I feel like it’s a tough time to be a dividend investor right now. Have you felt that too? It’s not so much that the strategy has changed or that there aren’t great dividend stocks to buy — there definitely are. It’s tough because it seems like no matter which way you turn, someone is telling you that what you’re doing isn’t good enough. On one hand, you’ve got the high-income crowd, which is all consumed by the current craze of high-yield covered call ETFs. Many of these funds (like $ULTY) have only been around for a year or two, but they’re flashing outrageous dividend yields of over 100%, which are too tempting for many income seekers to turn down. In my opinion, these funds are a house of cards built on shaky ground. Something tells me that there’s no way a yield that high can possibly be sustained without serious side effects, which many investors may not take into consideration. Still, the partakers will tell you that your 2–3% yielding dividend growth stocks—or even your 5–6% yielders that are still growing—just aren’t enough. It turns out you’re not “dividend enough” for the dividend investors. On the other hand, you’ve got the growth investors who are piling into whatever stock has the most momentum right now. Think companies like Palantir ($PLTR), Hims & Hers ($HIMS), and Rocket Lab ($RKLB), which have seen their share prices skyrocket this year, a lot of it driven purely by momentum. The owners of these stocks will tell you that your Visas ($V), Zoetises ($ZTS), and Casey’s General Stores ($CASY)—companies that are still growing their sales, earnings, free cash flow, and dividends by double digits—aren’t “growth enough” to be worth owning. So here we are, stuck in the middle. Not “dividend enough” for the dividend crowd, and not “growth enough” for the growth crowd. That’s what makes this moment in the market so tough — it’s not enough anymore to just own profitable companies with consistent growth and hold them for the long term. Every direction you turn, someone’s telling you that you’re doing it wrong and that their way is better. I’ve been thinking a lot lately about why that is. Why is patiently holding good companies with a long-term mindset being looked down on as a subpar investment strategy? I think part of it comes back to what Warren Buffett said in his letter to shareholders from 2000: “The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money.” The market has been good for a long time — maybe too good — and maybe that has caused investors to become overconfident. As a result, what would’ve been called speculation a few years ago is now being passed off as smart investing (which means that everyone who does something differently is the opposite). But as Buffett also wrote, that kind of behavior without checks and balances will “eventually bring on pumpkins and mice.” This easy-money phase won’t last forever, and when it ends, “a new wave of investors learns some very old lessons.” Until then, the growth seekers and income chasers are going to be loud about it. From what I can tell, many of them are newer investors who’ve never experienced a real and prolonged market downturn. To be fair, I’m not sure I have either. Nonetheless, while speculation still looks easy, it’s going to stay noisy. That’s why my plan is simple: tune it out. Despite what anyone else tells you, the best investment strategy is the one you can adhere to through all of the highs and lows, year after year. At the end of the day, I’ve found the one that works for me, and that’s the only thing that matters. With that said, I want to hear from you: What’s been the hardest part about staying disciplined in this crazy market? Let me know in the comments below! 👇 Note: this article was re-published from my weekly newsletter. Read the full newsletter here: https://www.retirewithryne.com/newsletter/dividend-investors-cant-win
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Ronan @ronan · 1yrEdited
Just focus on total returns based on the risk you take. You shouldn’t accept more/equal risk for less returns, and if you’re buying companies dividends are just one part of your returns. Unless you are in the midst of a withdrawal strategy, then total returns is all you should be striving for
Golden Pancake@free2068 · 1yr
I agree — it’s a tough time to invest, period. Everyone’s got their “one true way” and they’ll tell you you’re doing it wrong if you’re not following it. At the end of the day, investing is a personal choice, and unless you’re actually qualified to give advice, maybe don’t tell others how to run their portfolio. We all have different goals, timelines, and risk tolerance — and that’s exactly how it should be. 📈💡
