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Dividend Investing Lessons from an Experienced investor

I got to know this poster by the nick of mbkelly75 over at Seeking Alpha that post quite alot. In fact so much so that i reckon that he should be retired to be able to do that. And i was right. Here is his profile:

I have 10 kids and 28 grandkids with my first great grandkid recently born. I have been trading dividend paying stocks and profiting from them for over 50 years. I sell when I think it is needed but I buy for the long term. I am somewhat of a bottom-fisher – I like to look for the deal on a company I want to own anyway. I have traded commodities in the past, but I prefer to use ETFs now as they trade easier and make it easier to keep my two personal portfolios balanced overall. In my Core Portfolio – I keep dividend paying stocks with a 5+ year record of RAISING them. In my Speculation (or Exploration) Portfolio – I keep stocks that cut their dividend and were sold, but re-purchased them when they dropped to a point where they are attractive again. A trade sequence on these usually ends up with me having a zero-cost basis for the shares I kept and cash ahead also. I also keep stocks in this one that I know are trading in a channel so I buy low and collect dividends until they go back up to my target price and I – again – have a zero cost-basis and free stock when I sell. This is also where stocks that I have found attractive because of low value metrics and are trending up are kept for as long as I am in the trade.

I have had a wide range of jobs in my lifetime – Law Enforcement, Professional Gambler and Gold Prospector among them. I use my experience to help me figure out what comes next.

I’m sure that being trained as a professional gambler really helps in investing because you really need to be good at assessing risk vs reward when you are doing that and in investing its no different.

I still can’t get over the problem i have with the behavioral part of investing, something i can learn from this experienced person.

Here is something interesting that he posted yesterday:

I do not sell anything out of the Core Portfolios unless one or more of the dividend stocks that are the major part of it cut the dividend. I sell all of a stock immediately with a dividend cut. I added money every month from bond interest (and some outside cash in addition – so much was on sale!!!) and re-invested the dividends as I got them. At the worst point – the S&P was down something like 53% and stayed down for a while. My worst point was down 30% for one day and on that day – my annualized return from my dividend stocks was 15% because the price of the stocks had dropped but the dividends not only did not drop – they continued to raise. Dividend stocks will give a floor to your portfolio in the worst of times because the dividend yield on the cost goes up when the price of the stock goes down. Would-be buyers say something like WOW – look at that dividend yield !!! and buy the stock for the (as Cramer puts it) accidental high yield. The dividend stocks were bought on a regular basis all through the drop as they were still good companies and the more that they went down – the better they looked from a value basis. The prices did not effect the dividend stream at all – I bought more of them (increasing that dividend stream) when they were on sale and when they started to rise back up in price – I had a huge amount of new shares at a very low cost that gave me a nice rise in the portfolio value as the Bull run started and kept going. I stayed fully invested and bought more as the market crashed – I did not sell just because the prices went down. They were still solid companies that were still raising their dividends (or at least – not cutting) – the price really did not change that for me.

The stock that cuts the dividend gets sold right away, but it does not mean that it is out of my portfolios forever. GE is a good example – GE cut their dividend and I sold all my GE and held onto the cash. GE was a broken stock – but not a broken company. They dropped like a stone and around $6 a share – even the reduced dividend was around 9-10%. I could not stand it and bought it once again with the cash I had from selling it. It went up to almost double what I paid for it when I sold enough to pay all my expenses and have a whole bunch of essentially free shares left over – amounting to about double the number of shares I had to begin with. Now those free shares are way up from that point and GE is talking about starting to raise the dividend again. They are in my trade portfolio until they establish that 5 year record of raising dividends again to qualify for the Core Portfolio again, but I can wait and they will pay me to wait.

Here is his example of his experience on MacDonald as a dividend stock. Why is MacDonald so appealing to him? Well for one, its a dividend aristocrat, which is a class of stocks whose dividends have been rising for 25 years.

Why is rising dividend so important? Imagine buying Consolidated Edison in 1989 when it is yielding 3-4% and Consolidated Edison have been raising their dividends all this time.

So if you had bought it in 1989 you will have a lot of ups and downs, but your dividend yield on your 1989 cost would be around 29% yield on cost:

You would be surprised what a 4 year old can learn when it is made into a game. I give them shares of MCD on their 4th birthday. This is, to me, one of the best stocks to have for the long term and the business is one that a 4 year old understands. When they get their first dividend – I take them to McDonalds to spend that same amount of money on whatever they want to buy. I have already re-invested that dividend amount for them and taken that cash out of my pocket, but it is important for them to see the benefits of a dividend stock on a level that they can both understand and enjoy. They already know that is their money and they got it by being an owner of the company. It is a game to see places that they own a piece of when riding down the street in a car. They can (and do) learn simple rules that point out a good, long term investment.

I have a granddaughter that (almost 8) that owns MCD, KO, PEP (loves the products), WMT (we shop there and they love going there) and MO (she does not smoke but sees many who do – it was her idea.) Do you see a pattern here???

Peter Lynch said in his “20 Golden Rules”:
Rule 1: “Your investor’s edge is not something you get from Wall Street experts. It is something you already have. You can outperform the experts if you use your edge by investing in companies or industries you already understand.”

It does not take a genius to understand MCD or the enjoyment you can get from going there. It does not take a genius to see that dividends give benefits and are worth having. It does not take a genius to understand that a steady raising payment of those dividend is a good thing and worth having. It takes a 4 year old playing a game that they have grown up learning to play by watching people do it and I am not sure that it is even needed to watch it being played if the game rules are carefully explained. My kids and grandkids have been watching us pick stocks from the time they were still in diapers and likely learned much without even knowing they were learning.
I was a prodigy and reading on a college level when I went into kindergarten, but it is not needed to be that smart to play a game with clear and understandable rules. You just have to know the rules and have the chance to play……..think about it.

I hope i can be as good an investor as he is when i reach his age. Still learning along the way but an glad we have people like mbkelly75 to guide us with what they have experienced.


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Thursday 22nd of September 2016

I have been waiting for a market crash & do what mbkelly75 did: QUOTE I bought more of them (increasing that dividend stream) when they were on sale and when they started to rise back up in price – I had a huge amount of new shares at a very low cost that gave me a nice rise in the portfolio value as the Bull run started and kept going. I stayed fully invested and bought more as the market crashed............................... UNQUOTE

Can anybody kindly suggest what amount of idle cash (as a percentage of current portfolio) that we should set aside to take up such purchase opportunity when the market crashes? Thank You.


Thursday 22nd of September 2016

it depends. on the allocation mix as well. this is because cash yields next to nothing. if you hold too much cash, it impacts your return. however if your portfolio is stocks and bonds, where the bond have a positive expectancy and low correlation with the stocks, you can have a 60% equit, 30% bonds, 10% cash.

the more important thing is, can you sleep at night if your 3 mil portfolio drops 30% to 2 mil.


Saturday 2nd of April 2011

Hi, thank for for sharing. I'm a beginner in investing. I'm still reading and learning more but I wish I can start investing. I'm currently working in Singapore and already 37 years old. I hope I'm not too late. Thank you very much for this motivational information.


Sunday 3rd of April 2011

Hi Cheena, good day to you.

It doesn't sound like you were born in Singapore. I do apologize if i was mistaken. There are no regrets. Sometimes we start young but make brash mistakes and lose it all. I had my fair share as well. In fact i still make them every other day.

Looking forward to learning from my readers from all walks of life as well.


Friday 4th of March 2011

Ascendas India is profitable not sure why yr comment tthat it is in the red.

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