1. Todd,
    Dividend investing has become the big new trend now. Every where you look it is being offered. AAII, The Motley Fool, the Oxford Club and so on all offer their dividend Growth Strategy, and they present it as a strategy that will withstand the next big downturn. Of course they back test it and say it works wonders.
    In this post Mike offers his experience over a very very short test period. He beat the market the past two years picking dividend stocks. But, so has everyone else because hey are the new “it” investment. Demand drives price, so of course dividend stocks will increase. When large caps lead, for example, all we hear about is ” get my proven large cap strategy, and sure enough it does well.
    When interest rates increase, or the next bear is upon us, dividend stocks will get crushed. No type of stock leads for ever.
    Mike needs a much longer period of success before he offers solutions. To be truthful, I’m surprised you are offering his plan considering he has no real track record.

    • Boomerst3 Let’s grab this comment piece by piece since you raise some important points.

      I fully agree that two years is not a track record. You are 100% correct, particularly considering that the environment favored dividend stocks during that time period. These past few years were not even a good test.

      During recent years artificially low interest rates created an environment that forced yield hungry investors to accept more risk to satisfy their income goals so they have aggressively bid up dividend stocks.
      You are also correct in stating that during the next market downturn dividend stocks will go down with the rest of the market. 100% agreed.
      The only valid risk management solution to the bear market problem is a sell discipline. Traditional diversification underlying any buy and hold strategy will not suffice.
      In addition, investing according to a specific style (dividend or large cap or value or whatever) does not provide any risk solution for a bear market either since they are positively correlated – particularly in a downturn. The only solution to that problem is a sell discipline. Period.

      With all that said, it does not in any way diminish the value of this article. The point in my mind in publishing this article was to provide a complete methodology for sorting high quality dividend stocks from low quality.

      In that regard, Mike delivered in spades and I’m appreciative to him for sharing that methodology to help educate readers.

      Please remember – this is an article – just one article. It has inherent limitations. 5ooo words are barely enough to properly develop a solid sorting criteria. I felt Mike did an excellent job in that regard and that is why I published this. I think it will help a lot of people who are just shooting in the dark.

      Maybe in future posts we will develop sell criteria as well to round out what is a well developed offensive strategy (expectancy) with the defensive components (risk management) as well.

    • Boomerst3 Hello Boomerst3,

      Dividend investing is not a trend, some investors have started dividend investing 30 years ago. It’s not because now we talk about dividend investing in the media that it is automatically a bubble that will burst. You can find several great dividend stocks with a P/E ratio under 17 right now. 

      I’m not convinced everybody beat the market in the past two years as you suggest. Several investors did well, I agree with you, but they didn’t beat the market by 11% as I did in 2013. I’ve started investing in 2003. From 2003 to 2006, I’ve borrowed 20K and made 70K with it in three years. This wasn’t through dividend investing but I’m saying I haven’t started investing last in 2012 either.

      The only difference is that I started to publicly post my results on my blog in 2012. 

      I’ll come back in 5 years with a longer track record… and 2014 is on track to be my third year in a row to beat the market 😉



      • Mike,
        No disrespect meant but you have no track record. You invested from 2003-2008 and did well and now you did well the past two years. You started at the end of the tech driven bear market, right at the start of a new bull. Of course you did well. The last two years you did well in dividend stocks. So did the market in general. Maybe you haven’t noticed but because of low interest rates, demand for dividend stocks has been sky high. Because supply and demand drive the market, dividend stocks have done very well. There are many, many newsletters offering their dividend stock programs. This could very well be a bubble, especially when conservative investors pull out after interest rates rise in cd’s and bonds. It has nothing to do with talking in the media that will burst this bubble. It’s because so many newsletters are offering it and so many are investing in them.
        II said everybody like you who is investing in the best dividend stocks is beating the market, not everybody in general.
        Also, you say there are many stocks with PE’s below 17 implying there are many good stocks out there, so no bubble. Are you implying low PE means it has to go up? Do some research and you will see there is no serial correlation between PE and the direction of a stock and the market.
        Also, and no disrespect here, you are a neophyte who has invested in two great bull markets, for what, maybe 6 years, going on 7? And now you are the Dividend Guy?
        Come back after a couple of market cycles and let’s see how dividend stocks have done. That will be the litmus test

      • Boomerst3

        I agree I don’t have a 20 years track record but it doesn’t mean that I don’t know what I’m doing. I don’t claim to be the next Buffett either. 

        There is a high demand for dividend stocks, but it’s not only due to low interest rate; companies are also making more sales and more profit and increasing their dividends. As you said, this is a bull market, everything is going up.

        However, I don’t think interest rates will go back where it will be easy to buy a 5yr CD at 5-6% tomorrow. There is a very long run to do before we reach this level. In the meantime, dividend stocks will continue to perform well. I’ve looked at “popular” dividend stocks such as KO, JNJ, WMT, MCD historical P/E ratio and they are trading about the same value now that they were in the early 2000’s. So why would their price suddenly drop if they keep posting good financial results? The market is not driven by small individual retirees but it is driven by institutional traders such as banks, pension plans and other financials.

