In bear markets, stocks return to their rightful owners

 “In bear markets, stocks return to their rightful owners.” 

- J.P. Morgan

I love this quote. It summarizes a ton of insights into a simple, succint message. 

There is a lot to unpack here.

In short, it means that when stocks fall down in price, panicked sellers tend to dispose of their holdings in desperation. Perhaps they are scared of market declines due to being overextended or not knowing that stocks can decline in price. Those are both expensive lessons, and then some. 

The investors who take those shares from the panicked sellers are those who are patient and disciplined. The buyers are long-term investors, who stick to their plan, and buy when they have money to invest. These rightful owners are financially stable and buy cheap when there is blood on the streets. They are financially stable because they live below their means, have a long-term mindset, have their financial house in order, and as a result they have a surplus to invest every month. 

Those patient long-term investors with strong conviction often buy stocks at lower prices from panic-sellers, as seen in historical bear markets. It's a story as old as time. It's just that participants change.

Succumbing to emotions can be dangerous for investors, both when stocks are roaring high and when stocks are declining accross the board. 

In order to succeed at investing, you need to develop and stick to a disciplined strategy through thick or thin. 

Readers of this site stick to a strategy of dividend growth investing. Focusing on quality companies that have increased dividends for a long period of time, investing regularly at good valuations, and maintaining a long-term diversified portfolio are the winning ingredients to long-term success. Also, focusing on the dividend, and understanding the fundamental drivers behind them and their safety, while also looking for value, can greatly aid in the process of long-term value creation.

In addition, ignoring noise, but focusing on the stability of dividends is a good jedi mind-trick that keeps one calm and invested.

As a Dividend Growth Investor, I view share price declines as opportunities to acquire quality assets at a good price. Future income is available on sale when share prices drop. This is something you want to see in the accumulation phase. For each $1,000 that you invest, you are increasing forward annual dividend income by $20 - $40. That dividend income will likely grow above the rate of inflation over time. Reinvesting those dividends further turbocharges dividend income growth. You keep stacking to income streams, brick by brick, until you hit the coveted dividend crossover point. The dividend crossover point is the point at which dividend income exceeds expenses. You are financially independent, job optional, perhaps even an early retiree at that point.

If one is retired, then they are living off the dividends from a diversified portfolio. They can ignore the noise and enjoy the fruits of their labor. Those dividends are more stable, predictable and reliable than share prices, which makes them a perfect source of income for retirees. Dividends from diversified portfolios rarely decline, but they tend to grow above rate of inflation over time, and are taxed preferentially to other sources of income (e.g. fixed income, labor etc). Perhaps you also earn some social security and pension income too.  And perhaps even you have a paid off home.

In times like these I am happy to be a Dividend Growth Investor.

I focus on the dividend payments, which are much more stable, predictable and reliable than share prices.

The focus on dividends makes me do the work on fundamentals and valuation and helps me stay invested.

Anywho, I think that this too shall pass.

Relevant Articles:

- The value of experience

- Use these tools within your control to get rich

- How To Get Rich With Dividends

- How to become a successful dividend investor

Happy Coca-Cola Dividend Day Warren Buffett

Warren Buffett’s Berkshire Hathaway just received a  dividend check for $204 million dollars from Coca-Cola.

Berkshire Hathaway owns 400 million shares of Coca-Cola (KO), which are projected to generate $816 million in annual dividend income. 

This comes out to roughly $2,235,616.43 in dividend income per day, $93,150.68 dollars in dividend income per hour, $1,552.51 dollars in dividend income for Berkshire Hathaway every minute, or almost $25.87 every single second. 

Those shares have a cost basis of $1.29 billion dollars, and were acquired between 1988 – 1994. This comes out to $3.25/share. The annual dividend payment produces an yield on cost of over 62.77%. This means that Berkshire receives its original cost back every other year in dividends alone, while still retaining full ownership of its shares. This is why I believe that Warren Buffett is a closet dividend investor.

Since 1994, Buffett has received $28.76/share in total dividend income from Coca-Cola.

That is $11.504 billion in dividend income, against a total cost of $1.299 billion, which was allocated to buy stakes in other businesses and shares.

His Coca-Cola stock is worth $28.60 billion today. Given the fact that Coca-Cola has also repurchased stock over the years, it also means that his ownership in Coca-Cola has increased over time, without adding a single dime.

This is a testament to the power of long-term dividend investing, where time in market is the investors best ally, not timing the market. If you can select a business which is run by able and honest management, which has solid competitive advantages, and which is available at a good price today, one needs to only sit and let the power of compounding do the heavy lifting for them. As Buffett likes to say, time is a great ally for the good business. In the case of Coca-Cola, the past 33 years have been a great time to buy and hold the stock. The company has been able to tap emerging markets in Eastern Europe, Asia, Africa and Latin America like never before. As a result, it has been able to receive a higher share of the worldwide drinks market, which has also been expanding as well. If you add in strategic acquisitions, new product development, cost containment initiatives and streamlining of operations, you have a very powerful force for delivering solid shareholder returns. With dividend investing your are rewarded for smart decisions you have made years before.

