Buy Low, Sell High, Get Paid To Wait: A Dividend Investing Blueprint

Core Investment Framework - The investment approach emphasizes buying low, waiting for dividends, and selling high, focusing on high-quality companies with a history of revenue, earnings, and cash flow growth [3][4] - The framework aligns with value investing principles, suggesting that stock prices will eventually reflect their true value based on cash flows [5][6] Dividend Yield Analysis - Historical analysis of dividend yields for companies like Johnson & Johnson (JNJ) shows that yields above 2.8% indicate undervaluation, while yields below 2.6% suggest overvaluation [6][7] - For JPMorgan Chase & Co. (JPM), yields above 2.96% are considered cheap, while yields below 2.38% are deemed expensive, providing a tool for assessing valuation [7][8] Future Dividend Growth Considerations - The effectiveness of historical yield analysis is contingent on future dividend growth aligning with past trends; if future growth is expected to exceed historical rates, lower yields may be justified [8][9] - The case of 3M Company (MMM) illustrates that a slowdown in dividend growth can lead to higher expected yields and lower stock prices [9] Importance of Dividends - Dividends provide a tangible return to investors, reinforcing the idea that cash returned to shareholders is preferable to retained earnings in certain contexts [10][11] - A strong dividend policy signals effective management and capital allocation, as companies with limited growth opportunities should return excess cash to shareholders [11][12] Income Projections - A hypothetical investment of $10,000 in Realty Income Corporation (O) with a 5.8% yield and 1% growth could generate $1,273 in dividends after ten years, demonstrating the impact of yield and growth on income [13][14] - In contrast, a similar investment in Microsoft Corporation (MSFT) with a 0.75% yield and 10% growth would yield only $202, highlighting the trade-off between yield and growth [14][15] Strategic Investment Goals - The target income for a $10,000 investment is set at $800 in low-rate environments and $1,000 in higher-rate environments, reflecting the need for sufficient income to mitigate concerns about stock price fluctuations [17][18] - The systematic approach to dividend investing allows for the identification of undervalued stocks, enabling reinvestment opportunities when market conditions are favorable [18]