What You'll Learn in This Episode
The market has been sliding recently, and that kind of volatility can trigger a lot of fear for many investors.
Today, we’ll look at the emotional traps that may cause you to make poor decisions, the mindset that helps dividend investors stay steady, and why strong companies like Lowe’s and Johnson & Johnson continue to reward shareholders even in challenging times.
I’ll also share some tips that have helped me to stay calm and focused no matter what the market is doing.
Complete Transcript
Speaker 1 (00:00):
The market has been sliding recently, and that kind of volatility can trigger a lot of fear for many investors. Today, we’ll look at the emotional traps that may cause you to make poor decisions. We’ll look at the mindset that helps different investors stay steady and why strong companies like Lowe’s and Johnson & Johnson continue to reward shareholders even in challenging times. I’m Kanwal Sarai and welcome to the Simply Investing Dividend Podcast. I’ll also share some tips that have helped me to stay calm and focused, no matter what the market is doing. Let’s get started with today’s episode. In this episode, we’re going to cover the following five topics. We’ll take a look at the current state of the market as of this recording. Then we’ll take a look at some of the biggest emotional traps that investors fall into. Then we’ll take a look at the dividend investor’s mindset.
(01:05):
Then we’ll take a look at two examples, real life examples of strong companies and how they behave in tough times. And then we’ll take a look at some ways to help you keep calm even when the market isn’t. Let’s start with topic number one, the current state of the market. So as of this recording, in the last 42 days, you can see here on the graph, on the screen, that the DAO has gone from a high of over 50,000 points back in February to 46,300 where we are today. We can see that the DAO has dropped by 3,844 points, and that represents a negative 7.7% drop. Now, in addition to the DAO, the NASDAQ, the SNMP 500 are also down in the last 42 days. And so why is that? Well, according to ChatGPT, over the last six weeks, the US stock market hasn’t dropped for just one reason.
(02:13):
It’s a stack of negative forces hitting at the same time. So number one is the geopolitical shock, and that is the escalating conflict in Iran, which has then caused oil prices, surging, resulting in inflation fears. There was still the uncertainty around interest rates. And we’ve also seen recently in the last few months that AI and big tech is losing momentum. A lot of the AI related stocks are cooling off. And this could be a normal market correction after a very strong run, and the valuations just got too high. So we can see that the war in Iran is causing the oil prices to go up, which causes fears of inflation. Added to that, the uncertainty of interest rates, there’s weakness in the tech sector. All of this leads to investor fear. And it’s the fear and uncertainty that leads most investors to emotional traps. And we’re going to take a look at those right now in this section.
(03:18):
So we’re going to cover sort of the five big emotional traps that investors fall into. So one of them is panic selling, especially when prices are dropping. And you can see here on the screen, this is a graph of McDonald’s since July of 2023. So the last three years, you can see the stock prices go up and down. And the very worst time to sell is when stock prices are down. You can see the big green arrow pointing to the areas of when the McDonald’s stock price was really down. The problem is when you sell the stock when it’s already down, you then solidify your losses, and it’s a lot harder to come back from that. So what we teach at simply investing, what I’ve been practicing for over the last 25 years, is we want to buy stocks when they’re undervalued, and we want to sell them when they’re overvalued, meaning when they’re priced high, not the other way around.
(04:16):
And when you get into panic selling, especially when you see the value of your stocks or your mutual funds, index funds, ETFs, when you see your investments dropping every day, every week for a few months and you see it getting lower and lower, it’s very easy to panic and to sell. You say to yourself, “I’m going to cut my losses. I’m just going to sell right now.” And that is absolutely the wrong time to sell. So that’s one of the big emotional traps that investors fall into. And then the other one is chasing high yield stocks just out of fear. And just a quick recap here, the dividend yield is the annual dividend divided by the share price. So in this example, if we have a company that has an annual dividend of $1 per share, and the share price is $60, so we take one divided by 60, we want to express that as a percentage.