If they closed the stock market for a period of 10 years, Buffett would still be earning steady cashflow from his investment in Coca-Cola. This is because ten years from now, the company would likely be earning more than what it is earning today, and would likely be distributing more in dividend income than it is paying to shareholders today. Receiving a huge dividend check every three months is a reminder that you are a shareholder in a real company with real products that are consumed by billions of consumers worldwide. The stock is not a lottery ticket but a partial ownership in a company, which entitles you to a share of the profits being paid out to you as a shareholder in the form of dividends.

At the end of the day, if you identify a solid business, that has lasting power for the next 20 – 30 years, the job of the investor is to purchase shares at attractive values, and hold on to it. This slow and steady approach might seem unexciting initially, but just like with the story of the slow-moving tortoise beating the fast moving hare, the power of compounding would work miracles for the patient dividend investor.

In the case of Warren Buffett's investment in Coca-Cola, he is able to recover his original purchase price in dividends alone, every two years. Even if Coca-Cola goes to zero tomorrow, he has generates a substantial returns from dividends alone, which have flown to Berkshire's coffers, and have been invested in a variety of businesses that will benefit Berkshire Hathaway's shareholders for generations to come.

Currently, Coca-Cola is selling for 24.23 times forward earnings and yields 2.85%. This dividend king has managed to increase dividends for 62 years in a row.  

There were only 46 companies in the US, which have gained membership into the exclusive list of dividend kings, as of early 2025. 

Over the past decade, Coca-Cola has managed to increase dividends by 4.70%/year.  This is much better than the raises I have received at work over the past decade, despite the fact that I have routinely spent 55 - 60 hour weeks at the office.


Relevant Articles:

- Coca-Cola: A wide-moat dividend growth stock to buy and hold
- Warren Buffett Investing Resource Page
- Seven wide-moat dividends stocks to consider
- Warren Buffett’s Dividend Stock Strategy
- The importance of yield on cost

Dividend Investors: Stay The Course

The past few months have been difficult for many investors. Stocks are down from their all time highs, reached just a few months ago. It is during times like these that you see who really is a long-term investor, and who is just a pretender. When you are a long-term buy and hold investor, you stand the best chances to take maximum advantage of the power of compounding, and end up with the probability for the highest dividend income and capital gains. These are the times where having a disciplined approach to investing pays off. These are the times when the ability to allocate capital to use in quality dividend stocks would seem stupid in the short-term, but potentially really brilliant 10 – 20 years down the road. When stock prices fall, there is an urge in the investor to protect their nest eggs from further price impairment.

This is a dangerous situation to be in because:

1) Noone knows in advance today when this correction is going to run out of steam or what its ultimate severity will be. So when you act on short-term noise, you are actually shooting yourself and those who will depend on you in the foot.

2) Therefore, if you act based on short-term price fluctuations, you are speculating and have essentially thrown out your edge of being a long-term investor. It is extremely difficult to win in investing as a short-term speculator – you will be in an out of stocks and paying taxes and commissions through the nose. Your main edge in the stock market lies in the ability to hold on to your stocks through thick and thin for decades, and cashing in those growing dividend checks ( or reinvesting them in the accumulation phase)

3) If you are in the accumulation phase, you should be praying for lower prices, because you are buying shares to provide for you in 20 – 30 years. A 200 point decline on the S&P 500 decline will likely look just like a blip on the charts 20 – 30 years from now. If you don’t believe me, check the 1987 crash. A lower entry price results in more future dividend income for you.

4) If you are in the retirement phase, you already have a plan to live off your assets. You are likely spending those dividends, and hopefully those dividends are coming from a diversified portfolio of dividend growth stocks. You are likely getting social security and possibly a pension. As long as there is some margin of safety in financial independence, and the dividend portfolio mostly consists of quality blue chips, the investor should be just cashing in their dividend checks and enjoy the fruits of their lifetime of labor.

I know that seeing unrealized capital losses hurts. However, the important thing is to just stick to your plan and stay the course. This is why I have chosen to be a dividend growth investor. When the stock market is going up, everyone is a total return investor and chases hot growth stocks and talks about how much capital gains they have made.

