Money and Finance
"Why Moats Matter for Equity Income" Josh Peters, Morningstar
"The first thing you have to remember about dividend investing is that dividends are paid out slowly, though, relentlessly, and they really add up over time. But if you're going to actually buy a stock for its dividend, then this is going to be probably a five-, 10-, or 20-year-type of relationship. That means you have to think about their earnings potential and growth potential of the company, five, 10, 20 years, or longer into the future.
Now most of Wall Street focuses on those short-term news events. What will [the companies] make this quarter? Will they beat estimates? Will they raise forecasts? But again, if you're hanging around for the dividend over the long run, then you have to think about the long-run earnings power, and that is almost entirely going to be shaped by the company's competitive position in its industry. What's the industry structure like? Can the company actually preserve a good level of profitability and be able to grow in its field over the long term without competitors coming in and slashing away prices and ruining the game for everybody.
So, to have an economic moat and to be able to identify what it is that protects this business and its profits and its future growth potential from competition, is absolutely essential. It may not seem like it has a lot to do directly with dividends, but it really does."
Josh Peters nails the intersection of quality and dividends. I wrote about a similar concept - One Reason Why Dividend Investing Works So Well - who cares about a 3% yield? Its chump change on a short term on a basis, but not a long term basis its anything but. You want to see the dividend grow over time. If you want your 3% yield to grow to 10% yield on cost, even if it grows by 10%+ per year, you are still going to be holding the stock for a decade to get there. And longer to realize the long run benefits. So you're automatically re-oriented to businesses with staying power. Criteria should focus on identifying marathon runners not sprinters.
- The Evidence For Dividend Growth Investing
This following post is written by Ben Reynolds, who runs the Sure Dividend site. Sure Dividend focuses on high quality dividend growth stocks suitable for long-term investing. Dividend growth stocks are an excellent vehicle to build passive income over...
- Why Moats Matter
Morningstar posted a great video overview of the five kinds of moats they use in analysis. It runs around 20 minutes and its well worth your time to listen in to hear from the analysts describes the moat types and how they use them to identify investment...
- Dividends Aren't Evil
Matt Yglesias has a post called "Dividends Are Evil", he is right in some ways, but mostly wrong. Let's count the ways: 1. Yglesias begins by saying that dividends are a "triumph of short term thinking"; I could not disagree more. Dividend investing...
- One Reason Dividend Investing Works So Well
I am sure there are a number of reasons why dividend investing works, not the least of which is dividends role in long term total returns. I see another factor that dividend investing one reason why dividend investing works so well, and it has to...
- The Wine Cellar - James Montier: Dividends Still Matter
One of the main things I am using the blog for is an ongoing notebook of my favorite insights on investing. The Wine Cellar is the ideas, papers and analysis that are most useful and informs my perspective over the long haul. So the first one to...
Money and Finance
Moats Matter for Dividend Investors
"Why Moats Matter for Equity Income" Josh Peters, Morningstar
"The first thing you have to remember about dividend investing is that dividends are paid out slowly, though, relentlessly, and they really add up over time. But if you're going to actually buy a stock for its dividend, then this is going to be probably a five-, 10-, or 20-year-type of relationship. That means you have to think about their earnings potential and growth potential of the company, five, 10, 20 years, or longer into the future.
Now most of Wall Street focuses on those short-term news events. What will [the companies] make this quarter? Will they beat estimates? Will they raise forecasts? But again, if you're hanging around for the dividend over the long run, then you have to think about the long-run earnings power, and that is almost entirely going to be shaped by the company's competitive position in its industry. What's the industry structure like? Can the company actually preserve a good level of profitability and be able to grow in its field over the long term without competitors coming in and slashing away prices and ruining the game for everybody.
So, to have an economic moat and to be able to identify what it is that protects this business and its profits and its future growth potential from competition, is absolutely essential. It may not seem like it has a lot to do directly with dividends, but it really does."
Josh Peters nails the intersection of quality and dividends. I wrote about a similar concept - One Reason Why Dividend Investing Works So Well - who cares about a 3% yield? Its chump change on a short term on a basis, but not a long term basis its anything but. You want to see the dividend grow over time. If you want your 3% yield to grow to 10% yield on cost, even if it grows by 10%+ per year, you are still going to be holding the stock for a decade to get there. And longer to realize the long run benefits. So you're automatically re-oriented to businesses with staying power. Criteria should focus on identifying marathon runners not sprinters.
- The Evidence For Dividend Growth Investing
This following post is written by Ben Reynolds, who runs the Sure Dividend site. Sure Dividend focuses on high quality dividend growth stocks suitable for long-term investing. Dividend growth stocks are an excellent vehicle to build passive income over...
- Why Moats Matter
Morningstar posted a great video overview of the five kinds of moats they use in analysis. It runs around 20 minutes and its well worth your time to listen in to hear from the analysts describes the moat types and how they use them to identify investment...
- Dividends Aren't Evil
Matt Yglesias has a post called "Dividends Are Evil", he is right in some ways, but mostly wrong. Let's count the ways: 1. Yglesias begins by saying that dividends are a "triumph of short term thinking"; I could not disagree more. Dividend investing...
- One Reason Dividend Investing Works So Well
I am sure there are a number of reasons why dividend investing works, not the least of which is dividends role in long term total returns. I see another factor that dividend investing one reason why dividend investing works so well, and it has to...
- The Wine Cellar - James Montier: Dividends Still Matter
One of the main things I am using the blog for is an ongoing notebook of my favorite insights on investing. The Wine Cellar is the ideas, papers and analysis that are most useful and informs my perspective over the long haul. So the first one to...