Dividend stocks look attractive to me. All the macroeconomic and geopolitical uncertainty around has driven many share prices down. And falling share prices have pushed dividend yields higher.
This could be an opportunity
Is the situation a gift for an investor such as me? It could be. Legendary value investor Benjamin Graham advocated using stock market movements as opportunities to buy and sell stocks. And to illustrate, he invented the concept of Mr. Market.
In his book The Intelligent Investor, Graham asked us to imagine that we own a $1,000 investment in a private business. And every day we have the opportunity to strike a deal with a chap called Mr. Market. He’s very obliging and tells us what he thinks our interest is worth whenever we ask. And on top of that, he’ll offer to buy us out or sell us an additional interest based on his valuation.
Sometimes his idea of value makes sense and is justified by the operational progress and prospects of the business. But sometimes he lets his enthusiasm carry him away and he offers us a price that seems way to high. And at other times he’s too cautious and offers a price that seems too low.
I think Graham’s description of the way Mr. Market works is similar to how the stock market operates. Every day the stock market quotes us a price for buying and selling the shares of our listed companies. And Graham said in his book that price fluctuations give investors “an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.”
Doing my own research
My view is the stock market could be offering a price that seems too low for many dividend stocks right now. However, before buying any shares I’d do thorough research into each underlying business.
However, even well-researched stock positions with sustainable dividends can cause me to lose money. Positive outcomes are never certain with stocks and shares. Nevertheless, many dividend-paying stocks are looking attractive to me. I’ve bought some of them. And I’m building up my watchlist with a view to buying more.
But market movements will likely affect my portfolio even though I’ve bought stocks paying chunky dividends. However, Graham urged investors to forget about the volatility of the stock market. Instead, he said, we should pay attention to dividend returns and company operating results when holding stocks.
Temporary setbacks
There may be a consequence to following that course of action. It means that sometimes my investments might be under water. However, Graham argued that temporary setbacks should not detract from the long-term approach followed by the business-minded investor. And in the long run, operational progress will likely be the driver of returns from shares.
Despite the risks, I’m keen to buy. And that’s because I can’t remember a time when dividend stocks looked more attractive to me than they do today.