Yesterday I was reminded to always remember why I invest in dividend growth stocks. Walgreen’s (WAG) is a company I am invested in. Yesterday they announced their 37th consecutive annual dividend increase. It was an increase of 22% which makes me very happy as a dividend growth investor. This means that the amount of income they paid me from last year compared to the upcoming year will increase 22%. That is a very nice raise. You don’t usually get raises like that from your employer. It certainly beats inflation. Depending on how many shares you own, this could be a significant boost in your annual dividend income. Unfortunately for me, I’m just getting started and all of my stock positions are fairly small.
Along with the great news of the dividend increase, another thing happened which forced me to keep in mind why I ultimately invest in dividend growth stocks. Walgreen’s announced a purchase of a significant stake in the European drug discount store Alliance Boots. I haven’t really gotten to analyze the details yet on this acquisition but it appears the market wasn’t too fond of the move. Shares of WAG ended the day down 5.85%. Psychologically this is hard to see. It’s hard to take a look at your brokerage account and realize one of your positions fell almost 6% in one day.
But I must remember why I invest in dividend growth stocks. My ultimate goal of investing is to create a passive income through dividends that will offset my daily living expenses. Once I have reached this point I will be financially independent meaning I won’t need to work a job any longer. I will be able to sit back, golf, relax on the beach and whatever else I want to do while the dividend checks roll in. The dividend payments will be enough to pay for all of my expenses. This is my goal. The daily fluctuation in stock prices should have no influence on my long term decision making. Stocks will go up and stocks will go down. My main focus is on the dividends and making sure that they continue to go up.
I haven’t gotten the chance to review the new acquisition by Walgreen’s but I have confidence in management. I believe that for the long term, Walgreen’s is a good company. They are one of the top pharmacies in the country. With the aging population needing more and more medicines, pharmacies stand to make more and more profits. I think management has shown pretty good confidence in the future profitability of their company through the raising of the dividend. Management does not want to have to decrease or suspend their dividend in the future and if they had worries about future profits of the company they would not have made such a large current dividend increase.
Remember we are invested for the long run. When investing it is hard not to look at the daily fluctuation of prices and get excited. You may get excited about a large increase or panic with a big drop. But the truth is, when we are investing for dividend income, these daily price fluctuations aren’t as important. What is important is your evaluation of the company. If the reasons you initially started investing in the company still hold true and nothing has changed to make you believe the company is heading in the wrong direction then you should keep with your strategy. Don’t let Mr. Market dictate when you sell. Decide for yourself when is the right time based on your own evaluations.
As for Walgreen’s, I’m still holding strong. I’m excited about the large dividend increase. As for the price drop I am confident that in the long term, 20 plus years, the stock price will be way up from where I have entered my position. Always keep in mind why you are a dividend growth stock investor, stick to your strategy, don’t let daily market fluctuations pull you away from your strategy. If you stick to those principles you should do just fine in the long run.
Disclosure: I am long Wag.