(02-20-2015, 10:27 AM)cannew Wrote: If he was invested in dividend growth stocks, than it's less likely there would be any dividend cuts and his income may even grow during any dip, or at least stay the same.
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Here's the problem, many of the big banks
were dividend growth stocks prior to the Great Recession.
I went back to David Fish's earliest Dividend Champion List I could find dated 12/31/2007. Back then it was only companies with 25 years or more records. I found listed:
Bank of America - 30 years
Chemical Financial - 33 years
Fifth Third - 33 years
KeyCorp - 43 years
M&T Bank - 26 years
State Street Corp. - 27 years (I owned this)
U.S. Bancorp - 36 years
This did not include names such as Chase, Citi, etc. which may have had long records but hadn't reached the 25 year point yet. Many dividend investors held a large amount of banks because they were steady-eddies for many years.
I held quite a bit of STT at the time and only had less than a dozen companies in the portfolio. I wasn't a DGI back then and most of my assets were in a 401K mutual funds from a job I had before. I never considered that STT was a counterparty to so much junk. I always counted on them being a commercial lender, investment manager for multinational corporations and a custodial bank for many companies and funds. Then they dropped the dividend to a penny and gapped down over 25% on the open. By then, it was too late.
I think the takeaway is diversification and avoiding too high a concentration in one industry and/or one company. If he had his money spread across many sectors and companies, the hit might not have been that bad and coming out of the recession, he might have been just fine.
Being a dividend growth investor certainly helps ameliorate the anxiety of price fluctuation but it's not the answer to everything.
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I should probably add, what I got the most of out of the article is this:
- Listen, show empathy, and be calm;
- Take the situation seriously and assess the degree of risk.
- Ask if the client has done this before. How’d it work out?
- Explore other possibilities. If clients wants to sell at a bad time because they need cash, help them think through alternatives.
- Ask clients about the plan. If they sell now, when are they going to get back in? Where are they going to invest the proceeds?
- Buy time. If appropriate, make non-binding agreements that they won’t sell until a specific date.
- Identify people in clients’ lives they can enlist for support.
Using these psychological techniques, especially the bolded ones, will help me the next time the market drops 40%.
