their growth. One such example would be SACH. It has the potential for substantial earnings growth over the coming years. But it is also small and volatile and things could swing against the company quickly and substantially, as they did in 2020. They pay a strong dividend yield of 12.5% and a three-year dividend CAGR of 5.3%. Investing now, if the prices return to a normalized P/E of 12.33 at the end of 2023 and the earnings estimates are accurate, then this would return 94% total return or a 64% annualized rate of return (Figure 2).

SACH-2022-08-analyst estimates for dividend growth investors
Figure 2. SACH future returns are based on analyst estimates. Source: FAST Graphs.

SACH will not help me sleep soundly at night, but it does pay a nice yield. JNJ, on the other hand, is quality, with a credit rating of AAA from S&P. I sleep well at night knowing that this is in my portfolio and they will continue to pay me a dividend as they have paid dividends, uninterrupted and growing, for decades.

A dude-like approach to investing in dividends means a portfolio that is stable and secure, will not budge, drop precipitously, or cause you to stay awake at night.

Be cool. Invest in dividends like a dude. Collect the cash and enjoy life.

Dividends and dudes? Have I gone mad? So what is this all about – and why am I the Dividend Dude? I invest carefully for cash flow and I love dividends and distributions. I’m also calm and relaxed about my investments and market swings. Talking with colleagues at work, you can tell who has a…

Dividends and dudes? Have I gone mad? So what is this all about – and why am I the Dividend Dude? I invest carefully for cash flow and I love dividends and distributions. I’m also calm and relaxed about my investments and market swings. Talking with colleagues at work, you can tell who has a…

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