The Easiest Way To Become A Millionaire

I think novice investors should think carefully about this article before taking its conclusions too literally.

You said:

"It's best to look for companies with a long history of paying out dividends, and a long history of not cutting dividends. That would mean avoiding companies like British Airways (LSE: BAY) and Lloyds Banking Group (LSE: LLOY), for example."

I might be wrong about this, but didn't Lloyds Banking Group and other banks have a long history of paying (and not cutting) dividends up until 2007? Pity the poor investors who bought in at that time on this advice, and held 'forever'.

You said:

"So when you hold one for long enough, you eventually reach a point where you are making more money annually in dividends than you initially invested in the company."

You mention Tesco, which by my reckoning would need to become a 37-bagger (price target 16162p) in order for your future annual dividends to equal to today's purchase price of 435p at the historic yield of 2.7%.

Your point may be true of the formerly tiny companies like Dominos and Cairn that you mention at the start, but surely you don't expect Tesco to become a 37-bagger?

(Mental arithmetic is not my strong point, so I may well have got some of these figures wrong, but I think my general point is sound)

Yes the last poster, lotontech, makes a good point. Until a few years ago Lloyds were always the example used as a longterm dividend payer. This seems to contradict the point of the article.

Its interesting to see the buy and hold strategy being talked about again.
This was the Fools main strategy up till 2007 and then it faded into obscurity, until now.
And yes, Lloyds was a prime buy and hold candidate. I bought it and I held it.
However, time is on my side and its not a loss until I sell.

'The past is no prediction of the future' as someone once said, and where dividends are concerned, how true that is.

Basia02 makes the point about Lloyds, and Warren Buffet said himself not so long ago that he would not wish to have too much of his personal wealth tied up in tobacco companies, despite historically having invested in them and despite the current dividend attraction.

British American Tobacco is on your list for the ten years time growth rate, yet what attitude will society have in regard to smoking a decade from now and what legislative framework may surpress earnings for that sector over the next decade? Who knows.....

As for 'hold forever', that seems to be one of the most widely mis-understood investing concepts around. Warren Buffet himself is well known for his comment that 'my favourite holding period is forever' yet he doesn't generally do this in practice at all (aside from the well known investments like Coca Cola and so on), and by any investment benchmark, the man is at the vanguard of brilliance.

The key point is the principle behind the phrase, which is a sound one. Buy AS IF you were going to hold forever, not take it literally. It is useful to the investor as a means of behaviour modification to maximise potential return, not literally to be applied which could lead to significant losses even when at the time of investing you were completely correct to do so.

FoxyWeasel, the main counter-point to your argument is that many fund managers produce average returns, but I totally agree with you that for most investors, they are the safest way to secure above average returns compared to what that person may have achieved by themselves, but I am talking about amateur investors here. For the investor who would like to think that they know what they are doing, nobody would franchise out their investment decision making to fund managers anymore than you would pay someone else to raise your child. (How many people have I just offended there?!). Oh yes, and there is another good reason. Investing yourself, can be FUN!

Have a great day people.

I heartly endorse FoxyWeasels recommendation for "Smarter Investing" the data Tim Hale shows is second to none in my opinion.

Investing in high yield stocks (often leveraged by the companies concerned) is one of the elements of my investment strategy and has led to both successes and failures, although overall I am winning.

Long term investing for dividends is like pound cost averaging, in my opinion, some time it works sometimes it doesn't.

I work on the basis that if I am right 6 out of 10 times I am comfortable. It is inevitable that long term dividend payers will from time to time go bust whatever size they are. Hence the need for diversification in the portfolio. If your portfolio is not large enough to support proper diversification, then clearly funds would seem to be the answer, though in my opinion Investment Trusts rather than the grossly expensive OEICS and Unit Trusts. Why overpay generally underperforming and overhyped managers, take the rewards yourself!!!

Everyone in my family is losing money with Neil Woodford. His trust didn't do any better than our individual shares in the crash and has been slower to recover. I have had several complete wipe outs with funds, including investment trusts, and never made any money with them so these days I plough my own furrow and if I lose I have only myself to blame.

If the reason we invest is for compound interest, why don't we keep our money in the bank? A yield like Tesco at 2.7% is not appealing to me. In order to become a millionaire as the article suggests you need to be successful at picking stocks which you believe will grow, over a long period (10yrs+). If it pays a good dividend then that’s a bonus. No one with average amount to invest will become a millionaire at 2.7.% yield.

uncut1 said 'I was an experienced investor or at least I thought so.

Unfortunately I worked for a bank and what I knew was banking so many of my investements were in banking and finanacial stocks.'

No disrespect intended but it sounds as though you missed out on a cardinal rule - diversification. Having all of your eggs in one basket (sector) is pretty rash, qed, especially if you work in that sector also (so may be open to possibility of redundancy as well as a drop in shares prices).

I also invested in a few banks for what turned out to be the wrong reasons and got my fingers burned, but those losses were limited to that part of the portfolio. Like 54Nick says, finding the right risk balance in your portfolio is important, including your level of exposure to each sector and asset class