Dividends. For those of us who don’t believe in timing the market
In an earlier post I wrote about settling for less. That was about realizing, that you aren’t THE best stock picker out there and to be OK with that fact.
In this post I will dig a bit deeper into this philosophy and explain why dividend can be an answer to all of us private investors who wants a good return on our invested money.
I you want to earn money and buying and selling stocks it is all about buying low and selling high. That is it. The tricky part is to know when a stock price is low, and when it is time to sell.
In the above graph is easy in hindsight to know when you should have bought and when you should have sold your stocks. If you sold in July, bought again in December and sold in April, you would have a 50 % profit!
But if you sold in July, that means someone else was buying, and if you bought in December, that means someone was selling. These people didn’t earn 50%.
What makes you believe you are the smartest one out there? I know I’m not the smartest one out there. Out there is professors who studied stock prices for 40 years without learning when to sell and when to buy. I don’t say that it is impossible, I just say that is a virtue for the few.
Dividends to save the day
People who doesn’t believe in the power of dividends often say, that stock prices won’t rise for dividend stocks, because they pay out all of their profit. That is true for some REIT and supply companies who are required to pay out all of their profits. But it is not true for all dividend stocks.
Dividend make sure, that you earn money one your stock picks. The pay you along the way which means dividends are meant for the long-term investor. In the above example there where made three trades in a single year. This is a form of swing trading which can earn you a lot of money, but also have a risk of the opposite.
Dividends pay out the profit ongoing. With this you can diversify by accumulating other stocks or buy more of the stocks you believe in.
To show this by example the above graph is a display of Harvest Capital Credit Corporation. A stock I have in my portfolio who pays monthly dividends. (These stocks are generally high risk, but the stock is well suited for this example.)
If you bought the stock in March 2018 you would have paid about 10.50$ per share. In July 2019 you would be paying 10.55$.
That means 0% profit from normal buying and selling. But in this period Harvest paid out 1.20$ per share. That is more than 10% profit in just over a year.
I know that you could argue that if they didn’t pay dividends, the money would have stayed in the company which would have affected the stock price positively. But I could show you several examples of stocks who won’t pay dividends which didn’t have a positive grow in share price over this time period. You simply cannot know for sure. I know you can’t guarantee that dividends will keep coming – Harvest actually lowered their dividends in April this year. There are no guarantees. But I believe dividends are my best bet of getting the most out of my money over time.