AUTigerNola what alot of people don't get is that when you buy a dividend stock you are buying an income stream that will hopefully rise every quarter as your dividend buys you more and more shares. See every quarter your dividend is paid and you own a bigger stake of a company which will in turn pay you a bigger dividend the next quarter and so on and so forth. Where it gets really interesting is the double compounding effect where you are getting new shares AND the dividend increases annually as it has for many blue chips around you. The dividend increase means an increase in your pay usually in excess of inflation. Let me give you an example.
I was born in 1979, take coca cola, which was the world leader then in soft drinks, no really an up and comer, if my parents had put $1000 into coca cola stock and never touched it again, id be sitting on $126,000+ today...a 12,000%+ return according to this calculator LINK
well that would be incredible, but that's hindsight, had they put that same $1000 in 1979 and added $100/month on automatic investments, I'd be sitting on close to $1.1M today with a grand total of $40,000 invested over 34 years.
Dividend stocks double compound and its super powerful, most people don't really grasp it, but albert einstein once called compound interest the "8th wonder of the world"
So a crash in stock price doesn't mean a crash in dividend payment....in most cases, in the last recession I know GE cut their dividend but mcdonalds,coke,phillip morris, and many more all boosted dividends through that rough period, to these companies to cut the dividend is a big big deal bc they will lose lots of investors.
All I can tell you is you want growth + dividends thats why my pick is phillip morris I see that growth and high dividend, coke for instance has only returned 28% with dividends reinvested from 1998 till today. MO/PM has returned 745% in that same timeframe, like I said I like any consumer staple that has a global reach but to me, knowing the growth prospects available overseas and how inelastic people are to tobacco pricing and an enormous global population growing by the day......cigarettes are my pick
but there are many blue chips and you need to see your investment as an income stream and as you buy every new share you are adding income not just today but in the future. For me I have a gigantic postion in PM that pays me nearly $24,000/yr in dividends today, thats incredible at $3.40/share. 10 years from now that dividend is projected to be at close to $9 so without adding another share I'll make close to $60,000/year in a decade if they grow their dividend annually which they will barring some unforseen circumstance which i do not see considering world governments depend on tobacco taxes more than you could ever imagine.
So thats how you should look at dividend stocks, pretend you are buying a business that is paying you back an annual salary on top of capital appreciation. If the price goes down....awesome your dividend buys you a bigger stake, if the stock price goes up.....awesome you made capital gains
Either way as long as the companies stay in business and boost their dividend which some like coke have done every year for 50+ years, you will get a growing income
Im in 18 years into this dividend investment adventure and I'm seeing the rewards first hand, I was on pace to retire by 45 with a near $80k salary from dividends while never earning over $85,000in real life till this past year when I inherited a big business from an uncle
It's doable, it just takes time and understanding
This post was edited on 6/21 at 4:14 pm