Dividend Investing Talk with Keith from DivHut
I recently had the honor of interviewing Keith Park the blogger behind DivHut. Keith has been a dividend investor since 2007, and has traveled to over 32 countries. In this interview we discuss how Keith got started with dividend investing, how he selects dividend stocks, and what stocks look interesting to him right now. Let's get started with the interview!
Kanwal: Keith how did you get started with dividend investing?
Keith: I have been investing in stocks for many decades often buying and holding companies for the long haul. While that experience has been great, for the most part, seeing unrealized capital appreciation in my account did not allow me to gain any real world benefit until I sold the stock. Enter dividend investing. Once I started to change focus and look into dividend investing with greater detail I realized that I can derive benefit each month by simply holding on to my stocks without having to ever sell. Now, my stocks are providing me with monthly cash flow that I can spend or reinvest and grow my holdings without any fresh capital being deployed. Income is great, passive income is greater.
Kanwal: You got serious with dividend investing in 2007, but in 2008-2009 we had the financial crisis. What gave you the confidence to continue investing in dividend stocks?
Keith: Having a long term horizon gave me the confidence to start with dividend investing and stick with it through all the financial turmoil we experienced since 2008/09. The reality of having a long term view and dollar cost averaging into positions regularly over time affords you a certain calmness during the short term volatility we experience. Also, many companies kept paying dividends and even raised them through tough financial times. That fact alone shows the resilience of well managed dividend paying companies. Think of how many dividend paying stocks existed and continued to pay out cash to shareholders during World Wars, high inflationary periods, pandemics and other world calamities. Near term, stocks are volatile. That's a fact. Zoom out your time frame and any chart begins to smooth out. Having a long term horizon measured in decades can give anyone confidence to stick with the market.
Kanwal: What do you look for in a dividend stock?
Keith: The first thing I look for in a dividend stock is it's dividend payout history. My initial research brought me to the dividend aristocrats list and I built out my portfolio with many names listed there. Of course, just because a company has paid an increasing dividend for 30 years or more does not mean it will continue to, but, it is a good place to start. Next, I look at payout ratios. You want to buy a stock that has a sustainable, and more important, growing dividend for the foreseeable future. You do not want to see payout ratios that are consistently well over 80%. That can suggest that there is not enough free cash to pay out growing dividends. Of course, payout ratios differ form sector to sector so a high payout ratio does not always equate to a red flag.
Kanwal: Since 2007, we have had a number of market downturns. Have you changed your approach to investing since 2007?
Keith: Nothing has changed for me regarding my approach to dividend investing. If anything, I know that I do not panic sell. Seeing my portfolio decline well over 50% in 2008/09 did not cause me to panic sell back then and that sentiment still stands today. I still maintain a long term horizon.
Kanwal: Do you also invest in Mutual Funds, Index and ETFs? Why?
Keith: Right now I have zero exposure to mutual funds and ETFs. I prefer holding individual stocks and create my own sort of personal ETF. According to my brokerage account, since inception my overall return has been 9.6% annually. I'll take that for buying and simply holding 'boring' dividend stocks. I pride myself on owning low volatility stocks which allows me to sleep well at night. Sure, I may not hold a high flyer like TSLA or some crazy meme stock but my overall goal is simply to grow my passive income stream via dividends. Capital appreciation is secondary.
Kanwal: We are currently seeing high inflation, and talks of the economy slowing down? Are you worried about your investments?
Keith: For the most part, I invest in 'sleep well at night' stocks. I have seen my portfolio drop 50% in value in the past and while some stocks may drop more than 50%, collectively the damage is minimized because of my sector diversity. Highly volatile tech is not a major part of my portfolio and my one large energy holding (which is volatile) comes from a large position my wife had going back many years (I do want to reduce that position one day). Overall, I do like boring staples and utilities. There's something about the steadiness of PG, CL, CLX, KO, PEP, UL, MCD, ABT, JNJ, SO, ED and the like.
Kanwal: When do you sell your dividend stocks?
Keith: Contrary to popular belief people have about dividend growth investors, we do sell stocks on occasion. That being said, I do sell but it is done very rarely. The times that I do sell usually comes from a spin off received from one of my holdings. Either the new company does not offer a dividend or its yielding an extremely low amount. The other times, I sell a dividend stock is soon after a dividend cut. In recent years I have shuttled GE and WFC for those reasons. While a dividend cut obviously hurts, it does not equate to an automatic sell for me. Recent examples, T and VFC. Those two stocks are still in my portfolio.
Kanwal: Your blog shows a list of your current holdings, on average how many companies (stocks) should someone own?
Keith: That is a very personal question. I might be OK holding 50 companies while someone else might prefer just 10. It all depends on the amount of time and research you are willing to put into each individual stock. Of course, some prefer to gain exposure with an ETF and own 500 companies or more all at once. Personally, I'm OK with about 50 stocks. Of course, that number grew over the years with many spin offs hitting my account some of which I held on to and some that I sold.
Kanwal: Any dividend stocks that look interesting to you right now? And why?
Keith: Every month I write a blog post highlighting my potential stock buys for the upcoming month. Of course, with markets moving up and down wildly it can be difficult sticking to my picks. That being said, I do currently like to nibble on VZ, T, GSK and LEG.
Kanwal: You've visited over 32 countries! Have dividends allowed you to travel the world?
Keith: Travel is something that I truly enjoy and I started my journey well before I became a full fledged dividend investor. The reality is that my online venture allowed me to travel once it started to gain traction. To date, I don't really use my dividends other than for automatic reinvestment or deployment into other investments. At this point, I am still growing my passive income stream and not using any of it for regular monthly expenses.
Kanwal: Why do you highly suggest everyone travels?
Keith: Travel creates new neural connections in the brain. I love the feeling of being thrown into a new city that I have never been to before. Everything you see is new. The sights, smells, cultures, language, customs, etc. Imagine starting a day where everything you see is new. Too often we shelter ourselves within a bubble going to the same markets, same restaurants, eating the same foods, driving the same way to work for years on end. If you can escape for a week or month to something that is totally new and different you will no doubt gain a different perspective on many aspects of your life. There is a lot more of the world I want to explore and now that my child has grown a bit it is time once again.
Kanwal: Thank you so much Keith for sharing you story, experience, and expertise with our audience, I really appreciate it!!