        If you look at all bubbles, the average P/E ratio of the S&P500 is always around 20-22.There is definitely a link between the value and the fact that there is a bubble coming or not. I’m not implying low PE should go up, I’m saying low PE means they are fairly valued. A bubble happen when stocks are overvalued, not fairly valued. 

        If I come back after a couple market cycle, the price won’t be $14.95, it will be $495 per month ;-). My service is not only about my stock picking anyway, I also offer many pre-screened stock lists and a newsletter that goes through all stocks we follow to keep investors up-to-date after each earnings seasons so they don’t have to do the tracking themselves.

        Thx for your comments, it’s a great conversation!


      • Boomerst3 Okay, enough! You state “no disrespect here”, and then you are completely disrespectful by declaring him a “neophyte” and telling him to come back in a couple of years. 
        That sounds completely like “disrespect” in my book and is not acceptable.

        I published this post for one reason – to help people interested in dividend stock investing develop a fundamentally valid methodology for sorting quality from not. That point is being completely ignored in this discussion, yet that was the subject of the article.

        Here’s the reality. A long-only dividend stock portfolio will lose money in the next bear market just like any other long-only stock portfolio. The only way to not lose money in the next bear market is to not be invested – i.e. a sell discipline – but that is not the subject of this article either.

        With that said, numerous independent third-party research shows a properly selected, value based, dividend paying portfolio of stocks generally declines less than the overall market during bear markets (holds up better) and tends to outperform during bull markets.
        That has nothing to do with Mike’s track record. It has to do with independent research on dividend stock portfolio modeling consistent with what Mike is sharing here.

        While you are correct in stating that Mike’s track record would not hold up to traditional due diligence standards, that critique is not as important to me as the idea of whether or not the approach is fundamentally valid. All of the independent, third-party research that I’ve seen tells me Mike’s selection criteria are pointing in the right direction which I why I published this article. I think it will help people sort the wheat from the chaff.

        I would like to challenge you in this discussion to refocus your clear intelligence and well-developed background into adding value instead of tearing down.

        For example, you completely missed the opportunity to show the declining role of dividends over the historical data and the rising importance of the total payout ratio as a selection criteria as evidenced by the work of Mebane Faber and other researchers/money managers.

        Subjects like this would allow you to honor your historical pattern of negating the current conversation while still adding value to the discussion.

        In short, I appreciate your intelligence and knowledge about investing which is why I allow your comments (even when they are disrespectful). However, I’m asking that you focus your intellectual capability on adding value rather than tearing down.

        One of the principles I teach is that there is no perfect investment strategy – including this one. Every investment strategy has an Achilles Heal – including what Mike is sharing here.
        The Achilles Heal to a long-only dividend stock strategy where the only sell criteria is fundamentals (see Steve Juetten’s comment thread in this discussion) is that it will participate in the ride down in bear markets.

        The fact that every investment strategy has an Achilles Heal creates a perfect environment for someone, such as yourself, to negate every strategy because the Achilles Heal can always be identified.

        The problem is that serves nobody.

        The reality is real world investors must place capital at risk into an unknowable future in an imperfect world using imperfect methods – including this one.

        Mike has provided an excellent tutorial on how to sort dividend stocks based on fundamentals for those investors interested in dividend stock investing. I firmly believe his criteria can help most dividend stock investors which is why I published this post.

        I would like to ask that you direct your comments to adding value to best practices for the subject of this tutorial guide instead of taking the negative path and tearing down the author.

  2. Thanks for sharing your model with us Mike. Curious about one thing: when do you sell a stock that you’ve carefully chosen using your methodology? Thanks.

    Steve Juetten

    • smjuetten I put an email over to Mike to try to get him to join the discussion and share the sell side/risk management side of the methodology since it seems to be a recurring theme in these comments so far. Thanks for asking…

    • smjuetten Sorry for the delay, I was on a short trip since Saturday with limited access to a computer.

      The reason I sell is directly linked to the reason why I bought a stock in the first place. If the company fits my model, I will buy it and keep it as long as its metrics are in line with my investing philosophy. This means I could keep stocks for 5, 10 years if it continues to post strong results.

      On the other side, if a company seems to have a hard time to grow its sales for example, I will dig deeper to see if this is a strong trend or just a bad quarter. This is how I sold Seagate Technology (STX) after a great run of 72%. The company didn’t seems to keep up in the mature (read obsolete) market of hard disk. They have an opportunity with cloud computing but I rather sell with profit and see what happens next.



  3. Thanks for the model Mike! The article can definitely be a vital source of information when going after passive dividend income. I’m only 15, but my goal is to become a business owner, own real estate, and other income producing assets so I can design the lifestyle I dream of. 