(05:13):
That is a 1.7% dividend yield. And so that’s a healthy yield, that’s fine. What’s going to happen is when markets are declining and stock prices are coming down, the dividend yield is going to go up. So I’m going to show you a very extreme example of a stock that was trading at $60 a share, is now trading at $5 a share. And now you can see on the screen, if we take the annual dividend of $1 divided by the share price, which is $5 now, the dividend yield is 20%. So the automatic reaction here would be to put all your money in a stock that’s going to pay you a 20% dividend yield instead of 1.7%. And that is absolutely the wrong thing to do. You do not want to be chasing high dividend yield stocks, especially out of fear. Now, I cover these, we call these dividend traps, and I cover dividend traps in a lot more detail and a lot more examples, and we cover that in episode 10.
(06:17):
So if you haven’t seen that, watched it, go back, watch episode number 10, where I teach you how to avoid dividend traps. The next big emotional trap here is checking stock prices too often. And what we find here is as the markets are declining, as stock prices are dropping, people tend to check their stock prices over and over again, and it doesn’t help. Everybody’s got a smartphone. You can look at stock prices on your phone. If you find yourself checking prices all the time, every single day, every single week, you’re probably doing it too much because that is going to instill in you fear and panic. And when you’re fearful and you’re panicking, you are not going to make the right decisions. And the other emotional trap is comparing your portfolio to others. Again, social media doesn’t help. You’ll see people on TikTok and YouTube shorts showing charts of their portfolio and they’ve gone up 10, 20, 30%, 100%, and you don’t want to compare yourself to others.
(07:25):
And the last thing here is letting headlines override the fundamentals of the stock itself. And you can see I’ve put three sort of sample headlines that I just got off the internet the other day, and you can see the headlines. They’re scary. And if you’re looking at those all the time, that is going to confuse you and it’s going to make you more fearful. So the key here is to cut out the noise and just focus on the fundamentals. And I’m going to show you how to do that a little bit later in this episode. So there you have it. Those are the five biggest emotional traps that investors get caught in. Those traps, especially when markets are down. And so what’s the solution here? Well, the solution is to keep a dividend investor’s mindset. And so we’re going to cover that right now as topic number three.
(08:27):
So let’s move on to that. So the first thing you want to do is focus on income stability, not price volatility. The income that comes to you comes in the form of dividends. So focus on the dividends. The goal ultimately is to live off of the dividends. Stock prices go up and down all of the time, but dividends are a lot more consistent, and I’m going to show you that in just a few minutes. Next, dividends are more predictable, exactly what I just said, than stock prices. Because again, I’m going to show you in a few minutes that dividends, especially companies that grow their dividend consecutively are way more predictable than stock prices. And the dividend growth creates long-term confidence. So if you know that you’ve received a dividend for the last 10 years, you’re getting another dividend this year. The company raised the dividend again that is more dividend income in your pocket.
(09:31):
And so every dividend that comes in, every dividend increase is going to raise your long-term confidence. And then we combine that with the power of watching your income rise even when stock markets fall. I’ve been doing this for over 25 years, so I’ve gone through the tech bubble in 99. We had nine eleven happened. We had the war in Iraq, the war in Afghanistan, we had the 2008 financial crisis, we had COVID, but yet every single year, the dividend income for my portfolio went up every single year consecutively for over 25 years. Now I’m going to give you just a couple of examples here. We just, I think, have four companies on the list here. We’ll take a look at the consecutive years of dividend increases and how long these companies have been paying dividends. So the first one here is American States Water. You can see that the company has been paying a dividend since 1931, and the company has had 71 years of consecutive dividend increases.
(10:39):
Now remember, every time the company increases the dividend, that’s more money in your pocket. Next we have Coca-Cola. They have been paying a dividend since 1893. That’s not a mistake. 1893, and they’ve had 64 years of consecutive dividend increases. We have Colgate Palm Olive, again, paying a dividend since 1895 with 63 years of consecutive dividend increases. And finally, we have Lowe’s started paying a dividend in 1961, and they have now had 54 years of consecutive dividend increases. Now, what I’ve shown you here is a very small sample, just for companies, but there are way more companies than that. Right now, we’re just looking at the US market. If we take a look at what we refer to as dividend kings, these are companies that have increased their dividend consecutively for at least 50 years or more. There’s around 28 companies right now in the US today.
