I have never been interested in buying stocks based on dividends but I do know there are investors who do that and want to hold these stocks forever. A similar philosophy of Warren Buffett. Or even what Robert Kiyosaki preached, invest for cash flow. Come to think of it, you go into business with the objective of making profits. Imagine that stock market does not exist and all businesses are privately owned, how would you evaluate which business to get into, if you have a chance to buy a piece of a company? You will definitely look into the earnings of the companies. You want to buy a business that can make money consistently.
Standard & Poor’s created a Dividend Aristocrats Index which tracks companies from S&P 500 that distribute growing dividends over the years.
|Companies||% of earnings
3 Nov Price
|JOHNSON & JOHNSON||56||3.54|
|PROCTER & GAMBLE||53||3.32|
|AUTOMATED DATA PROCESSING||56||2.76|
|AIR PRODUCTS & CHEMICALS||42||2.69|
|FAMILY DOLLAR STORES||23||1.23|
If the golden goose can consistently lay golden eggs, would you sell the goose for capital gain?
Let’s say the golden goose you bought cost you $10,000 and it lays an egg every year. Each golden egg will give you back 10% of your investment, but you still need to pay for the food and lodging for the goose, which takes away 50% of your golden egg. Hence, you only get back 5% which is $500. Assuming everything remains constant, it will take 20 years for you to get back the worth of your golden goose.
[Free Ebook] How should you invest your first $20,000?
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
On the other hand, if the price of the goose can go up and down, would it be better to sell the goose? If the goose price goes to $20,000 in 5 years, you can sell and reap a profit of $10,000 or a 100% gain.
It makes sense for the rich to hold on to the golden goose because they don’t need the extra money from selling the goose. In fact, they have so many golden geese that they don’t need to sell any away. But for the majority of us who do not have sufficient capital, it will be very difficult to become rich by relying on one golden goose.