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Dividend Investing For Wealth Preservation

This is a guest post from Ben Reynolds of Sure Dividend. Sure Dividend is dedicated to helping individual investors find high quality dividend growth stocks suitable for long-term holding.
 

If you read the Strategy page on Hello Suckers Investments, you will Martin’s thoughts on dividend investing (emphasis added):

Dividend investing is a great strategy, but now I look at it slightly differently. I no longer consider the dividend growth strategy my main investing or trading goal. I however look at it as my wealth preservation.

I have seen some traders investing their proceeds to other instruments or investments. Some invest the proceeds to gold or silver, some buy land, others real estate. I want to do the same. Or similar to be exact. I want to be buying dividend stocks.

I understand that at some point in my life I will no longer be able to actively trade options. Dividend stocks will be here to subsidize trading. My options trading is here to create an income now. Not 20 years from now. Now I want to trade, grow my account and enjoy income from trading. Once I will not be able to trade (maybe 20 or 25 years from now), I will have my dividend stocks to take over.”
 

When most people think about investing, they think about wealth creation, not wealth preservation. After all, it’s more fun to think about getting rich rather than protecting your wealth.

Warren Buffett is one of the richest men alive; today he is worth around $63 billion. Clearly, Buffett knows a thing or two about generating wealth. Interestingly, his focus is on not losing money. Warren Buffett has just two investing rules:

 

“Rule number one: never lose money.
Rule number two: never forget rule number one.”
– Warren Buffett

 

 

Warren Buffett invests primarily in high quality dividend growth stocks. Take a look at his top 6 holdings, which make up about two-thirds of his portfolio:


• Wells Fargo (WFC) – dividend yield of 2.8%
• Coca-Cola (KO) – dividend yield of 3.1%
• IBM (IBM) – dividend yield of 3.7%
• American Express (AXP) – dividend yield of 1.5%
• Wal-Mart (WMT) – dividend yield of 3.3%
• Procter & Gamble (PG) – dividend yield of 3.6%

 

Prior to the Great Recession of 2007 to 2009, Wells Fargo had paid steady or increasing dividends every year since 1972. After the recession, the company began paying rising dividends again.

Coca-Cola has paid increasing dividends every year for 52 years. It one of only 17 Dividend Kings; stocks with 50+ years of consecutive dividend increases.

IBM has paid rising dividends every year since 1999.

American Express has paid steady or rising dividends since 1999 as well.

Wal-Mart has paid increasing dividends for 42 consecutive years.

Procter & Gamble is also a Dividend King (like Coca-Cola). The company has paid rising dividends for 58 consecutive yeas.

 · Dividend Investing for Wealth Preservation

Clearly, Warren Buffett practices dividend investing for wealth preservation. Investing in high quality dividend stocks is an excellent way to protect and grow your wealth over time.

By owning shares of businesses with strong and durable competitive advantages, you can reap the rewards of their steady, predictable growth.

Businesses that have long histories of paying rising dividends have proven that they can reliably and consistently growth their business under a wide variety of economic conditions. This makes them ideal candidates for wealth preservations.

 · Inflation Destroys Wealth

If you do not invest your money, and leave it to sit in a bank account, it will lose its purchasing power through the effects of inflation. Inflation in the United States has averaged around 2.3% a year over the long run.

If your money isn’t growing by 2.3% a year, then you are actively losing purchasing power – that’s not a good thing. This forces people to invest or suffer the consequences.

High quality dividend growth stocks preserve wealth by counteracting the effects of inflation. If prices rise by 5% tomorrow, what do you think Coca-Cola will do? It will raise its prices by 5%, and people will still drink just as much Simply orange juice, Honest Tea, Vitamin Water, and Coca-Cola as they used to. Excellent businesses can pass off the cost of inflation onto their customers.

 · Wealth Preservation Mindset

You can make money investing through active strategies like trading. Martin does a great job of tracking and explaining his options strategies on this site.

Investing in dividend growth stocks is a passive strategy after you’ve identified the business to invest in. All you have to do is hold a high quality dividend growth stock, and you will be rewarded with rising dividend income. This makes dividend growth investing much easier to practice than more advanced trading strategies.


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Of course, the stock prices of dividend stocks are volatile – they go up and down just like any other type of stock. By focusing on the quality and growth of the underlying business (and its dividend payments), investors can learn to not worry about stock price advances or declines. Dividend investing is not a short-term strategy. It works best when one invests for the long-run and holds stocks for years or decades, not days or months. This means you have to fight the urge to sell when a stock sees temporary price declines.

 · Final Thoughts

Wealth preservation is an integral part of investing. Dividend investing in general, and investing in high quality dividend growth stocks in particular is an excellent way to practice wealth preservation while simultaneously building a passive income stream.
 





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