    I’ve always been interested in the selection process of dividend stocks. It’s great that you let us pick your brains on here.

    Todd~ Boomerst3 raised a good point in saying that dividend stocks are being really hyped up as the big thing right now. The Oxford Club sends me emails about them virtually everyday that tout impressive returns, but by the next downturn ALL stocks will take a hit. I’m a big believer of diversification, but not in the typical sense of buying a wide variety of stocks. I believe that paper assets aren’t really a “wealth generator” in the same way businesses and real estate are, but are great to supplement your income and further expand your wealth. The fat cats on wall street usually own funds that have assets under management that create wealth for them (these are businesses after all). 

    You are a 1000% right in saying the good ol’ buy, hold, and sit on your hands won’t suffice in this “new” market. “This ain’t your daddy’s stock market.” is a good quote I like. What exactly is sell discipline? Are you referring to knowing when to sell and keep good returns and not to get greedy and hold on wait for even more gains. The tech bubble back when I was an infant is a great example of people who lacked sell discipline in that definition of the word. Please elaborate.

    Thanks in advance Todd and Mike!!!

    • John Elmenhe Hello John,

      thx for your comment. Dividend investing won’t shelter you from the next market crash but dividend stocks will always be less affected than other type of companies during recession. By definition, a good dividend stock has been increasing its payout for several years in a row (aristocrats has done it over 25 consecutive years!). Those kind of companies can increase their dividend year after year because they have the ability of increasing their sales and profit. In other words, they have a sound business model that goes through bear markets and market crashes. Dividend investing is not the “new thing”, it is a way to invest for life.

      • Agreed. Dividend stocks are nothing new and In my mind they’re better than investing for growth. Dividends with moderate growth that (dividends) are reinvested can be a huge wealth creator or serve as a source for passive income… I was just saying that the Oxford Club is OBSESSING over them.
        Do you reinvest your dividends Mike? Also, do aristocrats remain aristocrats? I’ve learned a bit about them, but even in a bear market do they raise dividends?
        Thank Mike!!

      • John Elmenhe It is true that there is an overload of newsletter talking about dividend stocks right now. It’s only normal; they are going after the retirees 🙂

        I don’t reinvest my dividends right now as I’m still growing my portfolio. At one point in time, I will definitely use DRIPs.

        To be classified as an aristocrats, you must increase your dividend each year. Therefore, if a company stops growing its dividend, it will be taken off the list.

      • Here is a recent article from Forbes. Note the info on dividend payers in the last bear market:
        What Could Possibly Go Wrong?
        As with all businesses, lots of things can derail dividend-paying companies. However, these are the things that tend to blindside investors.
        Dividend Cuts: In the challenging last quarter of 2008 alone, 288 companies cut dividend payouts, according to Standard & Poor’s. By the end of 2009, another 804 dividend payments were cut by public companies in 2009.
        Lessons: Stocks paying dividends are not guaranteed; the company’s board chooses whether or not to pay out cash dividends to shareholders. Also, note that not all dividend cuts are signs of looming financial catastrophe. Pfizer (NYSE:PFE), for instance, cut its dividend in half to fund its acquisition of Wyeth. Another action a company might take is to repurchase shares instead of increasing the dividend.
        Dividends on borrowed time: While 2008-2009 proved that even financially sound companies can choose to circle the wagons and preserve cash, it’s fair to say that most dividend cuts happen for other reasons.
        Dividends are paid out of cash, and if the company lacks cash it will have to fund the dividend either through debt or selling stock, neither of which is sustainable.

      • Boomerst3 Your Forbes post is exactly why I published this article. Many people are interested in dividend stock investing to create sustainable income. The key is being able to sustain the dividend which necessitates pursuing fundamentally sound companies which is exactly what Mike’s sorting techniques seek to identify. 
        Will it be perfect? Of course not, because there is no perfect solution in investing. It is always and forever a probabilistic reality, and Mike’s fundamental analysis approach soundly places probabilities on your side. 

        See my comment to your thread below as well…

      • Would you consider investing in all or mostly aristocrats a great way to build wealth? Also, what are some example yields one could expect? I’m assuming they’ll be lower.

      • John Elmenhe Hello John,

        This may not be a good investment strategy as being an aristocrats doesn’t give you any guarantee for the future. However, it is a good start to look for fewer stocks at first. You can find low yield (1-2%) up to 5%. AT&T is on the list at over 5% div yield. I’m not saying it’s a good investment, but you can find some good yield even in this list. 

        Keep in mind their dividend increases each year, if you buy a 2.5% yield stock, it could rapidly become 3.5-4% based on your cost of purchase.


  1. […] Tresidder at FinancialMentor recently ran a guest post detailing a full model for choosing dividend growth stocks. It’s a systematic method touted as “relatively straightforward” to implement, […]

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