Yes, the first President Bush hated broccoli and banned it from the White House and Air Force One. But let’s not make broccoli a Red/Blue issue. Regardless of your political affiliation and whether you like it or hate it, you’d have to admit that broccoli is good for you. Not sexy (like eggplant) or trendy (like arugula), broccoli is the go-to vegetable that delivers.
I feel exactly the same way about dividends, which is why I’ll be writing about every aspect of them for Dividend.com. Dividends are boring, often overlooked and vaguely musty. Yet they are one of the foundations of successful investing. Let me tell you why I believe dividends are so important, which will shed light on my investing perspective. Hopefully, you share some of my beliefs. If not, feel free to write and disagree.
First, I believe the purpose of investing is to earn a return. If I’m risking my capital, I deserve to be paid for taking the risk. Capital gains are the big prize, of course, but the quest for the next Apple — while the stuff of dreams — is costly and usually disappointing.
As a middle-class investor who happens to have worked in and around Wall Street for years, I’ve long-ago conceded that I’m too busy, too poor and too crazy (or predictably irrational, as the behavioral economists have discovered all of us to be) to spend my time trying to outsmart institutions and millions of individual investors who are searching for the next big winner.
On the few occasions I felt the urge to bet on capital gains, I was humbled. My most “sure thing” flop involved the stock of a company whose name I’ve long forgotten that had a patent on making a Styrofoam substitute out of potato starch. At the time, many years ago, I was the editor of a magazine for stockbrokers and I was having lunch with the marketing chief of an investment banking/brokerage firm in California that had brought the company public. The venture was seemingly well financed and it was going after the market for those clamshell containers that hold Big Macs and Whoppers. The potato-based stuff was biodegradable and U.S.-made, replacing plastics that were based on oil we were importing from the Middle East. So how could it lose? Well it did. Somehow, there were flaws in producing the bio-foam on a mass scale and the company shrank into nothingness. I lost only a little, so I won’t be eating Meow Mix in retirement, but it did teach me stick to my basic investing philosophy, which I call Bogle-ism with a garnish.
Cheap is Good
In short, I agree with Vanguard founder John Bogle’s contention that low-cost passive funds are the best bet for most investors since it’s almost impossible to beat the market long-term and it’s too expensive to try. At the same time, I want to have some of my money under my own control and demonstrate to myself how smart I am (I have to have a little fun). To do that in the safest and most rational way possible, I look for stocks and funds that pay me in cold, hard cash. To me, dividend investing makes the most sense and the most successful yet least well known Wall Street investors I have met over the years take this slow, quiet and tough-as-nails, “show me the money” approach to buying stocks.
Of course, I do my dividend investing within the envelope of my IRA, which means I’m pushing the taxation of my profits into the future. In the meantime, I’m reinvesting the dividends I’m earning on Johnson & Johnson and the Southern Company and a few other hefty dividend payers, and when the time comes for me to take IRA distributions, I’ll probably switch from reinvesting the dividends to taking them as cash to help meet the minimum distribution requirements — and keep the stocks to generate income.
The Bottom Line
Yep, dividends are reliable, value-packed and boring, just like broccoli. But in this space I’m going to try to do for dividends what Jacques Pepin, Mark Bittman and other foodies have done with broccoli, which is to provide interesting new ways of looking at a great staple.
Evan Cooper, is an award-winning financial journalist. After reporting on business at The Miami Herald, Evan worked on Wall Street at the New York Stock Exchange, the Securities Industry Association and Drexel Burnham Lambert. He was Editor-in-Chief of On Wall Street, a publication for financial advisors, research editor of Institutional Investor, and Deputy Editor of InvestmentNews, where he was honored by the Society of American Business Editors and Writers with a “Best in Business” award for his online opinion column.