Regular Investing Beats Buying At The Bottom Every Time

I was not planning to buy any shares this week, after investing most of the funds and then some in February already. The drop today on coronavirus fears spreading around the world has provided some decent entry opportunities for some companies.

I won't have more cash to invest until early in the month of March. Therefore, if stocks go down further from here for the rest of the week, I will be sitting on the sidelines until Monday. As an investor, my analysis has shown me that it is best to put money to work whenever I have money to invest. I do not sit in cash, waiting to put money to work. I simply allocate the cash I can afford to invest in the best values of the moment. Sometimes this means I buy at the bottom, and sometimes it means buying at the top. In the long-run, these decisions cancel each other out.

I made a calculation where I compared two investors in the accumulation phase. The first investor invests $1,000/year at the beginning of each year between 1980 and 2019 in a diversified group of US stocks ( using VFINX historical data that accounts for dividend reinvestment once again). The first investor ends up with $544,037.82.

The second investor also puts $1,000/year, but manages to invest his annual contributions in the lowest point of the year. They end up with only $586,776.51, despite having perfect timing for 40 years in a row.

As you can see, consistent investing beats timing the markets in the long run for most investors.  While noone can pick the bottom in stocks consistently for 40 years in a row, everyone can learn to invest regularly, whenever they have money to invest.

In other words, time in the market beats timing the market.

I do not believe that you need to be great at picking bottoms, in order to succeed as an investor. My experience has proved to me that investing regularly in quality dividend paying companies, through the ups and downs of the market sentiment beats timing the markets and sitting in cash waiting for a crash. Slow and steady investing, regular investing is what truly matters. As a result, I have been investing whenever I have cash to put to work, and focus my attention on finding good businesses that I can own for years to come. All of the businesses I own pay me a dividend, which makes it very easy to hold on to my shares, since I am essentially paid to own them.

I personally do not know if the shares I own will go up in price or not. I focus on the dividend income, since it is more stable, and easier to predict than share prices. For example, I know that I will receive $3.80/share in dividend income from each share of Johnson & Johnson stock I own. In addition, I will likely receive a raise in April, just like in previous years. Check my analysis of Johnson & Johnson for more detail behind this dividend king.

However, I do not have a clue if the stock will go above $150/share or below $100/share. Noone else knows either. That's why I ignore share price fluctuations, unless they offer me a bargain I cannot refuse. But the point is that if you find a quality company with solid cashflows and defensible income and dividend stream, the goal is to buy it and hold it for years.



You can see that in the case of Johnson & Johnson, the share price has fluctuated greatly over the past 20 years. I ignore stock price fluctuations, unless the price offers me a bargain I cannot refuse. I focus on the steadily increasing dividend per share. Dividends are more stable than share prices, and more predictable and reliable too. Ultimately, as fundamentals improved over time, earnings and dividends kept gradually increasing. As a result, the share price ultimately followed upwards as well. An investor who focused on the rising dividend stream, could have ignored the fluctuations in the stock price. After all, it doesn't make much logical sense that the stock price of a great business like Johnson & Johnson could fluctuate so much, when the earnings and dividend streams are not that volatile. As an example, look at the fluctuation in 2018 from a high of $144/share to a low of $116/share. I find that focusing on fundamental factors like earnings growth, margin of safety of dividends and valuation to be more helpful to my investing than in focusing on stock price alone. I do focus on price in relation to value, mostly to look for opportunities to deploy my capital when it is available for investment.

I focus on the dividend income as an investor, and making sure it is sustainable and derived from solid fundamentals. I view investing as a process where I get to stack up future income streams, and reinvest dividends. Therefore, stock market declines are an opportunity to buy future income at a discount. So as investors in the accumulation phase, we should be cheering for declines.

I have a process to invest every month, and take full advantage of the power of compounding that way. My process also focuses on time in the market, rather than timing the market. And I invest for the long-run, and hope you are all able to follow me on this long-term journey!

Relevant Articles:

- Price is what you pay, value is what you get
- Dividend income is more stable than capital gains
- Should I buy dividend stocks now, or accumulate cash waiting for lower prices?
- Dividend Investors Should Ignore Market Fluctuations
- Risk Management

17 Dividend Increases For Further Analysis

One of the best books written on Dividend Growth Investing is called " The Single Best Investment: Creating Wealth With Dividend Growth".  The books discussed a study in the Journal of Financial and Quantitative analysis, which examined the information content of dividend changes. The goal of the study was to understand what dividend changes tell us about a company.

