Right now, financial markets have been ‘adjusting’. Equities, bonds, currencies, commodities and other things have all put in some large recent moves. And that means many share prices have been falling.
Dividends and value
So that makes it difficult to invest in stocks and shares for capital growth. And it’s an age-old challenge. But many investors don’t bother trying to invest for share-price growth. Instead, they focus on dividend yields and a company’s potential to grow its shareholder dividend over time. Then they accept fluctuating capital values from volatile share prices as part of the deal when investing in stocks.
It’s a good strategy and it can work well. But that’s as long as I focus on the stability of dividend payments. Sometimes, though, dividends can be here today and gone tomorrow. And that’s particularly true if a business runs into operational setbacks.
But one of the key strengths of a dividend-led investment strategy is that it tends to lead me to good value. Low earnings multiples and high dividend yields tend to go hand in hand. So volatile times like we have now could prove to be a great time to invest in dividend shares to hold for the long term.
Meanwhile, with so many financial markets on the move, it’s tempting for me to try to figure out what is going on. After all, the macro-economic picture affects the investment landscape, right?
Pointless forecasting
However, the one-time economist John Kenneth Galbraith warned against such efforts. He once said: “There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”
And even the great American investor and fund manager Peter Lynch said: “If you spend 13 minutes a year on economics, you’ve wasted 10 minutes.”
So rather than a top-down approach, I’d research from the bottom up. And that means I’d focus just on the stocks that interest me and the businesses behind them. Meanwhile, all the convulsions in the macro-economic environment will likely create good-value stock opportunities. However, I’d be very choosy with my selections.
A long-term approach
Nevertheless, even when targeting sustainable dividends and attractive valuations, it’s possible for me to lose money on shares. Indeed, all companies can suffer from operational setbacks from time to time. And all shares carry risks as well as positive potential.
However, I’d aim to mitigate some of the uncertainties by adopting a long-term investment horizon measured in years. I reckon such an approach could work with my careful research to deliver a decent outcome over time. Although, of course, nothing is guaranteed or certain.
Nevertheless, with my strategy in mind, I think now is a good time for me to invest in dividend shares.
