Visiting with Family & Friends
The month of March was mostly spent visiting with family and friends. Dena & I spent the first part of March in New Orleans, LA attending a family wedding and visiting with some friends from long ago when I lived in New Orleans. During the latter part of March Dena’s brother and sister-in-law visited the Abacos for 10 days staying with us on Odyssey. Four people are quite tight on a 36-foot boat. But Dena’s brother and his wife are also sailors so they are used to “camping” on a sailboat.
We met Dena’s brother and wife in Great Guana Cay and had a blast at the annual Barefoot Man concert. From there we had a very nice 2 hour sail to Treasure Cay and visited with other friends for a couple days. We sailed back to Hope town to ride out some very windy weather before we ended our time with them in Marsh Harbour for a couple days.
More friends are coming to visit us for a week in early April.
Between visits with family and friends we have taken a few short cruises around the Abacos, we did a lot of swimming and snorkeling as the water temperature has been unseasonably warm; about 79-80 degrees Fahrenheit.
Below are some pictures of our latest activities.
This is the annual Hope Town dinghy float; I know kind of weird, but a lot of fun
Retirement Planning Helpful Hint
While we were in New Orleans, a relative from the younger generation asked me, “What is the most important characteristic I look for when investing in a stock.” I gave her the typical sermon that it is not necessary to invest in individual securities when investing for long term goals such as retirement. It is better to buy index funds that track broader segments of the market and so forth, you know the speech. But at the end of my lecture, she said to me, “I read on your blog site that you invest in individual stocks. Why shouldn’t I?” I finally told her that, after some time, when your asset base and tax situation gets to a certain point, it may make sense to invest in individual stocks, but she was decades away from that. She accepted my answer, but it did make me think about what is my single most important characteristic when I invest in an individual stock.
The Hope Town Sailing Club’s 50th anniversary parade (this boat is supposed to be the Titanic)
Obviously one wants to invest in stocks that are financially sound, have some growth potential, and are not in any business that could be made irrelevant by some future technology change. This all goes without saying. But after that how did I select individual stocks for my portfolio for long term holding. My answer will undoubtedly be different from many other investors, but, in my opinion, my criteria is one of the best if you want to invest conservatively and safely in individual stocks. All other things being more or less equal, the single most important criteria that I use to select what individual stocks to invest in for the long term is dividend growth.
Why dividend growth? I think this is the surest and safest way to accumulate wealth in the stock market. Why do I think this? Because of the “Law of Compounding;” when you buy a stock that pays a dividend and you reinvest the dividend, your investment will increase exponentially over many years.
Let’s look at an example of just one Dow stock; Johnson & Johnson (JNJ) whose stock price increased at a good pace over the last 20 years but whose dividend growth rate was spectacular. Review the data in the table below.
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JNJ Returns from 1 March 1994 through 28 February 2014 |
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|
|
|
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Price of JNJ on 1 March 1994 |
$40.36 |
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No. of shares purchased |
100.00 |
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Total initial investment |
$4,036 |
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|
|
|
Price of JNJ on 28 February 2014 |
$92.12 |
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|
|
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20-year avg. annual stock price increase |
11% |
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Value of shares without re-investing dividend |
$36,848 |
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|
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Quarterly dividend on 1 March 1994 |
$0.065 |
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Quarterly dividend on 28 February 2014 |
$0.66 |
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20-Year avg. annual dividend growth |
11.6% |
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|
|
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No. of shares on 28 February 2014 after reinvesting all dividends (after 2 each; 2 for 1 stock splits) |
581 |
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Total value as of 28 February 2014 |
$53,522 |
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|
|
|
Investment value due to dividend reinvestment |
$16,674 |
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Percent gain provided by dividends |
31% |
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|
|
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20-Year Total Return Including Dividends |
13% |
If JNJ did not pay a dividend or you chose not to reinvest the dividend payments over the last 20 years, your JNJ investment would be 31% (about $16,674) lower compared to reinvesting the dividend payments. Reinvesting the dividends raised the total average annual return from 11% to about 13%. However this 2% increase in annual return due to dividend reinvestment caused the total investment to increase by $16,674. The longer the investment is held and the dividends reinvested, the more powerful the compounding effect of the dividends. And if the dividends are increasing every year (in this case annual dividend growth is 11.6%), this compounding effect occurs at an even greater rate.
Another marina happy hour in Hope Town
I am not suggesting that anyone invest in just one good dividend paying stock for retirement. However, I am suggesting that you weigh heavily the dividend history (in particular the rate of increase of the annual dividend payment) when deciding which companies to invest in for the long term.
A web site that contains a lot of good (and free) information on a company’s dividend history is Buyupside.
A typical reef in the Abacos
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