EP124: Should You Buy Dividend Stocks and Hold Them Forever?

In this episode, we tackle one of the biggest investing debates: is it better to buy and hold dividend stocks forever, or buy low and sell high?

I’ll walk you through a real-life example using AXP to show how dividend income grew by 488% without adding a single dollar, explain why selling an overvalued stock can actually strengthen your portfolio, and demonstrate how to lock in capital gains while staying focused on long‑term income growth.

If you want to grow dividends smarter and faster this episode is for you.

Speaker 1 (00:00):
In this episode, we tackle one of the biggest investing debates. Is it better to buy and hold dividend stocks forever or buy low and sell high? I’m Kanwal Sarai and welcome to the Simply Investing Dividend Podcast. I’ll walk you through a real example of how dividend income grew by 488% without adding a single dollar to the investment. And I’ll explain why selling an overvalued stock can actually strengthen your portfolio and show you how to lock in capital gains while staying focused on long-term income growth. If you want to grow dividends smarter and faster, this episode is for you. In this episode, we’re going to cover the following four topics. What are dividends? What is dividend yield? Is the stock priced high or low? And then we’re going to look at two real life examples with American Express and Johnson & Johnson. Now, if you already know what dividends are and you’ve been watching our episodes and you know what dividend yield is, you can skip all the way down to topic number three.

(01:18):
Now, the most important thing we’re going to talk about in this episode, of course, is taking a look at which method is better. Buy and hold, which a lot of people out there suggest buy dividend stocks and hold them forever. Or is it better to buy low, hold, and then sell when the stock is high? So that’s what we are going to look at and we’re going to cover that in our final topic number four in this episode using those two examples, real life examples, one with American Express and the other one with Johnson & Johnson. So let’s get started with our first topic, what are dividends? The dividends are essentially the profits that the company shares with the owners. And if you own shares in the company, you are a shareholder and part owner of that company. So in this example, if a company is paying a dividend of $1 per share and you own a thousand shares, you will receive a thousand dollars every year for as long as you own those shares and as long as the company continues to pay a dividend in this example of $1 per share.

(02:32):
You can spend those dividends if you wish or reinvest them. It’s entirely up to you. The dividends are deposited as cash directly into your trading account. Now, if you’re interested in learning more about some of the top three dividend concerns, like what happens if a dividend gets reduced, what happens if it gets eliminated? I cover all of that in episode number four. So you can go back and watch that where we talk only about the top three dividend concerns. So now let’s move on to our next topic, dividend yield. So the dividend yield is quite simply the annual dividend divided by the share price. So if we look at this example where again, the dividend is $1 per share, that’s the annual dividend. And the share price today happens to be $20 a share. Well, we take one divided by 20 and we want to express that as a percentage.

(03:29):
And you can see that the dividend yield in this case would be 5%. Now, what does that 5% really mean? So let’s take a look at this. Let’s say you wanted to invest, in this example, $20,000 in this company, and you know that the shares are trading at $20 each. So in this example, you’re going to be able to buy 1,000 shares. And of course, if we take the 1,000 shares, multiply that by the $1 dividend per share. You can see that in this example, you will earn $1,000 every year in dividends. Now, another way to look at it, a faster way to come to the same conclusion is remember the dividend yield in this example is 5%. So what is 5% of $20,000? That’s the amount you’re investing in this company. And you can see that it’s $1,000. So in both examples, we end up with the same answer, which is $1,000 earned in dividends each year for as long as you own those shares and as long as the company continues to pay the dividend.

(04:39):
So the dividend yield represents the return on your investment while you hold on to those shares. Now remember, your dividend yield is based on your stock purchase price. So in this example, we saw that the dividend yield was 5%. Tomorrow, next week, if the stock price goes up, if it doubles or triples, your dividend yield is still going to be 5% because you bought the shares when they were trading at $20 a share. So stock prices can go up and down, but as long as you own those shares, remember the dividend is paid on the number of shares you own. So the stock price can go up and down, but in this example, you would receive a 5% return on your money every single year. Now let’s look at topic number three. At any given point in time, a stock is going to be either priced high or priced low.

(05:34):
Any stock anywhere in the world today is either overvalued, meaning it’s high or undervalued, meaning it’s priced low. Now, ideally, you want to buy stocks when they’re priced low. Why is that? Because that’s how you’re going to maximize your gains. If a stock is priced high at, I don’t know, $100 a share, there’s no point in buying it at $100 a share or at $99 or at $150, because the likelihood of the stock going even higher is extremely low because it’s already at its historic overvalued price. So you want to buy low, and then hopefully we’ll take a look at the examples in this episode. It might make sense to sell it when the stock is priced high. So how do you know when a stock is undervalued and how do you know when it’s overvalued? So you can take a look at the current dividend yield for any stock, for a dividend stock.

