The other day, I noticed one of my dividend stocks (Dr Pepper Snapple) was up nearly 25% in a single day! Most investors like to "buy low and sell high". Most investors would be thrilled with a single day gain like this one. However, I am not your average investor. I invest for dividends, cash flow, and financial freedom. I plan to live off my dividends, and do not really value capital appreciation (as much as most). In fact, I was disappointed once I realized why DPS was up 25% (because it got acquired).
In the world of dividend growth investing, the best rewards come decades in the future. They come via years and years of compounding. The passive income snowball can really grow with more time invested.
When Dr Pepper Snapple got acquired by Keurig company, its stock surged. This may seem nice at first glance, but it's actually not that great for dividend investors. Here's why I don't like takeovers and acquisitions:
* While they provide a short-term bump, they take away long-term potential.
* They often create taxable events and the need to redeploy capital.
* When one plans to live off dividends, a takeover typically eliminates that stream of income (and one must find another investment to replicate the dividends).
Since starting my position in 2011, I'm up 231% on DPS (just capital appreciation, not factoring in dividends). As such, a 25% bump doesn't help that much. I would rather retain my stock and watch my dividends grow!
These days, there is a lot of M&A activity. This is not my first takeover stock (and probably not my last). In general, I prefer larger companies (over $20 billion market cap) that have a lower propensity to be bought out. That said, I still like to diversity small, medium, and large market cap positions.
At the end of the day, this is a nice problem to have! I will likely redeploy my profits into two higher-yielding stocks (PG and KMB), raising my overall dividend income.
Disclosure: I am long Dr Pepper Snapple (DPS), Southern Company (SO), Kimberly-Clark (KMB), and Procter & Gamble (PG). I own all four of these stocks in my portfolio.
Disclaimer: I'm not a licensed investment advisor, and today's video is just for entertainment and fun. This video is NOT investment advice. Please talk to your licensed investment advisor before making any financial decisions.
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