Our Objective: Dividend Growth October 1998, Volume 18 No.5 page 420
The papers are full of negative articles and negative numbers relating to the performance of the stock market. Do not let yourself be disheartened by such data. Remember our purpose. We are in the market to buy an increasing income for our retirement: to buy dividends.* So far this year 18 companies in our list have increased dividends. By year's end, another might have done so. Overall the dividend increases have averaged 6.7%. Our plan is working. Be clear-eyed about it. We buy good companies when they are value priced, then sit back, do nothing, and enjoy the growing income.
We measure performance by the yield on our purchase price, not by price appreciation. Year to date figures are superfluous. Mutual fund holders must sell units to generate income. They have to watch prices: we don't. If you need cheering up, take a few minutes to compute the yield on the price you paid for your common shares (current dividend divided by your cost per share). For instance, and this is certainly not my best example, I bought National Bank common shares at about $9 in 1990 when NA was on top of the list. Even after the dividend was halved in August of 1992 (from 80¢ to 40¢), with the current dividend of .68, the yield on NA is 7.6%. The interest equivalent is 10.1% (7.6 x 1.33). This figure is more than twice what the world now considers the safest investment: United States Treasury bonds.
You will most likely end up with positive numbers and a terrific feeling when you compare the current price of your shares to the price you paid for the shares. Do not compare the current price to prices earlier this year. You did not sell then: it would be foolish to sell now. Selling means you would loose an investment with a yield far superior to anything available today. You could not replace the income you would loose. Do not even contemplate selling. We have the bull by the horns, so to speak, even when the bear is active.
If you are worried about dividends continuing, ask yourself this question: if worse becomes worse, will people still need electricity and energy, and need to telephone and bank? We are well positioned and don't need to scramble for a place to hide. Others do!
Here's some more good news on the dividend front. Continuation of the market decline or even sideways movement of prices will be good for dividend investors like us. Why? It will put pressure on companies to increase dividends. When share prices were rising, investors were quite happy with profits in the form of capital gains. Companies even spent money in the bull market buying back their own shares. In the absence of share price appreciation, investors will demand a tangible reward for stock ownership: dividend increases to pump up yields.
* Why do other people buy (not invest in, notice) GICs or Canada savings bonds? Other than for security of capital, it's for the income...the interest. These certificates have no possibility of appreciating. Our common stock prices might be down from their highs, but they are still nicely above our purchase price...unless you were buying earlier this year when you shouldn't have been. (Time increases the security on common stocks.) With good old fashioned common stock we get: dividends, dividend growth and price appreciation. And no recurring annual fee.