Dividend investing is as sexy as watching paint dry on the wall. Definingan entry criteriathat selects quality dividend stocks with rising dividends over time and thenpatiently reinvestingthese dividends while sitting on your hands is not exciting. While active traders have a plethora of hedge fund managers on the covers of Forbes magazine there are not many well-publicized successful dividend investors. Even value investing has its own superstars – Ben Graham and Warren Buffett.
I did some research and uncovered several successful dividend investors, whose stories provide reassurance that the traits of successful dividend investing Ioutlined in a previous postare indeed accurate.
The reason why dividend investors are not highly publicized is because dividend investing is not sexy enough to be featured in the financial mainstream media. In addition to that, it is not profitable for Wall Street to sell you into the idea that ordinary investors can invest on their own. This is why you have advisors crying wolf over the fact that you are paying 15% tax on your dividend income, while charging clients 1%/year on assets under management, and investing that money in a mutual fund that costs an additional 1%/year. Mutual funds, annuities and other products generate billions in commissions for Wall Street, despite the fact that they might not be in the best interest of small investors.
The dividend investor to profile todayis Ronald Read, who left an $8 million fortune behind when he passed away in 2015. What's fascinating about him is that he never earned a high income, because he worked as a gas station worker or a janitor.
I find this story to be very inspiring, because it showed how an ordinary person who never earned a high income was able to amass a dividend portfolio worth $8 million by the time of his death. The portfolio was generating close to $20,000 in monthly dividend income on average. This portfolio was a result of frugality, hard work, and ability to buy stocks to hold for decades, while patiently reinvesting dividends.
When Ronald Read died at the age of 92 in 2014, he left a dividend portfolio worth $8 million to charity and his children. That story shows that Ronald Read earned close to $20,000 in monthly dividend income from this diversified portfolio of 95 blue chip securities. They were spread across a variety of sectors, including railroads, utility companies, banks, health care, telecom and consumer products. He avoided technology stocks. It looked like Mr Read invested solely for dividend income, and his portfolio was well put together. Besides being a good stock picker, he displayed remarkable frugality and patience which gave him many years of compounded growth.
Ronald Read didn't have a finance degree, nor an MBA, but was an ordinary Joe who managed to save and invest for the long term. The story is appealing to me because it shows that investors who pick quality blue chip stocks to hold for decades, and reinvest those dividends patiently, can accumulate a sizeable portfolio over time. The important trait is patience. I follow the same slow and steady approach to long term dividend investing as Ronald Read.
Attached below is a list of Ronald Read'slargest portfolio holdings:
Mr. Read left behind a five-inch-thick stack of stock certificates in a safe-deposit box. Owning the stock directly is old school, but it also reinforces the behavior to buy and hold equity stakes in solid blue chips.
Among his longtime holdings were blue-chip stalwarts such as Procter & Gamble, J.P. Morgan Chase, General Electric and Dow Chemical. When he died, he also had large stakes in J.M. Smucker, CVS Health and Johnson & Johnson. He was able to stick to his securities for many years. Not all of his securities worked out, but did pretty well in the end. For example, his portfolio included shares of Lehman Brothers Holdings, the financial firm that collapsed in 2008, for example.
One example of a long-term investment was buying 39 shares of Pacific Gas & Electric on Jan. 13, 1959 for $2,380. Adjusting for stock splits, these shares would have been worth $10,735 at te time of his death. He ended up owning 578 shares in all of PG&E, worth just over $26,500, some of which he may have purchased with the dividend payments made to shareholders.
He researched his ideas thoroughly, reading business publications such as Wall Street Journal, going to the library, and chatting about investments with close friends.
Ronald Read's success was dependent on several important factors:
1) Stay frugal and live within your means
2) Invest savings at a high rate of return for a long period of time
3) Invest in companies with durable competitive advantages with a long runway
4) Stay patiently invested for decades, without selling
5) Keep reinvesting those dividends along the way
This dividend investor managed to turn small investments into a cash machine that generated large amounts of dividends. He was able to accomplish this through identifying quality dividend growth companies at attractive valuations, patiently reinvesting distributions and mostly maintaining a diversified portfolio of stocks. These are the lessons that all investors could profit from.
FAQs
He owned railroads, utility companies, banks, health care, telecom and consumer products. Those dividend checks were then reinvested back into more shares of the same companies. The reinvested dividends allowed him to keep making regular purchases over time. Read was not an active trader — he was an active buyer.
