Why I Only Buy Dividend Stocks

 

For 20 years or more, I invested pretty much the same way most other people do. I put my retirement savings into a basket of mutual funds and hoped the value of that basket would grow. But every price downturn would shake my confidence in that hope of growth. I would look at the drop in market value of a fund — or of my entire portfolio — and fret, worry, stress. And if the price drop was deep enough or continuous enough I would finally freak out and sell the position at a loss.

Why? Because my perception of the value of my mutual fund shares was solely based on their market price. Because I saw my retirement future as tied to and dependent on the market price of those shares. Because I did not want to lose any more of that retirement future to stock market drops.

Boy, that really did not work for me. My fear of loss was too powerful a force. Fighting it involved daily stress, doubt and anxiety. And each time I gave into it by selling “to stop the loss” I would be hit with feelings of failure. And if the share prices recovered some time after I had sold, I would add to that feeling additional feelings of guilt, recrimination… and more failure. I felt completely out of control of my retirement future.

Thank heavens I’ve found a different way of investing that has really worked for me. A way that has put me much more in control. That way is to only invest in carefully screened individual high-yielding dividend stocks.  (This investing mindset works for me. But I am not a financial advisor and I am not saying this will work for you.)

Now, when I buy a block of a dividend-paying stock, in my mind what I am focused on is the dividend. I am buying the future income stream that will be provided by that dividend. I am not projecting or counting on an increase in the stock’s market price (although I certainly will cash in on it if it happens).

I have built my stock (and bond) portfolio to provide me income based on my stock dividends and bond interest. I have NOT built my portfolio on the expectation of following the standard withdrawal strategy of cashing out positions and spending down the portfolio’s principal. Some day in the future I may very well adopt a cashing-out plan. But that will be done either as an end-game or in response to IRS required distribution requirements. I will not be cashing out positions just to cover my living expenses.

As long as I can determine that the dividend will continue to be paid, I do not concern myself. The dividend is my mental defense line against stress and anxiety. Against pulling the sell trigger based on nothing but herd-driven market panic.

The takeaway:  In my mind, the value of a stock is in its dividend, not its market price. So now I don’t freak out when the market price of any of my stocks drops.

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