Dividends4Life: How Patient Should You Be With Dividend Stocks?

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I prefer making investments with long-term investing horizons in mind at the point of purchase. When I was buying Johnson & Johnson (JNJ) from $62 per share all the way up to $75 per share, I proceeded with the expectation that I would be owning a high-quality asset that would grow at 8-10% for years to come. I have the same intent towards when I get around to purchasing Coca-Cola (KO) and Chevron (CVX) because both of those companies have business models that allow them to achieve returns on total capital invested that exceed total expenditures by such an amount that 7-12% annual growth.

The most high-profile investor that engaged in value investing within the realm of dividend stocks was John Neff. He ran the Windsor Fund at Vanguard. As Neff would explain it, "One of Ben Franklin's wise observations offers a parallel: 'He who waits upon Fortune is never sure of a dinner.' As I see it, a nice dividend yield at least lets you snack on hors d'oeuvres while waiting for the main meal." If you own a stock that pays no dividend, you may feel a temptation to "give up" on a value investment after three or four years because you are sitting on "dead money" that does not benefit you until the price goes up. But if you have a nice starting yield (that is ideally growing), the amount of time that you can wait for your investment to reach fair value becomes much more indefinite, and the need to set an expiration date for your investment to reach fair value may even disappear entirely.

Source: Seeking Alpha

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