Dividend Growth Forum

Hey all.

I have been investing in my IRA (vid funds) for quite awhile now. But I'm getting interested in DGI as a secondary strategy. Currently I'm just reading and learning and trying to digest.

I have a couple of questions for all of you. Please, correct if my wrong in my assumptions.

There was a upswing in DGI investing subsequent to the Great Recession. This was due to the ease of which in finding quality companies at valued prices. It appears to me that the ease of finding low-value stocks is getting more and more challenging as the market is close to full-value or overpriced.

I'm asking because I don't want to begin this strategy now if it's not sound. I still have a lot of reading/research/thinking to do before I make any moves, so I'm not in a hurry exactly. Perhaps by the time I'm ready to make a purchase, the market will have corrected down to a more discounted level.

I'm sure these questions have been asked before. Any other advice for somebody starting today that you might have would be greatly appreciated. I know a lot of you have been on the train for a few years, so my situation is different.

But I feel like it's worthwhile to investigate the efficacy of a DGI strategy when the market is at or close to full value.

Thank you so much!! So excited to explore this world.

First off, welcome to DGF. You'll find a lot of bright people here. If you haven't yet, it would be nice to introduce yourself in the 'Introductions' section. Sometimes it helps in replying when we know your age bracket, goals, etc.

My responses are below:

(12-19-2014, 01:17 PM)simple_is_rich Wrote: [ -> ]There was a upswing in DGI investing subsequent to the Great Recession. This was due to the ease of which in finding quality companies at valued prices. It appears to me that the ease of finding low-value stocks is getting more and more challenging as the market is close to full-value or overpriced.

I'm not sure you can say there was an upswing because of the Great Recession since there are no statistics. Anecdotally, I've read/heard of or from many that were dividend growth investors for decades; usually they never referred to themselves that way so I think the term is relatively recent.

What I can say is it became more visible thanks, IMO, to Seeking Alpha and a few other sites. The explosion in online traffic from the dot.com bubble onward plus methods of access (phones & tablets primarily) has also contributed to the plethora of exposure for anyone looking to invest. SA's syndication with Yahoo! is how I found out about it.

(12-19-2014, 01:17 PM)simple_is_rich Wrote: [ -> ]I'm asking because I don't want to begin this strategy now if it's not sound. I still have a lot of reading/research/thinking to do before I make any moves, so I'm not in a hurry exactly. Perhaps by the time I'm ready to make a purchase, the market will have corrected down to a more discounted level.

I think you need to sort out your own thoughts on the topic. Any strategy can be successful if you can find the key points and stick to them.

As for dividend growth, DGIs don't necessarily buy just undervalued stocks. Fairly or even slightly overvalued stocks are acceptable to many. Much depends on your age, the time frame you will be investing and what are your goals are. There are some that will only buy when the market has corrected significantly and then hold forever. So yes, some only buy undervalued companies.

For me, with only a decade or so to go before I need to use some of it, putting my cash to work in companies that 1.) pay enough yield and 2.) are not grossly overvalued and let time and compounding do their work seems to be the most valuable strategy. If I was waiting for companies to become undervalued, I may have sat out this incredible bull run for several years. I agree, there's not much that's cheap except for the oil patch right now (hint) but there are still fairly valued companies out there if you are willing to research.

Time in the market and the compounding of reinvested dividends, either in the original company or collecting them and purchasing other companies, are two important tenets that will allow you to reach your goals. Hence it is a long-term endeavor and not the investment "flavor of the week" if you want to be successful with dividend growth investing.

I inferred from your comment that you will be taking some of your mutual fund investments to purchase dividend growth stocks. If so, it could be a zero sum game. By the time you make a decision to purchase something and the market has corrected, your mutual funds have also corrected.

(12-19-2014, 01:17 PM)simple_is_rich Wrote: [ -> ]I'm sure these questions have been asked before. Any other advice for somebody starting today that you might have would be greatly appreciated. I know a lot of you have been on the train for a few years, so my situation is different.

But I feel like it's worthwhile to investigate the efficacy of a DGI strategy when the market is at or close to full value.

From your tone, I suggest you think through what strategy or combination of strategies make sense to you. Your situation is no different than what many have experienced.

Remember, this is a marathon and not a sprint.

Wow. Incredible reply. Thank you for your response.