What are the two simple techniques that made Ronald Read rich? ›
3 secrets to Ronald Read's investing success: 1. "Buy and Hold" investing strategy Read never sold his investments, even when one company in his portfolio (Lehman Brothers) went completely bankrupt. 2. Diversification Read owned a well-diversified portfolio of 95 different companies in various sectors of the economy.
How do you manage a dividend portfolio? ›
Setting Up Your Portfolio
- Diversify your holdings of good stocks. ...
- Diversify your weighting to include five to seven industries. ...
- Choose financial stability over growth. ...
- Find companies with modest payout ratios. ...
- Find companies with a long history of raising their dividends. ...
- Reinvest the dividends.
Stocks in the S&P 500 index currently yield about 1.5% on aggregate. That means, if you have $1 million invested in a mutual fund or exchange-traded fund that tracks the index, you could expect annual dividend income of about $15,000.
How much do you need to invest to live off dividends? ›
If you are considering a dividend-focused strategy, you should carefully assess your income needs and risk tolerance. For example, if you require an income of 100,000 per year and were looking at a dividend yield of 10%, you would need to invest 1,000,000.
How did Ronald Read get rich? ›
Read amassed a fortune of almost $8 million by investing in dividend-producing stocks, avoiding the stocks of companies he did not understand such as technology companies, living frugally, and being a buy and hold investor in a diversified portfolio of stocks with a heavy concentration in blue chip companies.
What were the key differences between Ronald Read and Richard Fuscone? ›
³ Ronald Read was patient; Richard Fuscone was greedy. That's all it took to eclipse the massive education and experience gap between the two. The lesson here is not to be more like Ronald and less like Richard—though that's not bad advice. The fascinating thing about these stories is how unique they are to finance.
What is the best dividend portfolio? ›
10 Best Dividend Stocks to Buy
- Verizon Communications VZ.
- Johnson & Johnson JNJ.
- Altria Group MO.
- Comcast CMCSA.
- Medtronic MDT.
- Duke Energy DUK.
- PNC Financial Services PNC.
- Kinder Morgan KMI.
To calculate an investment's dividend yield, take the annual dividends paid divided by the current stock price. For example, an investment that pays $5 in dividends with a stock price of $100 has a dividend yield of 5%.
How much do you need for a dividend portfolio? ›
For a 2% dividend yield, an investment portfolio of approximately $2,969,200 is required to generate $59,384 in annual dividend income.
Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.
How much money do I need to live off interest? ›
Key takeaways: The typical American making $40,480 a year needs at least $826k invested with a 4.9% annual return to live off interest alone. Estimate how much you need invested to live off interest with the formula: Annual income / Annual interest rate = Savings goal.
Can you live off investments? ›
There are a few different ways to invest your money to earn interest and live off of that income. The most popular investments are bonds, certificates of deposit (CDs) and annuities. The interest that you'll earn will depend on the amount of money you have in your account when you go to live off of that interest.
How much dividend stock do I need to make $1000 a month? ›
In a market that generates a 2% annual yield, you would need to invest $600,000 up front in order to reliably generate $12,000 per year (or $1,000 per month) in dividend payments.
Where do millionaires put their money? ›
Where do millionaires keep their money? High net worth individuals put money into different classifications of financial and real assets, including stocks, mutual funds, retirement accounts and real estate.
Can I retire at 55 with 300k? ›
On average for a comfortable retirement, an individual will spend £43,100 a year, whilst the average couple in retirement spends £59,000 a year. This means if you retire at 55 with £300k, an individual will run out of funds in approximately 7 years, and a couple in 5 years. So, on paper, it doesn't look like enough.
Which two factors does Housel believe help someone stay wealthy? ›
Compounding is the way to create long-term wealth. In that regard, it is also important to remember that while there are many ways to get wealthy, there is only one way to stay wealthy, and that is through a combination of frugality and paranoia.
What successful people have read think and grow rich? ›
Think and Grow Rich
- Daymond John (Founder/FUBU) ...
- Ola Olusoga (Co-founder/Populum) ...
- David Henzel (Co-Founder/MaxCDN) ...
- Adam Haritan (Founder/Learn Your Land) ...
- Benjamin Kwan (Co-Founder/TravelClef) ...
- Alan Pierce (CEO/Ansuz Balder Magni Investments) ...
- David Kramaley (Co-Founder/Chessable) ...
- Pat Walls (Founder/StarterStory)