(11:41):
And if we look at dividend aristocrats, these are companies that have had at least 25 years of consecutive dividend increases. There’s around 66 companies today in the US. So just between these two companies, you’ve got almost a hundred companies to choose from that have had a solid track record of not only paying a dividend, but increasing their dividend year after year after year. So this is the dividend investor’s mindset. You can see them up on the screen here. There’s four of them, four things to focus on, which is going to keep you on the right track. Now, does having a dividend investor mindset really work? Like it sounds fine in theory, but does it really work? So I’m going to show you that right now in our next topic where we cover two examples of companies that have had consistent long-term earnings growth. So we can see over the long-term, as long as these companies are profitable, they can continue to pay you a dividend and they could continue to increase the dividend to you regardless of the stock price, because stock prices go up and down all the time.
(12:57):
So we’re just going to spend a few minutes here. We’ll take a look at Johnson & Johnson, and we’ll take a look at Lowe’s. Now, for both of these companies, we’re going to imagine that in 2016, you invested $10,000 in each of these two companies. So we’re just looking at a 10-year time period. We’re not going back 30 years, 40 years, 50 years, or 60 years. We’re just going to go back 10 years and let’s see how your investment would have performed. So we’ll take a look at Johnson & Johnson first. You can see that the share price in 2016 was $97.50. Today, as of this recording, the share price is a little over $238. The dividend 10 years ago was $3.15. Today, it’s $5.20. And so we can see the amount invested, like I said before, is $10,000. Since then, you would have received over $4,751 in dividends.
(13:58):
Just in dividends alone, we’re not even taking into account the stock price. So that is a pretty good source of income there. Value of the investment today, including dividends, would be almost $30,000, right? 29,193 to be exact. And if you still held onto this investment in Johnson & Johnson, this year you would expect to receive $533 in annual dividends. And so this is a total return over the last 10 years of 192%. So that’s pretty good. Again, our focus is on the dividend income, and that is also pretty good as well. Now let’s take a look at Lowe’s. So 10 years ago, the share price was $68.07. Today, the stock price is a little over $236. The dividend back then, 10 years ago, was $1.7 cents. Now in 2026, I think it’s even a little higher now because they had another increase, but as of their … We’re going to go by their fiscal year of 2026.
(15:06):
It was reported as $4.75.
(15:10):
So now, again, $10,000 invested in Lowe’s, you would have received over $4,533 in dividends over those 10 years, and the investment today would be worth over $39,312. And the annual dividend income from Lowe’s, if you just hang onto those shares, this year will be $697 a year. And so this represents a total return over the last 10 years of 293%. So now let’s put it all together, both of the companies combined. Remember in this example, we’re going back 10 years. You invested $10,000 in each. Both of these companies today would be, this year would be providing you with $1,231 in dividend income. Hopefully, that dividend income is going to go up next year. Why? Because both of these companies have a history of increasing their dividends consecutively for decades and decades. So when they increase the dividend, hopefully, if they increase it next year, your income will exceed $1,231 in dividend income.
(16:23):
And so for anybody who’s interested, the yield on cost, this is the total amount of dividends you’re getting today divided by your initial investment. You’re looking at a return of 6.2% just for owning those shares. We’re not having to buy more shares or sell them. Just for hanging onto those shares, the yield on cost is 6.2%, and we expect that to rise every year if the company increases its dividend every single year. So that’s a decent return. What we’re looking for is the consistency and the predictability of the dividend income, because at the end of the day, we want to be able to live off the dividends without having to sell our shares. Now, I just gave you two examples. If you’re looking for more examples of extraordinary returns with dividend stocks, I highly recommend you go back and watch episode seven. Now, are you still worried about investing after all of this that we’ve covered?
(17:23):
You still might be. There might be people that are still concerned and fearful, especially what’s going on in the world today, and especially what’s happening in the stock markets. So for that, I want to finish off with our final topic, and I want to give you some ways on how to keep calm, even when the market isn’t. So I really like this poster. It says, keep calm and carry on. And so let’s take a look at the stock market. We’re going back to 1870, and you can see it up on the screen here. There’s been so many periods in the history of the stock market where bad things have happened and negative things causing the markets to decline. We can see here we have World War I, World War II. There’s the Great Depression in 1929. There’s the Black Monday, there’s COVID-19.