(06:33):
And if the current dividend yield is greater than the stock’s 20 year average dividend yield, then we know that the stock is undervalued and priced low. So you could consider it for purchase. On the other hand, if the current dividend yield is less than or equal to the 20 year average dividend yield, then the stock is overvalued and you shouldn’t buy it. If you already own it, you may consider selling it. Now for stocks that don’t pay dividends, it’s a similar formula, but here we look at the PE ratio. So if the PE ratio is less than the 20 year average PE ratio, then the stock is considered undervalued. On the other hand, if the stock’s current PE ratio is greater than or equal to its 20 year average PE ratio, then we consider the stock to be overvalued and priced high. Now, how do you know when a stock is priced low or high?

(07:29):
I’ve given you the formula, but how do you calculate all of these numbers? Well, we do that for you in our simply investing web application, our platform, and you can see I’ve taken a screenshot here of stocks currently trading on the New York Stock Exchange, and you can see that all of them are undervalued and we’ve highlighted that value, all of the values in that column in the table. So when a stock becomes overvalued, the platform is going to tell you automatically. So we do that work for you so you don’t have to manually calculate those numbers yourself. Now to learn more about how we came up with those formulas, like how do we know when the current yield is greater than the average that the stock is priced low or vice versa? Well, for that, I’d recommend if you haven’t watched it, go back and watch episode number one.

(08:21):
We spend the entire episode on helping you to figure out how to know when a stock is worth buying, meaning how to know when it’s priced low. And so we go through all of that in episode one. Now let’s move on to our final topic. And this is the main topic here and we’re going to use two real life examples, one with American Express and the other one with Johnson & Johnson. And what we want to figure out here is which method is better, buy and hold forever, which a number of investors out there, a number of folks will tell you that’s the way to do it. There’s books written about this when it comes to especially dividend investing. They say, “Hey, buy a dividend stock, hold onto it forever and you’re done.” Now that’s certainly possible to do, but is that the best way to grow your portfolio and grow your dividend income?

(09:17):
Probably not. So keep watching and I’m going to show you why, but you could do it. And it’s the same as when we talked about drips, the dividend reinvestment plans, right? I don’t recommend them. I have an entire episode talking about drips, but if you want to do it, you could certainly do that, right? Is that the best way to grow your portfolio and grow your dividend income? I don’t think so. And I have an episode that covers that. So there’s lots of different ways to go, but what I’m looking for is what is the best way, the quickest way to safely grow your portfolio and grow your dividend income. So we’re going to look at both of them. I’m going to call it option one, which is buy and hold forever, or option two, which is buy low when the stock is undervalued, hold onto it, and then over time when it eventually becomes overvalued, I think you should sell it, but let’s take a look.

(10:16):
We’re going to take a look at our two real life examples. Now I’m going to keep it really simple here. So we’re going to make some assumptions and the assumptions are that the stocks that I talk about right now in this episode, the examples I’m going to give you, we’re going to assume that they’re held in retirement accounts. So that could be in a 401k or if you’re in Canada, it’ll be an RSP or a TFSA account, which means there is no tax on capital gains or dividends. Okay? So that’ll just keep it simple. We’re going to take taxes out of the equation and let’s continue with our example. So like I said, the two companies, American Express and Johnson & Johnson, and I went back and looked at the data. So back in 2021, so we’re going back five years, both of these companies were undervalued.

(11:06):
Why? Because their dividend yield at the time was greater than their average 20 year dividend yield. And now as of this recording at the beginning of 2026, so we’re still at the beginning of the year, so it’s pretty much five years later, American Express and Johnson & Johnson are currently, as of this recording, overvalued and priced high. So let’s take a look at American Express first. Now you can see here we’ve got a couple of numbers here. We’re looking at 2021, so we’re going back five years. You can see that the share price was $114 for American Express. The share price today is 361. The dividend five years ago was $1.72. The dividend today is $3.28. So that’s good. The dividend has gone up, and that’s a good increase in the dividends. The dividend yield on cost. So this is the dividend yield based on your purchase price.

(12:09):
Five years ago was 1.51%. How do we get that? We take the dividend back in 2021 and we divide it by the share purchase price. And the dividend yield on cost today for you in this example would be higher because the dividend has gone up. So if we take the dividend of $3.28 and divide it by the purchase price of the stock when it was $114, you can see that now in this example, you’d be earning 2.87% based on your initial investment, right? So that’s one way to look at it. I know people want to look at dividend yield on costs, so I’ve put that number there. On the other hand, the other number to look at is the current dividend yield. So back in 2021, of course, the current dividend yield was 1.51%. Today, if you were to buy the shares today at its price of $361, your current dividend yield is 0.91%.

