One major difference between investors who focus primarily on dividends and investors who focus primarily on capital gains is their time horizon.
Companies that pay dividends usually do so every six months, so a dividend investor who buys into a company will often have to wait several months before their first dividend appears. Capital gains, on the other hand, occur almost every second of the trading day (as do capital losses).
So the time horizon for dividend investors should almost always be measured in months and years rather than days or weeks. This fact should have a profound impact on the way dividend investors select which companies to buy.
From a personal point of view, when I buy shares it is very likely that I’ll be holding on to those shares for several years, and potentially as much as ten years or longer. So I am of course very interested in whether that company is likely to sustain and grow its dividend over that sort of time frame.
For me the best way to build up a picture of what a company might achieve over the next ten years is to look back at what it has achieved over the past ten years….
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