My personal goal is to find companies that pay consistent dividends. If the price-to-earnings is low as well then this is another indicator that the company is a buy option for me. However, I also believe in dollar cost averaging (DCA) in investments which eventually takes the price-to-earnings out of the equation. Why are dividends so great?
Companies that have steady dividend growth can create a wonderful effect. Let’s take an example from my own portfolio. In 2002, I noticed a company, Entertainment Properties Trust (EPR), selling with a dividend yield of 8.5%. I looked over the core fundamentals of the company and decided to purchase shares. I invested $200 to buy 8.8928 shares at a purchase price of $22.49 per share on 9/16/2002.
In 2002, those 8.8928 share of EPR were earning a dividend of $1.92 per share for a total of $17.07.
Today, those same 8.8928 shares are earning a dividend of $3.04 per share for a total of $27.03.
This means I am earning a return of 13.5% on my original $200 investment after five years!
This is the magical effect of dividends that grow. Here I found a company that has continued to do well and raise dividends. Today I am earning 13.5% on that original investment and hopefully it will just continue to increase. This is the power of the dividend and this is why I choose this strategy above all others.
Please do your own research and make up your own mind.
December 10th, 2007 at 7:06 pm
Thanks for stopping by my site earlier.
Your site looks really good! It is obvious you have put a lot of work into it.
Best Wishes,
D4L