The Dividend Shuffle

Though the Fool has long been a proponent of dividends (especially the manager of the now-retired Drip Portfolio, Jeff Fischer), we've been talking about the power of dividends rather frequently lately in conjunction with the launch of our latest newsletter, Motley Fool Income Investor.

For those of you fortunate enough not to have been bombarded with a pop-up ad bearing my smiling mug, I should mention that I'm the author of Income Investor, and now that many of my dividend-loving comrades have shared the research and sung the praises behind the power of dividends, I'd like to explain a bit more about the spirit behind the newsletter and its target audience.

I firmly believe in the power of dividends and their proven ability to increase total returns and reduce volatility, which is, of course, why I'm writing this newsletter in the first place.

Though there will probably be plenty of goals in between, I would say that virtually every single one of you is investing with the same ultimate goal in mind: to build a portfolio that will support your current lifestyle in retirement -- whenever that may be.

You may decide to work until age 70. Heck, if you love your work as I do, you may decide to never stop working. But the important thing is that we want work to be a choice, not an obligation.

To that end, I invest the core of my portfolio in dividend-paying companies, especially in tax-advantaged accounts, with the idea being to build a portfolio full of the investments that will pay me while I'm sipping iced tea on the back porch.

Now, you may be asking yourself, "Self, why can't I just transition my portfolio into income payers when I'm a few years away from retirement?" And the answer is, you can. There's nothing wrong with doing that. In fact, I've heard from many folks who have become subscribers because they're rapidly approaching retirement with a portfolio chock-full of high-growth stocks.

However, if you've read Tom Jacobs' and Jeff's articles linked above, you know that investing in these types of companies can also produce above-average performance while you're on your way to those happy, Winnebago-driving days.

As I said, I love my work, and I have no plans of retiring anytime soon. But the fact is, this strategy has proven rewarding over the long haul whether I need the income now or not (again, particularly in retirement accounts). And I find that it produces fewer ulcers for me along the way.

I currently reinvest all of my dividends. With the power of compounding growth and the purchase of additional shares, my positions in these solid income producers should provide a considerable source of funds when I turn off the reinvestment option and let the cash spigot flow.

To portfolio or not to portfolio, that is a question
I've received a number of inquiries about how readers should treat Income Investor selections, holistically speaking (i.e. should I just buy them all as a portfolio, or pick and choose?). This is a tricky one, but let me do my best to clarify our focus.

Each selection is made based upon the fact that it fits our criteria in terms of quality, yield, risk, etc., and that it represents a timely opportunity. I'm focusing on a diverse range of investment classes and business types for the newsletter, and, as such, the selections should collectively represent a diversified group of quality investments. However, they are not meant to explicitly represent a portfolio.

The idea is that each of you will be able to select from the newsletter those investments that best fit your existing portfolio, as well as your personal risk profile, and income/growth requirements.

The companies selected for Income Investor should provide a diversified basket of superior income producers, but I consider a true portfolio to be a very specific, personalized creation. When managing a portfolio, one must give more weight to the correlation of each new investment selection with that of the existing portfolio (i.e., how each new investment will react with, and influence, the existing holdings), and that is not an overriding factor in the Income Investor selection process.

In other words, we're basically focused on finding the best income-producing investments across all investment classes -- no borders or boundaries. And that should provide you with a shortlist of investments in your comfort zone from which to choose.

A caveat
Now, I don't want you thinking the Fool has become "all dividends, all the time," if you will. This investing style is a passion of mine, but just as I have, you're bound to come across compelling companies that don't currently pay a dividend, and have no intention of paying a dividend in the future, and there's absolutely nothing wrong with owning them.

Few things are written in stone in the world of investing, after all. This is simply a high-level focus that I employ to lead me to the types of quality companies that I favor, which have proven successful investments over time.

One thing you'll notice about the Fool is that its writers can be very different kinds of investors. Indeed, that's the beauty of the format: We're "investors writing for investors," and we all have unique experiences to contribute.

Though the majority of my portfolio is concentrated in companies that I consider to be solid, low-volatility dividend payers, I do spice up the growth side of my holdings by investing in a handful of more speculative opportunities. This is a high-level strategy that Tom Jacobs and I (and I'm sure many of you) share. In fact, if you're looking for screaming growth that comes largely in the form of capital gains, Motley Fool Hidden Gems is probably more your speed.

There are a great many investing strategies that have proven successful over time, and the choice as to which is right for you is an individual one, based on innumerable factors. With that said, I hope you find the income-investing focus of the Fool's latest newsletter useful and rewarding.

One final note: This newsletter isn't just about you showing up to listen to what I have to tell you (though that's fine too, because I talk enough for both of us). It's also very much here to explore some topics you find interesting. To that end, rest assured that your questions and suggestions, whether submitted via the subscriber-only Income Investor discussion board or email, will be addressed and incorporated into future issues of the newsletter.

If you have any interest, you can take a free trial with no obligation. Besides great stock ideas, the newsletter doubles as a mosquito swatter, a pooper-scooper, and a make-shift snorkel when you're caught in a hurricane. You can't go wrong. Remember, safety first, Fools.

Fool On!

Mathew Emmert doesn't own shares in any of the companies mentioned in this article. The Motley Fool has a disclosure policy. If you're still reading this, you obviously haven't realized the article is over. For goodness' sake, stop procrastinating and go vacuum the floor that you were supposed to vacuum yesterday.

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