Dividend Stocks Provide a Huge Psychological Advantage to Certain Types of People
As the father of value investing, Benjamin Graham, once wrote, “The real money in investing will have to be made – as most of it has been in the past – not out of buying and selling, but out of owning and holding securities, receiving interest and dividends, and benefiting from their long-term increase in value.”
When you own a company that distributes some of its profits in the form of a cash dividend, it becomes a lot easier to focus on things that matter like “look-through earnings”; to make the connection between the success of the enterprise and you actually getting your hands on some of the cash that flowed through the corporate treasury.
It can make you more patient, focusing on whether or not your dividend checks are getting larger with time, mostly ignoring the quoted stock market value. This, in turn, can lead you to buy and hold investments, reducing frictional expenses, increasing your odds of taking advantage of things such as deferred tax liabilities, and, ultimately, the stepped-up basis loophole.
It may not sound like a major advantage but, in the real world, it can mean the difference between failure and success. One of the things most secret stock market millionaires have in common is they aren’t particularly keen on hyperactivity.
Whether it’s retiree Anne Scheiber amassing $22 million from her New York apartment or a minimum-wage janitor like Ronald Reed accumulating $8 million in equities through paper certificates and DRIPs, they tend to find exceptional companies, diversify so as to avoid wipe-out risk, and then hold on as if their life depended upon it.