I will certainly introduce myself after this reply.

I currently have no plan to reduce my contributions to my tax-deferred funds. I have a matching program (I am self employed), so I get to pay myself twice. I utilize a SIMPLE IRA as well as a traditional IRA. I utilize my tax deterrence to lower my AGI and reduce my tax burden in my business with the maximum match. I would utilize a SEP, but I like dollar-cost averaging, rather than lump sump contributions.

My investments in a separate, taxable set of stocks would be whatever money I have left in the budget. The plan for me would be to fill the gap between my potential forced retirement in 10-12 years and then the few years between that and my ability to draw from my IRAs, then eventually SS. It doesn't have to be a tremendous amount of money, as my expenses will be very low by then (mortgage paid, kids out of the house, etc).

I might consider taking my contributions from my traditional IRA and using them in a taxable portfolio, but I'm not going to stop contributing until I have a solid plan in place.

What actually got me started on this DGI path was liquidity (as is access), rather than a performance boost. I am not interested in getting rich quick. Well, I'm interested in getting rich quick, but not through the market. If anybody has a big wad a of cash they need to get rid of, I'll take it.


Weighting and exposure will get pretty wonky because I'm both using funds and individual stocks. So any advice on that front would be interesting as well. Your comment about the zero-sum game is interesting, although it seems somewhat black/white. I cannot control the cycles of the market, nor is it a huge concern for me. Because I am averaging both up and down with the market, only massive swings will set me back really far. The biggest concern is fees and loads, which I manage to tame recently with low cost/ no load funds. Since I'm not locked into some other company's crappy 401k system, I get to use Vanguard, which is helpful.

One additional, and not insignificant, bonus to DGI and fundamental investing in general seems to be a lot of information that could help me make decisions in fund investing. There is a lot for me to like about analysis of other companies and the decisions that fund managers make (or don't).

I'm headed off to introduce myself now.

(12-19-2014, 03:24 PM)Dividend Watcher Wrote: [ -> ]

(12-19-2014, 01:17 PM)simple_is_rich Wrote: [ -> ]I'm asking because I don't want to begin this strategy now if it's not sound. I still have a lot of reading/research/thinking to do before I make any moves, so I'm not in a hurry exactly. Perhaps by the time I'm ready to make a purchase, the market will have corrected down to a more discounted level.

I think you need to sort out your own thoughts on the topic. Any strategy can be successful if you can find the key points and stick to them.

As for dividend growth, DGIs don't necessarily buy just undervalued stocks. Fairly or even slightly overvalued stocks are acceptable to many. Much depends on your age, the time frame you will be investing and what are your goals are. There are some that will only buy when the market has corrected significantly and then hold forever. So yes, some only buy undervalued companies.

For me, with only a decade or so to go before I need to use some of it, putting my cash to work in companies that 1.) pay enough yield and 2.) are not grossly overvalued and let time and compounding do their work seems to be the most valuable strategy. If I was waiting for companies to become undervalued, I may have sat out this incredible bull run for several years. I agree, there's not much that's cheap except for the oil patch right now (hint) but there are still fairly valued companies out there if you are willing to research.

Time in the market and the compounding of reinvested dividends, either in the original company or collecting them and purchasing other companies, are two important tenets that will allow you to reach your goals. Hence it is a long-term endeavor and not the investment "flavor of the week" if you want to be successful with dividend growth investing.

I inferred from your comment that you will be taking some of your mutual fund investments to purchase dividend growth stocks. If so, it could be a zero sum game. By the time you make a decision to purchase something and the market has corrected, your mutual funds have also corrected.

Hey Simple! On this point, I'd just add that your concern is true of the market generally, whether you are buying index funds, other mutual funds, or individual stocks. With any of these equities approaches, if you are buying at high / overvalued prices, you're looking at diminished returns going forward (relative to buying at more favorable valuations).

When you pick individual stocks (whether part of a DG approach or not), you have the advantage of controlling better the valuations you'll accept. Even in a market that *feels* high or overheated, you can find things that are relatively well-priced. The recent swoon in oil stocks is a great example.

So I guess I would say that the "soundness" of the DG strategy is not implicated, as a general matter, but the relative dearth of bargains, compared to a few years ago. Though I certainly agree that it is harder now to buy with confidence than it was back in 2009 through 2012!