(18:16):
We have the Cuban missile crisis. You can see it up on the screen. They’re all there. I’m not going to read them all out, but you can see that this has happened before in the past. There have been challenging times in history that have caused big drops in the stock market. So one more example on this screen here, we’re going to take out a lot of the historical stuff, just stick with just a few things here. So you can see in 1987, the Black Monday, you can see the Gulf War, the tech bubble, the financial crisis. Every time these things happened, you can see that the stock markets were down. And you can see that they were down double digits. That’s represented by the orange or the red up on the screen. And so by double digits, the markets were down. Even though today, as of this recording, the market’s down roughly 7.7%.
(19:10):
So we’ve had far worse periods in history. Now, the good thing here is the following 12 months, every time there’s a down period, the following 12 months, you can see that the markets are up. So hopefully the world will continue. We will resolve these issues in the world, the geopolitical issues that are happening, and history has shown us that the markets will recover eventually. So here are some ways that I want to share with you to keep calm, even when the market isn’t. Review your dividend safety metrics instead of price charts. Again, the focus is on the dividend income, not on stock prices. So I’m going to share in a few minutes what that looks like. The second thing is to set a schedule for checking your portfolio, either monthly or quarterly, that way you’re not checking it 15 times a day. Just be patient and look at it either monthly or quarterly.
(20:16):
The next thing is to use the 12 rules of simply investing to avoid emotional buying and panicking and just knee jerk reactions. And I’m going to show you the 12 rules in just a minute. And then the key here is to remain patient and disciplined. Patient to ride out any market downturns that may occur and the discipline to stick to the 12 rules of simply investing. You also want to make sure that you keep a rainy day fund, an emergency fund, where you have at least six months, a year, or two years of living expenses set aside in cash. That way, especially for those of you that are retired or looking for early retirement, if the market is down, you’re not being forced to sell your stocks at a very low price. You can tap into the emergency fund to keep you going and wait for the market recovery, and then you can either sell your shares or live off the dividends.
(21:21):
If you’re generating enough dividend income, you don’t have to sell your shares and you’re fine. The rainy day fund can still stay there and you can use that for health issues or anything. If something happens with repairs to the house or the car, any emergencies that occur, you can tap into it that way. So you do want to have a little bit of a buffer that’s going to be your margin of safety. So the key here is to use the simply investing approach to help you become a confident investor. And we do that by investing in quality dividend paying 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, regardless of what happens in the stock market. So how do we do that? Well, I’ve created what I call the 12 rules of simply investing.
(22:15):
These rules are designed to lower your risk, save you time, and help you earn more. You can see the 12 rules up on the screen here, and the way it works, especially for beginners, for new investors, you want to make sure that before you invest in any company, it passes all of the 12 rules on the screen. If a company fails even one rule, skip it, move on to something else. Rule number one, do you understand how the company’s making money? If you don’t, skip it. Move on to something else. 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 the company grow its dividend? Rule number seven, can it afford to pay a dividend?
(23:07):
Rule number eight is a debt less than 70%. Rule number nine, avoid any company with recent dividend cuts. And rule number 10, does it buy back its own shares? Rule number 11, is the stock priced low? So we look at three things there. We look at the PE ratio, we compare the current yield to the average 20 year yield, and we look at the PB ratio. And if a company meets all of those three conditions, then we consider the stock to be undervalued. And rule number 12, keep your emotions out of investing. So we have an all- in-one solution. We have a simply investing web application or our platform and the simply investing dividend course. The web application, you can see a screenshot here, goes through the simply investing criteria, applies that criteria to over 6,000 companies in the US and in Canada every single day.
(24:01):
So when you log into the platform, you can immediately see which companies to invest in, which ones to avoid. And so that will save you a lot of time in research. The simply investing course is an online course. We have 10 modules. In module one, we cover the investing basics. In module two, we cover the 12 rules of simply investing in detail. In module three, I show you how to apply the 12 rules to any stock anywhere in the world. Module four, we show you how to use the simply investing web application or our platform. Module five, I show you how to place your first stock order step by step. Module six, building and tracking your portfolio. Module seven, when to sell, which is just as important as to know when to buy. Module eight, how to reduce your fees and risk, especially if you own mutual funds, index funds, and ETFs.
(24:58):
Module nine, I give you your action plan to get started right away, and module 10, I answer your most frequently asked questions. So if you’re interested in the all- in-one solution, you can write down the coupon code, save 10, SAVE10. It’s going to save you 10% off of either the monthly subscription or the annual subscription, and it gives you access to both the investing course and our web application and our stock data. If you enjoy 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.
