Boring investing is happy investing

Just about all the money I run is invested using what I’d call relatively defensive strategies.  

My wife’s pension is in an index-tracking portfolio split between stocks, corporate bonds and government bonds.  My pension is in a collection of relatively large, profitable, steady-growth dividend payers.  That’s a pretty big change from the 2008-2010 period when my focus was on small-cap deep-value stocks.

At the moment, I’m going through the process of reviewing some of my current holdings, as they all seem to be publishing their final results at the same time.

So far, I’ve got AstraZeneca, BP, Reckitt Benckiser, BAE and Royal Sun Alliance to look at.  What’s really interesting is that so far, the reports are all fairly happy.

Words like ‘momentum’, ‘progress’ and ‘shareholder value’ keep cropping up, and the dividends keep getting raised.  I guess this is what Buffett meant when he spoke about how it was much nicer to invest in prosperous businesses rather than struggling turnaround situations like Berkshire Hathaway was when he acquired it.

With the deep value stocks, the reports were often really miserable.  Now, I realise that company fundamentals and share prices often have a very loose relationship in the short term, and that’s what a lot of deep value is about.  

But it’s still a grind to read about how people are being laid off and how the company is in discussion with the banks, or how some customer or other has left, and no dividend will be paid.

I find investing in good companies just an immensely more positive endeavour.  Every month I check the portfolio, and there, right before my eyes, is a list of the most recent dividend payments that have been added to the cash balance.

It’s like being paid to do nothing, which is something I’m all in favour of.  In fact, some people think that dividend payers are boring – well, if getting paid for nothing is boring, then I like boring.

I think it was George Soros who coined the term ‘reflexivity’, where a cause-and-effect relationship works both ways.  With investing, this means that the investor can change the portfolio, and the portfolio can change the investor.  

I know that with a collection of large, stable and dividend-paying stocks, the effect the portfolio has on me is to keep me happy and focused on quality, and hopefully, they’re both factors that will keep me on the ball for many years to come.

Author: John Kingham

I cover both the theory and practice of investing in high-quality UK dividend stocks for long-term income and growth.

8 thoughts on “Boring investing is happy investing”

  1. I know what you mean, and I’ve moved a bit this way myself over the years. But you don’t need me to tell you that you could be paying a premium for that happy reading, just before things turn sour.

    As Buffett said (albeit of the wider market) “You Pay A Very High Price In The Stock Market For A Cheery Consensus”.

    Just to play Devil’s Advocate. 😉

    1. John

      I do understand your pleasure of receiving dividents. From a tax point of view, apart of using a pension wrapper which only allows you to DEFER taxes, dividents are not a good payout from a tax point of view.

      I prefer companies to buy their shares back with money they can’t invest then pay dividends. It increases the value of my holdings and with capital gain there are three advantages, you can choose when you realise them, you can use you annual allowance and you pay less tax if you are a high tax payer or additional tax payer (CGT is 28% for a high tax payer).

      From a personal point of view I prefer the company to reinvest their profits if they can get a return on this new investing above the cost of capital.

      Secondly, then paying dividends, I prefer the company to be taken over by another company which can give a better use of that free cash flow, investing it above the cost of capital. A takeover usualy realise a lot more value for a shareholder in terms of capital gains.

      I believe that divindends payments are irelevant. More inportant are the free cash flows and the return when these are reinvested. Always be on the look of companies which gets a return above the cost of capital when they choose not to pay dividends but to reinvest the free cash flow.

      Always keep the high dividends payment stocks in a Stocks & Shares ISA so you don’t get taxed on dividends.

      Pensions, unless your employer pays into it and you are bound to match its contribution or if not lose the employer contribution, don’t get to excited about making contributions into pensions.

      Use you ISAs first and only start a pension when you become a high tax payer. In this case you get a 40% tax relief in place of 20%. Example, this year you are basic tax payer, use your ISA for you £10k investment not a pension as you get only 20% tax relief. If next tax year you become high tax payer, you can cash your ISA and make the pension contribution and get 40% tax relief.

      Altdough I am an financial adviser, this is only information not advice. Advice is only related with your personal situation as a result of a factfind.

      1. It’s always nice to read something that goes against your own thinking, as it makes you re-evaluate your own position.
        I suppose the key is that you are relying on the company making the best use of it’s cash, whether buying back it’s own shares when their valuation is cheap or investing it in growth-generative projects/equipment/etc. By contrast, an investor receiving a dividend can make their own decision as to what to do with it: they can reinvest it (automatically or waiting until they perceive the valuation is good), take it as income or invest it in another company.
        Personally I’d rather have the dividend – when the time comes to reinvest I can then decide whether, in my opinion, the original investment is going to give me the best return or whether the money would do better elsewhere.

        Best regards,


      2. Hi Guy, thanks for commenting. I think my position is about the same as yours. I’m happy for a company to reinvest if it makes sense (i.e. they grow earnings by a sufficient amount) but with a dividend it’s cold hard cash in your hand which is so much more reliable.

        With a non-dividend payer you could hold the thing for 10 years and never get a return. If the company were growing by 20% a year and then hit major problems you could be back to square one in no time.

        If the shares were yielding say 5% in the start and the company grew at 10% (instead of 20% because they have less earnings to reinvest) then in 10 years you’d get about 80% of your original investment in dividends. If the company hit the same wall as in the non-dividend example above you’d at least have the 80% cash return, and of course it would be more than that as you would have been reinvesting those dividends into other attractive investments.

        I guess those who invest in non-dividend payers typically have a shorter time horizon? That’s my guess. I wouldn’t want to own a non-dividend payer for 10 years. Perhaps a couple of years but not long-term. I guess it’s a different approach to investing.

        Berkshire Hathaway shareholders seem to have done okay with a non-dividend payer though, but that may be an exception.

      3. If you believed a dievnidd cut was inevitable, it would be better to sell well ahead of the announcement. By the time the cut’s announced, chances are the stock’s already fallen quite a bit.Of course, once a cut is announced, there’s still a whole lot of downside left in the stock. Your examples illustrate that point very well.And if you wanted to get super fancy, you could write in the money covered calls on the offending stock, giving you protection to the downside and recouping/replacing the lost dievnidd stream with the option premium.But, in the end, selling the %#$#@# thing is probably the best course.

      4. Hi Eugen. You’ve made some great points there about the returns of retained earnings. I only have a slight preference for dividends rather than retained earnings, mostly because it gives me a nice stream of cash to reinvest as I wish.

        As for buybacks I’m happy for my holdings to do that since I own the shares therefore I must think they are good value, so buybacks are okay in my book.

        I don’t really have a concept of the cost of capital. I just look at the expected total return, i.e. the dividend yield and the guestimated earnings growth rate, although of course there’s a little more to it than that.

        If a company isn’t paying dividends then I would expect the earnings growth rate to make up for that dividend shortfall. In fact I don’t exclude non-dividend payers, it’s just that in my experience there aren’t many companies that grow fast enough to make up for not paying one!

        And thanks for the tax ideas. I’m not a financial advisor so tax and those kind of things are outside my circle of competence. In my case my stocks are in ISA accounts as well as SIPP accounts. The SIPPS are from work related pensions and if I could get the money out I would! But I can’t so I have to invest within them.

    2. Hi Monevator. I don’t mind a bit of devil’s advocate at all, I try to play it on myself all the time. As for paying a premium, I don’t think that applies to my holdings as I don’t own anything that I think isn’t attractively undervalued.

      In fact I’d prefer it if they were trading at premium prices because then I’d sell the things and move on to the next opportunity!

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