…in fact, looking over my credit card statement, where I put all my “frivolous” expenses, I can see that except for food, etc. it’s been more than two months since I bought anything but stocks. The reason is that yields are finally reasonably in the 3-5% range compared to the depressed range resulting from the “forward/optimistic P/E=20 is normal”-thinking that has been prevalent until the markets took a dive. The current thinking seems to be one of mass-hysteria, which suits me fine. Finally, there is blood in the streets.
My passive income is not the popular mix of total return and bonds which depend on asset liquidation for income. The reason is that I don’t have the nerves to sit and watch a possibly decade long (that would be two decades for Japan and one decade for the US so far) market decline tear into my income stream. Other people bought indexes and don’t have the nerves either, so they are selling.
Actually I don’t care [so much] if the market is declining. In terms of selling, the only thing I care about is whether a company has enough earnings to cover their dividend. Are earnings historically stable or stably growing? What’s the retention rate? A declining market therefore merely means that future income becomes cheaper.
The stocks I concentrate on have historically paid dividends. Some of them like Standard Motor Products or Flex Steel, which I own, and International Paper, which is on my buy list, have paid the same dividend for years on end. They seem to be stable companies with decreasing/little growth. Other companies like Wells Fargo, one of my top five positions, which I have been buying like crazy, and General Electric, which is my next target, are big but have less room to grow. Due to this factor they are spending their money on increasing their dividends instead. It’s very nice to get a 10% “raise” like the one Wells just announced. This helps to keep pace with inflation unlike salaried raises which are rarely as high as the dividend increase. The final dividend payers are ex-growth-nascent-dividend payers. Companies that are scaling down expansion and increasing their payout, like Walgreens (one of my top five positions). Walgreens just increased their dividend by 18%! Other than these kinds of stocks, I own relatively little in terms of pure growth unless it’s somehow associated with baby boomer retirement and welfare diseases.