5 Investing “Truths” To Preserve Your Capital And Generate Income

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It was Benjamin Graham who first differentiated between “investors” and “speculators” in his classic book, The Intelligent Investor.

While market timing is of great importance to “speculators”, it is the “investors” who:

1) Do the boring fundamental analysis,

2) Develop a solid long-term investment plan,

3) Choose investments for their value rather than popularity,

4) Invest with a margin of safety, and

5) Stick with their plan regardless of temporary market fluctuations caused by “Mr. Market”.

Your goal should be to preserve your investment capital and generate some income from holdings, rather than to focus on share price appreciation for profits.fotolia_5560085_XS

In fact, a daily fluctuating share price can be largely ignored because, in reality, the underlying value of a company doesn’t vary that dramatically from day to day.

Graham emphasized the virtues of a simple portfolio of value companies. Most importantly, his message for the ‘intelligent investor’ was that real money is not made by buying and selling or trying to time the market; real money is made by owning and holding securities and receiving dividends that grow in value over time.

When Graham’s book was published in 1949, Direct Investment Plans or Dividend Reinvestment Plans (DRIPs) were not yet in existence; yet, today, they are the perfect investment vehicle for ‘intelligent investors’ to preserve their investment capital and generate income that grows over time.

dividendsInvesting through DRIPs achieves those goals on many levels. DRIPs make it easy to make regular dollar amount investments (instead of buying a certain number of shares) to build your holdings at a variety of price points. They also offer the advantage of making it more difficult to trade. You can’t just click a link and sell.

Often investors react emotionally to market volatility. It’s not easy to hold on when you see the value of your holdings plummet. More logical investors can take advantage of such opportunities to buy at affordable prices.

Real wealth is built by approaching the market logically. That is, by devising a strategy that will work over the long term and sticking with it. One or two “hot” stocks just won’t cut it. At Moneypaper, we are not in the business of making specific stock recommendations or projecting daily market predictions—even if we could recommend a specific stock for a specific time period with 100% surety.

With that said, you should understand that any stock selections we provide should not be viewed as a stock pitch.

Our purpose in highlighting a specific company is to point out that the specific company offers a DRIP and that it is “worth a look” for inclusion in your well-diversified portfolio, mainly because the company meets the following criteria: The company is a solidly established industry leader; the company is shareholder-friendly with a long history of paying, and even raising, regular dividends; and the company does not charge a fee for investing through its DRIP.

The latter is particularly important for smaller investors!

We believe that the chances are good that the companies that we profile in this space will continue to provide the products or services that have brought them acclaim in the marketplace and allowed them to consistently pay a dividend to their shareholders.la-fi-johnson-johnson-cancer-20160224

Below, is a sample of a five-stock portfolio that may be a good starting point for those about to embark on a DRIP investing strategy. We kept total return in mind, looking for high-yielding companies, with dividend growth rates, as well as sustainable business models. We also sought to diversify the companies in terms of industry.

International Paper (IP) is the dominant company in the area of paper and packaging, both in the U.S. and abroad, with almost $23 billion in annual sales and a market capitalization of about $16.5 billion. With a yield of about 4%, it has raised its dividend for 6 straight years (and its latest increase was 10%).

General Mills (GIS) is a major food processor with products like Big G and Chex cereals, Yoplait, and Pillsbury. The dividend has been increased for 12 straight years and has never been cut in the 114 years that the company has been paying them.

Johnson & Johnson (JNJ) has a market capitalization of about $280 billion and its business is split between drugs, medical devices and products on one hand and consumer goods like Band-Aids, Baby Shampoo, and topical medicines on the other. The dividend has been increased for 53 consecutive years and provides a yield of almost 3%.

ExxonMobil (XOM) is the largest oil company that resulted in the breakup of the old Standard Oil conglomerate (at $333 billion market cap). Its quarterly dividend was just increased from $.73 to $.75 per share, making it the 33rd consecutive year ExxonMobil has increased its dividend.

Aqua America (WTR) has grown through acquisition from the old Philadelphia Suburban into a network of water and waste water companies from Maine to Florida and into the Midwest states. WTR benefits from utility commissions that recognize the need for clean water and often acquires municipal water companies by offering improved efficiency. Its dividend has been increased for 25 consecutive years.

There are hundreds of no-fee DRIPs in a wide variety of industries. By establishing an investing schedule and following it, regardless of the prevailing market conditions, you are likely to build up holdings efficiently—that is by buying more shares when prices are low and fewer shares when prices are high. And, as Graham suggested, you won’t be slave to the day-to-day gyrations of a fickle market.

Am-I-Investing-or-Speculating...-1024x512In fact, investing in this manner makes market volatility work FOR you. How so? By accumulating shares through investing the same dollar amounts regularly, the average cost of your shares will turn out to be even less than the average market price that those shares were selling for during the period you invested.

As I mentioned earlier, these five are just a few of many tried and true companies that offer a DRIP. And many of these companies offer investors the opportunity to invest directly in their company-sponsored DRIP without paying any broker commissions or fees of any kindHere’s a complete listing of No-Fee DRIPs that have raised their dividend payouts for 25+ years.

Until Next Time,

Vita Nelson

Ms. Vita Nelson is one of the earliest proponents of Dividend Reinvestment Plans (DRIPs) and a knowledgeable authority on the operations of these plans. She provides financial information centered around DRIP investing. She is the Editor and Publisher of Moneypaper’s Guide to Direct Investment Plans, Chairman of the Board of Temper of the Times Investor Service, Inc. (a DRIP enrollment service), and co-manager of the MP 63 Fund (DRIPX).