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In what type of market environment should you be buying dividend stocks?

This depends on your plan and goal. If you plan on building a portfolio over long haul which will one day generate nice income you can use to pay your bills and live off of your investments, then you should invest in any and all market environments. Ignore all noise, rumors, and fears of others telling you that the market is overvalued, at all time high, the longest bull market ever, prone to an imminent crash, etc. There is a very high chance, that those people saying this have no idea what they are talking about.

To illustrate my point, if you are going to invest for the next 20 years, here is a chart of my stock, 20 year chart. It is a high quality dividend growth stock, paying dividends for the last 100 years and increasing them for the last 57 consecutive years. If you invested in that stock 20 years ago, your dividend yield on that original investment would be 12.83% today and you would make 700% gain on the stock itself.

I removed the name of the stock and hid the X,Y axis. Can you identify the 2008 recession on that chart?

20 year chart

If you held through those blips called recession and hardly identifiable in the long run, reinvested the dividends you would be able to live comfortably from your dividends. If you listened to rumors and got scared anytime a market dips or panic, you would blow up your account.

People over estimate their abilities short term but grossly under estimate their ability to invest long term. There will be dips, panics, corrections, and recessions, but if you look at history of the markets, bulls can last 20 years, while bears only about 2 to 3 years. Yes, bears can be severe, but they are short. You will also have periods of difficult markets. Some people will rush to tell you that if you invested in 1932 or in 2000 the market got nowhere for 20 years. Well, yes, overall market was stagnant, but even if you look at the chart, it was not a single drop which took 20 years. It was a drop, which took 3 years, then several years of recovery, then another 3 years drop, and several years recovery, and eventually a breakout from this pattern. If you kept reinvesting the dividends and buying more shares during these panics, you would be buying cheaper and cheaper and every time, during the recoveries, you would be ahead the market. For example, I was purchasing JNJ stock during 2008 recession. My average cost basis is $44 a share today and the stock trades at $150. Even if the market crashes today and loses 70% of its value, this stock would go down to $45 a share (70% loss). I will still be above my cost basis with no loss at all. And on top of that, I still will be getting my nice fat 12% yield dividend.

And that is the beauty of dividend investing. With dividends you do not care what your stocks are doing, whether there is an end of the world out there or a bright sunshine. As long as your stock keeps paying you nice dividend and increases that dividend every year, you do not need to worry about the current price of the stock itself (unlike the growth investors who need to sell a portion of their holdings to generate cash).

If you want to speculate with dividend stock, then you need to identify the market environment correctly and be buying in bullish market and selling short in bearish market. But you would have to be really good at it otherwise say goodbye to your account…

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