I. Understand Your GoalsIf you don't know where you are going, how do you know when you get there? A large number of investors fail because they have no goals or investing convictions. Instead, they jump from one investing method to whatever is hot today.
Before investing, you should clearly define what you are tying to accomplish, then determine your goals and desires. It is my goal to create an ever-increasing income from dividend stocks, while it is my desire to beat the S&P 500 index over the long-term.
II. Select the Right StocksIt is our nature to want it now. In dividend investing this means high yields. Depending on the the direction you chose in I. above, a portfolio of high yield stocks may not be the best means to help you accomplish your goals. Historically, high-yield stocks have been more likely to cut their dividends, so for me, they don't align well with my goal of "ever-increasing income."
That is not to say I don't hold some high-yield, high-risk income stocks, but they are not my core income holdings. Instead, I prefer to focus on stocks with a reasonable yield and a long history of consistently raising their dividends. Companies in this category include:
Exxon Mobil Corp. (XOM), formed through the merger of Exxon and Mobil in late 1999, is the world's largest publicly owned integrated oil company.
Yield: 2.9% | Dividend Growth: 5.8% | Consecutive Years of Increases: 33
3M Co. (MMM) provides enhanced product functionality in electronics, health care, industrial, consumer, office, telecommunications, safety & security and other markets via coatings, sealants, adhesives and other chemical additives.
Yield: 2.9% | Dividend Growth: 7.7% | Consecutive Years of Increases: 57
Genuine Parts Co. (GPC) is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products.
Yield: 3.0% | Dividend Growth: 6.8% | Consecutive Years of Increases: 59
PepsiCo, Inc. (PEP) is a major international producer of branded beverage and snack food products.
Yield: 3.0% | Dividend Growth: 7.5% | Consecutive Years of Increases: 43
Johnson & Johnson (JNJ) is a leader in the pharmaceutical, medical device and consumer products industries.
Yield: 3.2% | Dividend Growth: 6.6% | Consecutive Years of Increases: 53
III. PatienceThe stock market does not travel in a straight line. There will be times it consistently goes down leaving you wondering if it will ever hit bottom. These are the times that many investors' patience is tried. But for those with clear goals and confidence in their chosen strategy, they will find that these are the times that present the greatest opportunities.
Full Disclosure: Long XOM, MMM, GPC, PEP, JNJ in my Dividend Growth Portfolio. See a list of all my dividend growth holdings here.
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