Focus On Income To Achieve Investment Goals

Many investors see share prices that fluctuate wildly from year to year as a barrier to reaching their investment goals. However, these fluctuations often have little to do with the underlying performance and value of the company and are more a reflection of market forces, sentiment and cycles. If you focus on capital return, (or making a profit when you sell your shares), then the graph below showing the McDonald’s share price growth, would have caused you a lot of stress over the last 25 years.

McDonald’s: 25 Year Share Price Growth

Sharp share price declines of 13,6%, 21,5% and 38,4% happened in 2000, 2001 and 2002 respectively. If you measure your wealth by the value of your capital, a 38% decline in one year would feel like a disaster! Focusing on income delivers steady progress towards investment goals Instead of looking at the capital value of the shares, focus on the dividend income that you will receive as a means of achieving your investment goals for retirement.

McDonald’s dividend growth over the same period is a much smoother picture and will cause investors much less anxiety. The annual dividend has grown steadily from 9c per share to $3,44 per share from 1991 to 2015.

In 2002, when the share price DECLINED by 38%, the dividend INCREASED from 22c to 23c per share.

In fact, the income strategy will allow you to get excited when the share prices decline because you would buy more shares at discount prices in 2000, 2001 and 2002 when the shares were cheap. Owning more shares also means a larger dividend payment each year.

McDonald’s: 25 Year Dividend Growth

This thinking leads us to two key questions when setting investment goals:

  1. Do you focus on capital gain or income growth as a measure of building wealth?
  2. Do you get excited when shares go down because you can purchase more income-generating shares at a lower price?

At AXIAM, our focus is to provide our clients with a growing annual income through dividends. Our ultimate investment goals and objective is to turn your current capital into an annual dividend. Sign up to our newsletter to learn more about our growing your income through dividends investing, follow us on Twitter or contact our fund management team to invest.

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