Investing in dividend stocks requires the correct mindset. A business owner mindset is critical for sustained success when investing in dividend stocks.
A successful business owner knows that not all businesses are the same. Some businesses possess superior economics to others. A choosy business owner will only be involved with high quality businesses that have some form of protection against the ravages of competitive markets.
Competition is great for consumers. Competition brings down prices while raising quality. The beauty of markets is choice. If consumers do not like a product they are not forced to buy the product. Instead, they bring their business elsewhere.
This feature of competitive markets is what makes them so beneficial for consumers. Consumers really do have all the power. If a business does something evil that offends enough people, it will go bankrupt and competitors will take over.
Profit margins become razor thin in the most competitive markets. When competitors can quickly enter a market and produce a similar product, whoever sells for the lowest price wins. This effect can be seen in declining prices and improving quality in virtually all electronic goods.
Of the 53 current Dividend Aristocrats, only Automatic Data Processing (ADP) and AT&T (T) are even tangentially related to technology. Neither is on the cutting edge of technology. Automatic Data Processing is a payroll processor, and AT&T is a telecommunications giant. There’s a reason why more technology firms aren’t on the list.
It is because technology changes quickly and is highly competitive. The rapid change in the industry makes traditional barriers to entry such as regulatory capture and patents less effective. They are less effective because rapid evolution in the technology industry makes slower forms of barriers to entry outdated by the time they become enforceable.
Business owners with an eye for long-term wealth generation and stability will avoid fast changing industries. Instead, they will focus on heavily regulated or slowly changing industries. The leading businesses in this type of environment can enforce and strengthen their competitive advantages.