However, when the stock market starts going down in price, those capital gains could quickly turn into losses. Imagine having to sell chunks of your portfolio for living expenses when the stock market is going lower. You will eat your principal quickly, and increase your chances of panicking and doing the wrong thing of selling everything out. When your dividends cover your living expenses however, it is much easier to ignore those stock price fluctuations. As long as those dividends are coming from a diversified portfolio of quality blue chip stocks that are dependable, the investor has nothing to worry about. In fact, receiving cash dividends when the stock prices are going down is very reassuring, and provides the investor with positive reinforcement to just stay the course.

There is a reason why stocks have done much better than bonds in the long-run – they are riskier. With stocks, there is always the chance that there will be violent fluctuations in the price. You can have steep downturns, which can have many weak hands scrambling for the exits. When stock prices go down, many investors assume that something is wrong, they panic and sell. They forget that your upside potential in terms of dividends and capital gains is virtually unlimited. Some companies you own will ultimately cut dividends and sell at levels that were lower than what you paid for. Other companies in your portfolio will do well enough in the long term that will more than compensate for the failures you have experienced.

The issue with stocks of course is that the amount and timing of future capital gains is largely unknown in advance. This is why people panic when prices start going down – they project the recent past onto the future indefinitely. They forget that stocks are not just some pieces of paper or blips on a computer screen, but real businesses that sell real goods and services to consumers who are willing to exchange the fruits of their labor for those goods and services. Over time, those businesses as group will likely learn ways to sell more, charge more, earn more and reward their shareholders. No matter the turbulence we will experience in the US and Global stock markets and economies in the short-run, I believe that things will be better for all of us ten years from now. And as investors, we invest for the long term, not for the next 5 years or 5 months.

With bonds, you get limited upside mostly in terms of the interest payment you receive, and then hopefully a guaranteed return on investment after a set period of time. The issue of course is that fixed income will mostly keep up with inflation over time. Cash looks safe in the short-term, but it is expensive in the long run. Stocks look risky in the short run, but they are safer in the long run. While a portfolio of bank CD’s will not be quoted every day, providing an illusion that the money is safe, they are mostly keeping up with inflation rates in the long-run, before taxes.

Holding on to stocks pays in the long term better than holding bonds precisely due to their “riskier” nature. If you stay the course of regularly adding money to your accounts, you will be able to buy more shares of quality companies at a discount. After the dust settles, you will be ending up with more valuable pieces of real businesses than before. It intuitively makes sense that you will be better off buying a stock at $40/share as opposed to $75/share. If one share a stock is bought today, and dividends are reinvested, it could result in a net worth of $400 in 30 years. This exercise assumes a total return of 8%/year.. It also intuitively makes sense that if you reinvest your dividends when prices are low, you will end up with more shares and more dividend income over time.

Again, in order to benefit from all of this, you need to stay the course. This means saving money every month, putting money to work regularly, and not getting scared away. Perhaps if you are concerned about prices and you are in the accumulation phase, it may make sense to just start reinvesting dividends automatically. Or alternatively, it may make sense to automatically invest a portion of your paycheck through your 401 (k).


Relevant Articles:

- Successful Dividend Investing Requires Patience
- Fixed Income for dividend investors
- Dividend income is more stable than capital gains
- How to think like a long term dividend investor
- Long Term Dividend Growth Investing

The Importance of Dividends

I was reviewing my old files and re-visited an interesting paper from Standard & Poor's from a few years ago about the importance of dividends.

The paper states that dividends are important because:

1. They are a growing portion of personal income

2. More than one third of historical total returns came from dividends

3. Dividend paying stocks offer superior risk adjusted returns and potential for downside protection

I wanted to zoom in on this statement "Dividend paying stocks offer superior risk adjusted returns and potential for downside protection"

numerous academic studies have shown that dividend payers tend to outperform non-dividend payers across market cycles and offer higher risk-adjusted returns.

Dividends also play another important role during periods of volatility. While price returns can be either positive or negative, dividend incomes are by definition positive. Therefore, dividends provide investors with the opportunity to capture the upside potential while providing some level of downside protection in negative markets.

Fuller and Goldstein2 examined the return behavior of dividend paying and non-dividend paying firms in both up and down markets, from January 1970 to December 2007. The authors found that dividend paying firms outperformed non-dividend paying firms more in down markets than in up markets, with the results showing outperformance of 1% to 2% per month.

Dividends Act as a Cushion during Negative Equity Markets

Dividends also have lower volatility than Capital appreciation

The compounding effects of reinvesting dividends is undisputed.

You can read the full study here. 

Dividend investing is a widely discussed investment topic. The role of the paper was to add to the discussion by highlighting the role of dividends in generating returns. The beauty of dividend investing is that one can custom tailor their strategy to the outcome they are looking for. Some may focus on current income more so than dividend income growth, while others may want stable growth and income. The best way to embrace dividends is to identify your goals and objectives, your timeframce and risk preference, and design and implement a strategy to get you there.