(13:14):
And so what that means is your investment today based on the market value, that money is making 0.91% return for you. So now let’s take a look here at American Express, right? So the total amount in this example, we’re going to do the same thing with Johnson & Johnson, is we’re going to assume you invested $10,000 in each of the companies. So five years ago, in this example, you invested $10,000 in American Express and the dividends received total combined over the last five years would have been $1,363 in dividends. And the market value today, because the share price has gone up, so the value today, and we’re including the dividends in there, received since 2021, your $10,000 investment in American Express today would be worth $33,039.

(14:18):
And the annual dividends received today based on the new dividend of $3.28, you would receive $287 this year in dividends, and that hopefully will go up if American Express increases the dividend next year, and the year after that, and the year after that. If they don’t, then you’re going to make $287 every year if the dividend remains the same. So again, just to remind you, the dividend yield on cost, which I showed you on the previous slide, it’s the same number, and the current dividend yield is 0.91%. So what the current dividend yield is telling us is that on your total investment, if you were to sell everything today in American Express, you would get $33,000 and $39 cash, right? That includes the dividends you received over the last five years. So that’s how much you would be left with. If we take 0.91% of that, which is that’s how much cash you have available to you if you sold it, you would end up with $287 a year in annual dividends.

(15:30):
So now I’m kind of summarizing it. We’re going to remove some of the noise here and just show you the total numbers again. Again, we’re looking at American Express, total amount invested five years ago was 10,000. Today, it’d be worth 33,039, and your profit capital gains would be $23,039. And we know the annual dividends is 287 per year. So if you hold onto this, which was option one, which we said, buy dividend stocks and hold forever. So if you hold onto it, you’re going to make $287 in dividends this year. Next year, maybe a little bit more if the dividend goes up. So maybe 290 or $300. The year after that, maybe 305, 310, you make a little bit more if the dividend goes up and so on and so on. So that is your future dividend income coming to you. On the other hand, option two, if you sell it today, you’d be earning a profit of $23,039 immediately.

(16:42):
So then the question becomes, how long do you have to hold onto American Express until the dividends match your profit? So how long would you have to own the shares till you finally made enough in dividends to match your profit that you could potentially make if you sell the stock today of $23,039. So it’s really easy. What we do is we take the profit, we divide it by the annual dividends, and you can see that it’s 80 years. Now, in reality, it’s going to be shorter than that because hopefully American Express will increase their dividend every single year. And maybe there will be some stock splits in the future, maybe. So combined with that, it’s probably going to be less than 80 years. It might be 70 years, might be 60 years, might be 50 years, or even 40 years. So now, do you want to wait that many decades to make the same profit and dividend income versus making that profit in capital gains today?

(17:49):
And maybe you could do something else with that money. So that’s option one, right? Buy and hold. So is it better to wait that long? Like I said, it could be 80 years if the dividend doesn’t change and there’s no stock splits. But if there are dividend increases in stock splits, it might take 70 years, 60 years, 50 years, 40 years, it’ll be shorter, but you’re still looking at a number of decades. Or do we take that money in option two, sell it, take the profits, and let’s reinvest them. Let’s invest all of the money. So like I said, the market value is $33,039. So let’s take a look at an example here. So what if we took option number two and we sold all the shares in American Express and we invested them in this company? Now, this is just an example. I know I get a lot of comments in the video.

(18:42):
This is just an example of a stock today that is undervalued. I know it’s not in the same sector, it’s not in the same industry as American Express, but I’m just putting this out there as an example. Okay? So this company, General Mills, share price today is $47. The annual dividend is $2.44, and you can see that the dividend yield today is 5.12%. So what if you took all of your money from the proceeds of selling American Express and put it into General Mills? So let’s take a look at that right now. So you can see we took our market value, the value today of American Express, which is $33,000. We put that in the right-hand column for General Mills. And now you can see that instead of making $287 this year in dividends for American Express, you would make over $1,691 in dividends. And why is that?

(19:47):
Because the dividend yield is much higher. It’s 5.12%. And so that is an increase in your dividend income overnight by 488%. And you didn’t have to wait 40, 50, 60 years to make that profit back. We took that money, we took the capital gains, and our dividends that we had over the last five years from American Express, we took all of the proceeds of the sale and we put that into General Mills without adding a dollar more to the investment. And you were able to increase your dividend income by 488%. So you went from making $287 a year to now making $1,691. So that is incredible. And I hope that this example shows you that option two helps you to lock in your capital gains because the stock price, the stock is not going to stay overvalued forever, so the stock could come down. And so historically it is now high, it’s overvalued, lock in your capital gains while you can and increase your dividend income.

