Undervaluation introduces a margin of safety. And that’s on top of whatever capital gain would ordinarily come about as a quality company naturally becomes worth more over time. Prospective investment income is boosted by the higher yield.īut capital gain is also given a possible boost via the “upside” between a lower price paid and higher estimated intrinsic value.
Mdt dividend plus#
This is because total return is simply the total income earned from an investment – capital gain plus investment income – over a period of time. That higher yield correlates to greater long-term total return potential. All else equal, a lower price will result in a higher yield. Price and yield are inversely correlated. This is relative to what the same stock might otherwise provide if it were fairly valued or overvalued. It’s value that you actually get.Īn undervalued dividend growth stock should provide a higher yield, greater long-term total return potential, and reduced risk. I describe in my Early Retirement Blueprint exactly how I achieved this feat.Īs great as high-quality dividend growth stocks are, valuation at the time of investment is crucial. In fact, these stocks and the passive dividend income they produce allowed me to retire in my early 30s. It produces enough five-figure passive dividend income for me to live off of. That’s my real-money dividend growth stock portfolio. You can find hundreds of examples of these stocks on the Dividend Champions, Contenders, and Challengers list.īy sifting through these stocks and buying the best at any given time, I built up my FIRE Fund. That’s partly evidenced by their long track records of paying out reliable, rising dividends to their shareholders. These are stocks that represent equity in some of the world’s very best businesses. Personally, I’ve always sifted through high-quality dividend growth stocks to find those gems. Looking only at the stock market as a whole is like looking at only the surface of a giant ocean and trying to draw inferences about everything going on underneath that surface.įinding individual stock gems is one of the most rewarding aspects of being an investor. You then have to factor in individual stock performance on top of that individual business performance. See, stocks represent equity in real businesses.Īnd it should be obvious that not all businesses are performing exactly the same at all times. Looking at what the S&P 500 is doing doesn’t give you very much insight into what any one particular stock is doing.
The S&P 500 alone is made up of approximately 500 individual stocks. The entire US stock market is thousands of stocks. Well, the stock market is a market of stocks. In doing so, they’re not paying enough attention to stocks. Many investors pay too much attention to the US stock market.