1,000 Dividends, 3 Lessons

Morningstar DividendInvestor editor Josh Peters explores some valuable lessons he's learned collecting the first 1,000 dividends in his newsletter's portfolios

Josh Peters, CFA 17 July, 2013 | 5:12PM
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As the founding editor of Morningstar DividendInvestor, I have to confess to a certain bit of annoyance when I hear the phrase "dividend trade." The idea of using high-quality, high-yielding stocks as vehicles in a short-term game of pops and drops isn't just insulting; it's bad logic. For one thing, these stocks tend to be less volatile than the market overall. If you're trying to trade, isn't more volatility what you want? For another, these dividends are so small relative to how much stock prices fluctuate from day to day. A 4% yield is very good these days, but even that takes a full year to earn, typically in quarterly increments of 1%. For all I know, a stock could go up or down 1% because some hedge fund trader spilled coffee on his keyboard.

Ah, but how very beautiful—and powerful—dividends become when we add the magic ingredients of time and inaction. That's not a misprint: Inaction is a very important aspect of our strategy!

The two DividendInvestor model portfolios that I manage are backed by real-money accounts funded by Morningstar. In addition to making our recommendations crystal clear—buy means we're buying, sell means we're selling and hold means we're holding—the account histories allow me to track our results in exacting detail. On the morning of June 10, I fed our most recent transactions into my spreadsheets and discovered—almost by accident—that we had just received our 1,000th dividend payment since inception. This honour comes by way of a dividend of $94.55 paid on the 310 shares we own of Spectra Energy in our Dividend Builder Portfolio. 

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Josh Peters, CFA  is the editor of Morningstar DividendInvestor, a monthly newsletter available in the US, and is author of The Ultimate Dividend Playbook.