Eight Dividend Growth Stocks Raising Distributions Last Week

I review the list of dividend increases every week as part of my monitoring process.

Dividend increases provide signaling value to me in my process of evaluating dividend growth companies. I believe it is an important tool in my toolset.

This exercise also helps me quickly review and scan large quantities of companies in order to narrow down the list to the most desirable candidates for further research.

I typically focus my attention on companeis that have managed to increase dividends for at least a decade.

Last week, there were 27 companies that increased dividends in the US. Eight of them have managed to increase dividends for at least a decade. The companies include:

CareTrust REIT, Inc.’s (CTRE) primary business consists of acquiring, financing, developing and owning real property to be leased to third-party tenants in the healthcare sector. 

The REIT raised its quarterly dividend by 15.52% to $0.34/share. This is the 12th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to increase dividends at an annualized rate of 24.85%.

The company managed to grow FFO from $0.94/share in 2015 to $1.50/share in 2024.

The company is expected to generate FFO/share of $1.78/share in 2025.

The stock sells for 16.10 times forward FFO and yields 4.68%.

Colgate-Palmolive Company (CL) manufactures and sells consumer products in the United States and internationally. It operates through two segments: Oral, Personal and Home Care; and Pet Nutrition.

The company raised its quarterly dividend by 4% to $0.52/share. This is the 62nd consecutive annual dividend increase for this dividend king. Over the past decade, the company has managed to increase dividends at an annualized rate of 3.38%.

The company managed to grow earnings from $1.53/share in 2015 to $3.53/share in 2024.

The company is expected to earn $3.71/share in 2025.

The stock sells for 24.35 times forward earnings and yields 2.30%.

Independent Bank Corp. (INDB) operates as the bank holding company for Rockland Trust Company that provides commercial banking products and services to individuals and small-to-medium sized businesses in the United States. 

The company raised its quarterly dividend by 3.51% to $0.59/share. This is the 15th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to increase dividends at an annualized rate of 9.17%.

The company managed to grow earnings from $2.51/share in 2015 to $4.52/share in 2024.

The company is expected to earn $5.43/share in 2025.

The stock sells for 11.62 times forward earnings and yields 2.32%.

JPMorgan Chase & Co. (JPM) operates as a financial services company worldwide. It operates through three segments: Consumer & Community Banking, Commercial & Investment Bank, and Asset & Wealth Management.

The company raised its quarterly dividend by 12% to $1.40/share. This is the 15th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to increase dividends at an annualized rate of 11.42%.

The company managed to grow earnings from $6.05/share in 2015 to $19.79/share in 2024.

The company is expected to earn $18.29/share in 2025.

The stock sells for 13.21 times forward earnings and yields 2.32%.

QUALCOMM Incorporated (QCOM) engages in the development and commercialization of foundational technologies for the wireless industry worldwide. It operates through three segments: Qualcomm CDMA Technologies, Qualcomm Technology Licensing, and Qualcomm Strategic Initiatives. 

The company raised its quarterly dividend by 4.71% to $0.89/share. This is the 23rd consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to increase dividends at an annualized rate of 7.60%.

The company managed to grow earnings from $3.26/share in 2015 to $9.09/share in 2024.

The company is expected to earn $11.73/share in 2025.

The stock sells for 13.36 times forward earnings and yields 2.27%.

Shoe Carnival, Inc. (SCVL) operates as a family footwear retailer in the United States. 

The company raised its quarterly dividend by 7.14% to $0.15/share. This is the 14th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to increase dividends at an annualized rate of 15.90%.

The company managed to grow earnings from $0.73/share in 2015 to $2.72/share in 2024.

The company is expected to earn $1.94/share in 2025.

The stock sells for 21.52 times forward earnings and yields 2.79%.

Southern Michigan Bancorp, Inc. (SOMC) operates as the bank holding company for Southern Michigan Bank & Trust that provides a range of commercial banking services to individuals, businesses, institutions, and governmental agencies primarily in the southwest Michigan communities. 

The company raised its quarterly dividend by 6.67% to $0.16/share. This is the 14th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to increase dividends at an annualized rate of 7.74%.

The company managed to grow earnings from $1.21/share in 2015 to $2.28/share in 2024.

The stock sells for 8.33 times earnings and yields 3.37%.

Williams-Sonoma, Inc. (WSM) operates as an omni-channel specialty retailer of various products for home.

The company raised its quarterly dividend by 15.79% to $0.59/share. This is the 20th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to increase dividends at an annualized rate of 12.73%.

The company managed to grow earnings from $1.71/share in 2015 to $8.91/share in 2024.

The company is expected to earn $8.53/share in 2025.

The stock sells for 19.19 times forward earnings and yields 1.61%.