When stock prices are falling, income is the best motivator

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The majority of my portfolio is invested in South African stocks. The country was recently downgraded to junk status by two international agencies. This was largely on the back of political moves they see as damaging to the economy. My portfolio has taken a bit of a beating..

Now one can get depressed about this, sell everything and throw ones hands up. However, I firmly believe such times can be an opportunity as well. I also believe the stock prices are not how I measure my progress as an investor. It all comes down to one word, income. And yes, income comes in the form of dividends.

Some stocks have fallen as much as 20%. The dividends declared in most cases have however remained stable or increased. So why be bothered too much about stock prices. Most of my current stocks (businesses) are not for sale anyway.

I have one stock which I am slowly selling off but that has remained stable in price as it seems someone would like to buy out the company. It is also a stock I have lost some confidence in so it suits me. This is where the opportunity comes in. I am getting float from the one stock I am selling and investing some of that into stocks that have fallen a great deal. I believe I am acquiring future income at a discount.

As I see my stocks as businesses I am not too hung up on the price that is quoted each day for that stock. It would be like owning the local pizza joint and worrying about how much somebody will pay me for it. I would be happy just making a good income off the pizza joint. If the income continues to go up each year, then eventually somebody will want to buy the business (and resulting income) off me for a fair price.

Not being blind to reality

The above being said, one has to also keep your eyes open when investing, and take into account changing circumstances. As such I have been investing differently now compared to before the downgrade. The downgrade in all likelihood will lead to a depreciating currency and an increase in interest rates, as well as being generally negative on businesses which could lead to earning declines.

Therefore I have concentrated on the acquisition of two stocks which are debt free and growing their income. They are both on single p/e’s with high dividend yields. I will not name them here as have not quite finished buying, but if you ask me I do not mind disclosing them.

What I am buying is as important as what I am not buying. I have been writing extensively lately about building a property business, first as a property developer, then a self-storage owner, and finally a residential landlord. I am committed to keeping all these businesses, as they are good businesses and in the long term I believe I will do well out of them. However, due to the fact that property businesses are interest rate sensitive, I will not be adding to these businesses at the current time. Should the prices of these businesses fall dramatically (which they have not done as yet), I may become more interested. Again, that will be where the opportunity comes in.

Conclusion

The aim of being a Dividend Tycoon is to secure a large and ever increasing stream of dividends. I have documented my journey so far. I have succeeded in some areas, but still need for example to get my foreign portfolio going. The income stream will at some point be used for this purpose, but currently South Africa is the market I know best and where the yields are fairly high. The decrease in stock prices has not phased me too much and I have not been a forced or panic seller. These income generating stocks are jewels I need to harvest and nourish, not throw away at the first sign of trouble.

Certainly, these are troubling times, but I would like to end with two quotes. As it is the Berkshire Hathaway Annual meeting tomorrow, which I will be watching live via streaming video right here in South Africa, the quotes are from none other than Warren Buffett, and I believe tie in to my post:

“The future is never clear, you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values.”

“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”

Thanks Mr Buffett, hopefully we will hear some more good advice tomorrow!

 

 

 

1 thought on “When stock prices are falling, income is the best motivator”

  1. An ever increasing passive income stream is the goal of every long term dividend growth investor. If dividends are the aim, your portfolio value become less relevant as that can change wildly on a day to day basis. It’s all about the dividend continuing to be safe and paid out. Falling prices should only encourage more investing as yields will climb for those stocks in “trouble.” Thanks for sharing.

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