All Dividend Investors MUST Read This
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These days, it seems like fewer people enjoy reading. In fact, it’s probably safe to say that most people don’t like doing it.
Part of that is probably a lingering effect from school, where, on more than one occasion, we were forced to read things we didn’t care about. Part of that probably also has to do with our diminishing attention spans.
Either way, if you’re planning on investing for a long period of time, especially in individual companies, developing a love for reading is something you’ll have to do.
Investing has been called “the last liberal art,” meaning it’s a multidisciplinary activity that involves a wide range of subjects from economics, finance, history, psychology, and beyond. Reading is an essential part of the art because it’s how you learn about all of these different subjects.
Reading also allows you to learn vicariously from others’ experiences, insights, wins, and losses, further helping you learn what to do and what not to do, which ultimately helps you become a better investor.
Charlie Munger would second this notion, as he was an obsessive reader. His kids used to say that he was just a book with a couple of legs sticking out, and Charlie’s prescription for anyone hoping to succeed in investing is simple: read a lot, and on diverse subjects.
I try to follow his example by reading as much as I can and soaking up as much as possible. My goal is to read at least a little bit every day (although I’m human and don’t hit it 100%), and one of the best books I’ve read in a while is The Ownership Dividend by Daniel Peris.
Even if you only started investing recently, you’ve probably already noticed that dividends are out of favor. I’d even say they’re looked down upon by many people, and most investors these days prefer share price appreciation.
According to Peris, this change in sentiment has been slowly building for the last few decades, but it wasn’t always this way. It actually used to be the opposite.
Throughout most of history, the relationship between companies and their investors came with an emphasis on cash flow. This type of relationship was especially important in the past when investors had limited control and access to information. The dividend payments provided a real, reliable, and measurable return during a time when little else about a company was known or could be verified.
The Ownership Dividend dives into the history of it all in much more detail. More importantly, the book explains how we got to this point in the first place where dividends went from being expected by investors to being cast aside as an unwanted anchor on returns.
In the book, Peris points to several factors responsible for this mutiny on dividends: declining interest rates, the rise of democratized investing platforms, immediate access to information, and changing priorities among both companies and investors.
Despite all of that, Peris argues that dividends tap into a fundamental principle of investing that will always remain true: the value of an asset lies in its ability to generate cash flow. Just as you’d expect regular cash payments from a piece of real estate or a private business, he says the same should apply to publicly traded companies.
In fact, it should especially apply to publicly traded companies since the sustainability of the cash flow is a direct result of the company’s continued operational performance. Without the regular distribution of cash in exchange for your investment dollars, you’re left relying solely on share price movements for returns.
Now obviously there are many instances where that works out just fine, and I certainly wouldn’t turn my nose up at any share price returns, but it does leave more to luck, timing, the volatile whims of the market, and other variables that are not directly tied to a company’s operations.
Having said all of that, Peris predicts a coming sentiment shift in the stock market where we return to a more cash-based system of returns with investors prioritizing dividends once again. I think he makes an interesting argument for this in the book, and I’ll be looking forward to seeing if his predictions come true.
Overall, I think this is an important read for all dividend investors (and it’s quick — only about 170 pages). If you want to pick up a copy for yourself, you can check it out here.
With that said, I'm always looking for new ideas to add to my reading list and would love to hear from you: What good books can you recommend? Reply to this email, or write to me here and let me know.
Dividend Investing Democratized
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The layout is clean and intuitive, offering charts, graphs, and other features you didn’t even know you needed but now can’t live without—like the event calendar, portfolio backtest tool, and the dip finder tool (this has been a game changer).
I’ve been using Snowball for a while now, and it's the most in-depth portfolio tracker I’ve ever used (you can see it in action here). I highly recommend it to any dividend investor looking for maximum functionality and data for tracking their portfolio.
Right now, Snowball Analytics is offering a 14-day FREE trial so you can try it out risk-free. The best part is, if you end up loving it (which, as you'll find out, is not hard to do), you can save 10% on your subscription when you use code “rynewilliams” upon signing up.
IN MY PORTFOLIO 📈
Portfolio performance provided by Snowball Analytics
ICYMI 🎥
My Dividend Portfolio Is At An ALL-TIME HIGH
In this portfolio update for September, I'm showing you how my portfolio performed in the last month and YTD, as well as which stocks I purchased.
CAREFULLY CURATED 🔍
📺 The Dividend Irrelevance Theory - An oldie but a goodie from PPC Ian. In this throwback video, PPC Ian revisits the infamous and polarizing Dividend Irrelevance Theory and shares nine reasons why he believes dividends are, in fact, incredibly relevant.
🎧 Dividends = Discipline - Matt Argesinger and Anthony Schiavone, who lead The Motley Fool’s Dividend Investor portfolio, get together for a conversation on why companies pay dividends and how to figure out if a company's payout is sustainable.
📚 The 3 Best Warren Buffett Stocks - Warren Buffett is known for holding stocks for decades, with his favorite holding period being "forever." Here are some of his best buy-and-hold-forever stocks to keep your eye on right now.
SINCE YOU ASKED 💬
"I am getting a friend into dividend investing, and he is brand new to the stock market. What stocks / ETFs should I recommend to him?"
- Authentic Peach | Discord
First off, great job getting your friend into dividend investing. That’s not an easy thing to do, so hats off to both of you—your friend for being open to it, and you for helping him get started.
For a brand-new investor, I think it's best to keep it as simple as possible.
Starting with a broad-based ETF like VTI or VOO—or any equivalent S&P 500 ETF—would be a good move. You could put 100% of your money into one of these and call it a day if you wanted to keep things as straightforward as possible, or you could layer on another ETF depending on the portfolio’s goals.
To dip more into dividend investing, I think an SCHD+VOO or a VYM+VOO combo works really well. This is the approach I take in my Roth IRA—it's only SCHD+VOO.
Overall, I think it's sensible to just start with ETFs, get comfortable with what you're doing, and go from there. However, I understand from experience that some investors are drawn to individual stocks as well.
If that’s the case, I’d encourage your friend to follow the three steps here for a foolproof way to identify the right stocks to invest in.
Have a question? Ask me here to see it featured in an upcoming newsletter.
HOT TAKES 🔥
Last week, I asked readers about which discounted stocks they have their eye on for September. Here are some of the responses:
Janusz said: I have some ideas for next month, but all positions mentioned are already in my portfolio, so there will be nothing new: TROW, ADM, WPC, CMCSA, and CVX. All these positions are close to or below my buying price, so I would feel comfortable buying any of these.
Matt said: I’m looking at buying V, PEP, and starting a position with ZTS (after I sell off my current WMT position).
Brian said: I’m keeping a close eye on CVX and BEN. Both are at their 52-week lows and look like solid additions right now.
