Southern Company: No Dividend Cut Since 1948

A sub-theme that I occasionally stress is the difference between using the stock market as a vehicle to preserve wealth vs. using the stock market as a vehicle to build wealth.

When your goal is wealth preservation, you can keep your focus on companies that have very stable earnings no matter the economic conditions–your chief objective here is to protect what you’ve got.

If you’re trying to make investments that grow so fast they change your standard of living, you require earnings per share growth of at least 8% annually and probably in the neighborhood of 11% annually. Here, you are often taking on higher P/E ratios, more stock price volatility, and more variance in the earnings results during deep recessions. (Note: Another way to build significant wealth in the stock market is to practice a deep value strategy of purchasing stocks trading at $0.33 on the dollar and selling at fair value, but I find this strategy so difficult to practice in real life that I rarely cover it outside of a few blog posts per year.)

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