(21:03):
And that is a huge jump of increasing your dividend income by 488% without adding an extra penny into that investment. Now you can see both options one and two on the screen. And like I said before, you could certainly buy and hold those dividend stocks forever, but you can see that it’s going to generate less dividend income. So there’s an opportunity cost here, right? You could do have the potential to earn more with option two, but if you wanted to just buy and hold, you could do that. You’re also going to get less portfolio growth because you’re not locking in your capital gains. However, option one is less effort, right? You buy it and you forget it. And that’s why people like that because it’s less effort. You don’t have to buy and sell or track the stocks. And so you could certainly do that.

(21:55):
However, if you are looking to grow your portfolio and grow your dividend income safely, then option two is going to be better for you, more dividend income, more portfolio growth. It’s going to take a little bit of effort, but I’m going to talk about that after our next example of J&J, Johnson & Johnson. So let’s take a look now at another real life example using Johnson & Johnson. Here again, you can see five years ago, the company was undervalued. The share price was about $156. Today it’s trading at 240. The dividend back then was $4.19. The dividend today is $5.20. Again, we’re showing dividend yield on cost and the current dividend yield. So now, same example. We’re going to assume you invested $10,000 in Johnson & Johnson five years ago. Today, you would have received by then over the five years, a total of $1,826 in dividends.

(22:59):
The market value of your investment in Johnson & Johnson today would be worth $17,221. That’s including the dividends received. So if you hold onto it, which is option one, buy and hold forever. Well, this year you’re going to make $332 in dividends. And hopefully next year, you’ll make a little bit more if the company increases its dividend. Again, we’ve got the dividend yield on cost, same number from the previous slide and the current dividend yield. Now, let’s take a look at, again, we’re going to get rid of some of the noise here, just show you the numbers that we want to focus on. $10,000 invested in Johnson & Johnson. There’s the market value and the profit. If you were to sell it today, so now we’re talking about option two. If you were to sell this today, you would make a profit of $7,221.

(23:57):
Now, of course, the proceeds of the sale would be the total $17,221, again, including the dividends over the last five years. So now we are going to look at the same question we looked at with American Express. How long would you have to hold on to Johnson & Johnson shares until the dividends matched your profit, right? Because if you hold onto it, option one, you’re going to make money in dividends, but is it going to match over time what you would make if you were to sell the shares today and make $7,221 in profit? So we take the profit divided by the current annual dividend income, and you can see it’s 22 years. Now again, if the company grows the dividend every year, it’ll take less than 22 years. If there’s a stock split and they grow the dividend again, it’s going to take less time.

(24:55):
But again, it could take maybe 20 years, maybe 18 years, maybe 15 years. Do you want to wait 15 years or 10 years to make this equivalent amount of profit in dividends? And then we don’t know what’s going to happen in the next 10, 15 years. Is the dividend going to go up? Is it going to stay the same? Will there be a reduction in the dividend? So that’s a risk that you have to take if you’re going to buy and hold forever with option one. So what we suggest is option two is going to be better for you, right? Which is, you bought the stock when it was low, you held onto it for five years, so you made dividend income. So you were making money over those last five years, but now that it’s priced high, lock in your dividend income. So where would you put that money today?

(25:47):
Let’s say with option two, you sold everything. What do you do with the proceeds of the sale? So I’m going to give you another example here. And again, this is just an example. I know this company is not in the same industry, not in the same sector, but it’s an example of a company today that is undervalued and a quality stock, right? So in this example, we imagine you take all your proceeds from Johnson & Johnson and you put it into this company. You can see the stock symbol is TROW, so T. Rowe Price. The company is trading today at $92 a share. The dividend is $5.08. The current dividend yield is 5.48%.

(26:31):
So now we take the proceeds of Johnson & Johnson, again, option number two, the $17,221. We put all of that in T. Rowe price today, and you can see that the annual dividend income is going to go from $332 that you were making with Johnson & Johnson, and that dividend income is going to go up to $943 a year. And that is an increase of 184%. So that is a huge increase. So number one, you’re not going to get that much of an increase in dividends. Most companies do not grow their dividend that much in one year, so they’re not going to grow the dividend by 184%. So that’s one advantage for you right there. And number two, you’ve locked in your capital gains. And so again, without adding a single penny to this investment, you have now increased your dividend income by 184% in this example.