The authors Denis, Denis, and Sarin sought to find an appropriate explanation for the well documented association between dividend change announcements and stock price changes. They found that changes in dividends proved to be intended or unintended signaling by management regarding cash flows at the company. 

While many academics had suggested companies that raise their dividends would decrease their capital expenditures (or at least not increase investments), the authors found that just the opposite is true. Companies that increase their dividends are more likely to increase their reinvestment in the business, and companies that decrease their dividends are more likely to reduce capital expenditures. 

The conclusion is inescapable: companies that increase their dividends are companies that are making money—enough to run a thriving business and enough to share with stockholders in the here and now as well.

As dividend growth investors, we are looking for the companies that grow dividends because their business is thriving. One of my monitoring exercises is to review the list of dividend increases every week, and narrow it down to companies that are at least dividend achievers.

There were seventeen companies that raised dividends last week, which also have a minimum ten year streak of annual dividend increases under their belt. The companies are listed in the table below:

Company	Ticker	Share Price	Dividend Yield	New Dividend	Previous Dividend	Dividend Increase	Years of Dividend Increases	10 Year Dividend Growth Rate	Forward P/E
Analog Devices	ADI	122.76	2.02%	0.62	0.54	14.81%	18	10.44%	21.88
Allstate	ALL	123.66	1.75%	0.54	0.5	8.00%	10	9.37%	11.16
Cohen & Steers	CNS	76.96	2.03%	0.39	0.36	8.33%	11	21.82%	22.77
Foot Locker	FL	38.84	4.12%	0.4	0.38	5.26%	10	9.49%	7.43
Genuine Parts Company	GPC	96.23	3.28%	0.79	0.7625	3.61%	64	6.58%	16.31
Harley-Davidson	HOG	35.2	4.32%	0.38	0.375	1.33%	10	14.13%	10.38
Humana	HUM	369.46	0.68%	0.625	0.55	13.64%	10	14.34%	16.61
Coca-Cola	KO	60.13	2.73%	0.41	0.4	2.50%	58	6.91%	24.54
Moody's	MCO	271.71	0.82%	0.56	0.5	12.00%	11	17.46%	26.48
Magna International	MGA	51.56	3.10%	0.4	0.36	11.11%	11	41.62%	7.78
Perrigo Company	PRGO	59.92	1.50%	0.225	0.21	7.14%	17	13.68%	13.74
Service Corporation International	SCI	52.54	1.45%	0.19	0.18	5.56%	10	16.23%	23.04
Sherwin-Williams	SHW	573.61	0.93%	1.34	1.13	18.58%	41	12.28%	22.23
Telephone & Data Systems	TDS	22.23	3.06%	0.17	0.165	3.03%	46	4.38%	28.5
Texas Roadhouse	TXRH	71.52	2.01%	0.36	0.3	20.00%	10	14.87%	27.83
Wal-Mart Stores	WMT	118.6	1.82%	0.54	0.53	1.89%	47	7.18%	21.33
Xcel Energy	XEL	70.82	2.43%	0.43	0.405	6.17%	17	5.15%	24.01

This list is not a recommendation to buy or sell any securities. It is just a list of companies for further research. It is also a list to update my existing observations on companies I own or plan to own at the right price. I analyze companies before buying the,

If I were to evaluate the companies on this list, I would leverage my screening criteria, which I first outlined in 2010.

Notably I would look for the following:

1) Ten years of annual dividend increases
2) Earnings per share that are increasing over the past decade
3) Dividend Payout Ratio below 60% ( however I am willing to make exceptions for REITs, MLPs, Utilities and Tobacco companies)
4) Dividend growth rate that exceeds the rate of inflation ( however this also needs to take into account the rate of earnings and dividend growth)
5) A P/E ratio below 20

Since I have some experience evaluating dividend companies, I also modify my criteria based on the environment we are in and the availability of quality companies. If I see a company with a strong business model and certain characteristics that I like, I may require a dividend streak that is lower than a decade. I have also found success in looking beyond screening criteria by purchasing stocks a little above the borders contained in a screen.

It is important to be flexible, without being too lenient.

Relevant Articles:

- How to monitor your dividend investments
- Twelve Dividend Growth Stocks Raising Distributions to Investors Last Week
- Nineteen Dividend Growth Stocks For Further Research
- My Portfolio Monitoring Process In a Nutshell
- How to read my weekly dividend increase reports