Dobosz on Dividends

Focus: INCOME

John Dobosz Image John Dobosz Deputy Editor, Forbes Media

Income expert John Dobosz explains the importance of dividends in building a long-term portfolio; the editor of the Forbes Dividend Investor also highlights some favorites for value-oriented income investors. The income guru also explains the more sophisticated options strategy behind his Forbes Premium Income Report.

Steve Halpern:  Our special guest today is income expert John Dobosz, editor of Forbes Dividend Investor. How are you doing today John?

John Dobosz:  I’m good, thanks Steven.  How are you?

Steve Halpern:  Very good.  Underlying your investment strategy is an emphasis on dividends.  Could you explain why income plays such a pivotal role in your approach to a long term portfolio?

John Dobosz:  Certainly.  There are periods of time in the stock market when you don’t have much appreciation in stock prices.  You can look back from 2000 through about 2012.  The S&P 500 was flat in terms of price appreciation, but you would have earned some return if you had just collected the dividends.  

Now there’s three ways you can make money stock; either the earnings in the company go up, the multiple that the market’s willing to pay for those earnings goes up, or there’s cash that you get from owning that company’s stock which is of course dividends.  

Like I pointed out there’s periods of time when you will not earn anything maybe for a decade or more if you’re looking just for price appreciation, and you own stock that do not pay dividends.  

If you do get dividends, 3% or 4% a year let’s say, that compounds nicely.  That’s the whole name of the game for long term investing is keeping the compounding effect going.

Steve Halpern:  Well, going hand in hand with these dividends you equally emphasize a stocks valuation.