(27:35):
So now if we put it both together, imagine you had American Express, you bought it five years ago, you sold it to buy General Mills, you can see the numbers on the screen. Then the same thing with Johnson & Johnson, and you sold those shares to buy T. Rowe, so you effectively implemented option number two. In both examples, you can see the dividend income, right? 488% increase with American Express converted to General Mills and 184% increase Johnson & Johnson converted to T. Rowe price. Now, these are just examples, but you can see the dividend increase is incredible all without adding an extra penny to either of these investments. So same as before, option two, you lock in your capital gains, increase your dividend income. Same table that I showed you before. Now let’s focus on option number two, more effort, right? Option one is easy.

(28:37):
It’s the lazy way to do it. Buy, hold forever, forget about it, and you’re done. Option number two, you have to watch it, right? So this is where we can help you with the simply investing web application. Our platform is going to make it a lot easier and a lot simpler so you don’t have to constantly watch your investments every single day. So first off, like I showed you before, the platform tells you immediately which stocks are undervalued and which ones are overvalued. So you can see that right away. Even better, you can set an alert for yourself. So here you can see the screenshot. In this example, I’ve set an alert for Walmart, and I’m going to get an email when Walmart becomes overvalued. And you can see it’s highlighted here. We’ve set that. So as soon as the stock Walmart becomes overvalued, I’m going to get an email so I don’t need to watch this stock every single day.

(29:39):
So in summary, there are four steps to grow your portfolio and grow your income safely. Step one, you want to buy quality dividend stocks when they’re undervalued. Step two, hold for the dividends and rising dividends. Over the last five years, you saw in both of these examples, and we’re I can express and Johnson & Johnson, the dividend went up every single year. And so your dividend income was going up and you were getting paid for holding onto those shares. So that step two is just hold onto it because it takes time. It takes years for a stock to go from undervalued to overvalued. On average, anywhere between five, six or seven years, that’s how long it’s going to take. So step two, you hold onto it and you’re getting paid while you’re holding onto those shares. Step number three, sell it when the stock becomes overvalued.

(30:33):
And then step number four, repeat the above steps. So that is how you can grow your portfolio and grow your income consistently by following these steps. So step number one is going to be the key. You want to start with high quality dividend stocks when they are priced low. And this is going to help you build a resilient portfolio that provides you with growing dividend income each year. Resilient, because regardless of the market going up or down, your dividend income should continue to grow. I’ve been doing this for over 25 years as a dividend investor, and my dividend income has gone up every single year. So how do you do this? How do you build a resilient portfolio? That’s the big question. And so to answer that, I’ve created what I call the 12 rules of simply investing. The rules are designed to lower your risk, save you time, and help you earn more.

(31:37):
You can see the 12 rules on the screen here. The way this works is, especially when you’re starting off, you want to make sure that a company passes all of the 12 rules before you invest in it. If it fails one rule, skip it, move on to something else. Rule number one, do you understand how the company’s making money? Rule number two, 20 years from now, will people still need its product and services? Rule number three, does the company have a low cost competitive advantage? Rule number four. Is the company recession proof? Rule number five, is it profitable? Rule number six, does it grow its dividend? Rule number seven, can it afford to pay the dividend? Rule number eight. Is the debt less than 70%? Rule number nine, avoid any company with recent dividend cuts. Rule number 10, does the company buy back its own shares?

(32:25):
Rule number 11, is the stock priced low? And we talked about that in today’s episode. And rule number 12, keep your emotions out of investing. Now, we have an all- in-one solution to help you with this. We have, of course, our simply investing web application, our platform, which also includes our simply investing dividend course. And you can see the web application. There’s a screenshot here. The simply investing course is an online self-paced course. We have 10 modules and they’re videos that you can watch. Module one, we cover the investing basics. Module two, the 12 rules of simply investing. Module three, applying the 12 rules to any stock anywhere in the world. Module four, using the simply investing web application. Module five, placing your first stock order. Module six, building and tracking your portfolio. Module seven, when to sell. Module eight, how to reduce your fees and risk, especially if you have index funds, mutual funds, and ETFs.

(33:32):
Module nine, your action plan for getting started right away. And module 10, I answer your most frequently asked questions. If you’re interested, you may want to write down this coupon code, save 10, S-A-V-E one zero. Save 10 is going to save you 10% off of our all- in-one solution, whether you sign up for the monthly subscription or the annual subscription. If you enjoyed today’s episode, be sure to hit the subscribe button, hit the like button as well. And for more information, take a look at our website, simplyinvesting.com. Thanks for watching.