Times Like These Are Why You Subscribe
Stock market investing is easy when share prices are going up. Its when prices drop that it becomes tougher to hang in there and let your logical side stay in control against the emotional pain that comes with watching your investment values drop. As I write this, many higher yield stocks are in correction territory –greater than 10% decline– and the dividend paying energy stock values can only be described as a bear market, with many values down more than 25% and a large portion of those declines happening over the last month.
An important concept to understand is that shares prices often do not accurately reflect the value of the business of which they are small pieces of ownership. The large swings a stock price can take in a short period of time show that the share price is not a good indicator the underlying value of a company. Consider the extreme example of Netflix Inc. (Nasdaq:NFLX). Over the past year, the NFLX share price has ranged between $45 and $118 per share. That’s a 162% swing for a company that is doing the same thing this year as it was last year and you would never guess from the share price increase that net income per share has fallen over the last four quarters.
Staying with the NFLX illustration. When the stock was at $45, few investors wanted to own it, fearing that it would fall further. Once it got above $100, there were lots of investors who wanted to own NFLX, afraid that they would miss the next big move, never thinking that they may have already missed their chance. We all know the simple concept of buy low and sell high to make money. Yet for most investors and the fear and greed driven market it is one of the hardest ideas to actually practice. I get a lot more emails asking, “XYZ is dropping rapidly, should I sell my shares?” compared to, “EYZ is hitting new highs, should I sell and take a profit?”
Which brings us to the beauty and strength of being dividend focused investors. We continue to collect quarterly or monthly cash dividend payments even as the market goes through big downswings that make one’s stomach hurt each time we log into our brokerage accounts. Consider The Dividend Hunter recommendation STAG Industrial (NYSE:STAG). The STAG share price is down over 20% from when I first recommended the stock in January 2015. STAG is not unique and has fallen with the rest of the REIT sector. Yet, an investor who bought in January continues to earn a 5.6% yield with dividends coming every month. If you can buy in or add shares now, the current yield is 7.2%. As extra good news, the dividend rate is going up in August. At some point the correction in REITs will end, share prices will recover, and STAG will continue to grow its dividend rate. Dividend investors do not need to give in to the fears when the market is falling. If you own quality, higher-yield stocks, the hope is you can add shares at lower prices and increase your average yield.
When I research stocks to add to The Dividend Hunter recommendations list, my primary focus is that companies will be able to sustain their current dividend rates and have a high probability of growing those dividends over time. Even though most of the recommendations in the portfolio have been in the list and tracked for less than one year, over half have already increased their dividend rates at least once.
If you’re following the Monthly Dividend Paycheck Calendar be sure to get the August update; just CLICK HERE to get a copy.
Land, fly or die,
The Dividend Hunter