The Key to Long Term Investment Success for Dividend and Income Investors

Over the last five years I have developed what I view as the core to The Dividend Hunter investing philosophy and strategy. My recommendations on how to build and manage an income focused stock portfolio is a very different path compared to from mainstream investment advice, which is concerned with entry prices, exit prices and stop losses. It is my opinion from years of experience, that market timing strategies are a tough way to make money and an easy way to lose significant portions of a nest egg.

My philosophy with my Dividend Hunter newsletter, and really all dividend stocks that I research, is that shares of stock are purchased to start, maintain and build an income stream. This leads to the first rule of being a dividend focused investor:

  • You can’t earn dividends unless you own shares of stock. This means to get started you buy shares and don’t wait for a timing signal.

This fact leads to the corollary that as Dividend Hunters we will always own shares. Through down markets and up. Which gives us rule 1A:

  • We measure investment results by tracking the dividend income earned each quarter and each year.

Dividend earnings are the one facet of stock market values over which investors have the most control. If you can build a dividend income stream that is stable to growing year after year, your principal value will be fine in the long run.

A focus on building an income stream lets us be willing to buy shares when prices are down, and others are fearful. Dividend Hunters can also take profits on stocks that have done well, and the sales proceeds can be used to enhance the income stream.

To be a successful Dividend Hunter I recommend that you work towards these goals:

  • Build a portfolio that includes all the stocks on the recommendations list. I developed the list to provide as much diversification as possible while still generating a high dividend yield.
  • Have your own strategy on how much weight you want in each stock. It is OK to overweigh some stocks or types of stocks if that is part of your strategy. We all have favorites. However, the strategy must push you to buy all the Dividend Hunter stocks when the holdings get out of balance with your plan. Personally, I keep it simple and aim to own a balanced dollar amount of each stock.
  • Your plan should include the reinvestment of at least a portion of your dividend earnings. If you are in the building your portfolio stage, 100% of the dividends can be reinvested. With an 8% average yield on the Dividend Hunter stocks, this will grow your dividend income by 8% plus per year. If you are drawing an income, don’t take all your dividends. Reinvest 20% to 25% of your earnings to keep the dividend stream growing.
  • Have a system to track your dividend income. Most brokerage accounts don’t include dividends in their return calculations. When you know how much you earned each quarter and can see the stability and growth of your income stream, the Dividend Hunter system makes sense. It will give you peace of mind that you are on the right path. (You should check out the online tracker I helped build: click here for details.)

Finally, when one of our stocks goes into a steep decline, I will closely analyze the company to evaluate its ability to generate the cash to support the dividend. If the dividend looks secure, we are comfortable adding at a lower share price to increase our portfolio yield.

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