I did it by putting large amounts of my income into low cost index funds focussing on various sectors, and some specific shares that I thought would do well.
All my dividends get reinvested. I'm in the UK, and I've taken full advantage of the tax free savings scheme, currently allowing about 15000 GBP a year to be put into stocks and funds with no tax to pay on dividends or gains.
There have been market downturns during the time I've done this (started around 2005). Generally, during a downturn, I scrape together as much spare cash as I can and invest it in things that seem cheap. April 2015 to April 2016 was something of a downturn, for example, and I ploughed extra money into the markets while prices were low.
Also, the % that you're pulling out of stocks should be determined by looking at, say, a 30 year window, not a very recent one. That is, if your savings can sustain a 2% withdraw every year, taking into account inflation, then take out 2% every year. Some years this will be less that your cap gains and some years more. The key is making a long term outlook.
FWIW, these are some very brief thoughts of mine on investment: https://github.com/nickgieschen/investingguidelines
I hear this sort of thing a lot, and in my experience, everything already being priced in isn't true (both of dividend stocks, and stocks not paying dividends). This relies on the efficient market hypothesis being broadly correct, and based purely on my own experience, it isn't.
My findings are very much based on my own experience, but I have had no small success simply reading the news and seeing that a company is doing well or is looking at a brighter future, and buying shares in them and making a nice profit on it out of both increased share price and increasing dividends. The EMH suggests that it shouldn't work; that by the time I get round to buying the shares, the efficient market has priced all that in. But it just doesn't seem to be true, in my experience.
The reason I believe this is not related to stock picking working for me.
I believe it because the market is not efficient, and dividends being priced in relies on an efficient market. Any success I have in stock picking relies on this inefficiency; it's just a symptom.
I personally value dividend paying stocks more highly than non-dividend paying stocks. A history of dividends makes the stock appear more valuable to me (given that the majority of companies are rubbish at investing in themselves, giving me the money and letting me reinvest it myself is preferable). If they just went ex-dividend, that's a excellent very fresh data point that makes the stock look more valuable to me.
The company has less cash ex-dividend, so as a matter of fact is worth a bit less.
No, but that variation caused by going ex-dividend clearly is.
In my experience, people think they're far better at stock-picking and investing than they really are. Have you calculated your actual, after-all-expense returns? Because if you are consistently beating the market, risk-adjusted, start a hedge fund. I'm only half joking.
It's important to interpret EMH "realistically", in that prices, on average, will reflect all relevant information. But it obviously doesn't occur instantaneously or perfectly. Everyone who has traded stocks has a few wins. The question is whether you can garner an advantage consistently.
Yes. I very rarely sell, so I can see it clearly, and the purchase costs listed in the interface include the purchase commission (I buy in lumps of 1000 GBP, so take a hit of about 1% on initial purchase). Holding charges comes out to a couple of hundred a year, which comes out of dividends.
In one account, I invested gradually over three years, from April 2012 to March 2015. That's up on the order of 50% as I look at it today - looking at it this very second (it's a little rough as I reinvest the dividends, which count as fresh purchases in the accounting - it's up exactly 46% if reinvested dividends are considered to be fresh money). Some of the early purchases are up 100 to 200 percent, later purchases less so. There are some losers in there as well. I have sold only once at a loss in that lot; some BP shares that I changed my mind on. All other losers are still in the mix, and I leave my worthless shares in KAZ there to remind me of my losses. Big winners - ARM, Nokia, a global smaller companies fund. Big losers - KAZ, Bonmarche Holdings, Tesco.
Another account that I opened (because I didn't want to exceed the government insurance limit) and placed money into for the last 15 months or so is currently up 20%. I've never sold anything from that. That is principally US and Japanese index funds, although some ARM in there is up 70% thanks to Softbank buying ARM.
An earlier investment from about 2009 (which was nothing but safety) is up a little over 50% today, but that really was safety. Likewise never sold anything.
I have done this by doing absolutely nothing special. Absolutely nothing. I simply took the common advice; low-cost index funds. I also read the news and sometimes buy into companies with brighter futures. A couple of years ago I read many articles about how GSK and AZN had been through tough times and were coming out of it. Bought some shares. Worked out well. That's all I do. For as long as I can remember, ARM has had nothing but growth in the news. Bought into them repeatedly.
I have significant advantages over hedge funds; they have to trade. I can sit and do nothing for month after month, and when I suffer a 20% drop, I can continue to sit still and do nothing. If anyone wants to pay me to tell them when I buy something, knock yourself out :)
"The reason I believe this is not related to stock picking working for me."
So it seems we agree that my stock picking success is not evidence for my beliefs on dividends and stock pricing.
Companies that pay dividends plan ahead for distributions. So they have the cash reserves to pay dividends even in a recession. Which is great because you get a payout but you don't need to liquidate your holdings at a discount.