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Beginners Guide to Dividend Investing
By: DividendInvestor On Wednesday, 1st May 2013

 

Building a solid portfolio of income producing stocks takes time and patience but can definitely pay off over time. The process of dividend investing can prove to be very beneficial for you and your portfolio. It is a special investment strategy that is based upon building a collection of safe blue chip stocks high dividend yield that generate income throughout the year. Properly investing can diversify your portfolio and provide you with a residual source of income. A dividend investing strategy can offer a more competitive return on investment in low interest rate environment.

Here are few important tips that every dividend investor should consider while entering the market and investing in dividends. 

Consider Dividend growth:

High yielding stocks are the most attractive thing for dividend investors but they should always consider the dividend growth rather than just focusing only the dividend yield. These high yielding stocks are made up of income trusts, real estate investment trust and high yielding companies. They should understand that a company which is continuously increasing its dividend by 10% every year with low yield could potentially be better than a company which has a high current yield for example of 10%.

Dividend history:

Dividend history plays an important role in dividend investing. It helps the investors to know about company’s history and gives the hint for investing in future. On this basis Investors can predict the future of a company’s performance and can make safe investment. Investors should focus on the dividend allstars as it will be good place to start.

Invest Wisely In Dividend Stocks:

It is a good point to consider for all the investors. They should know that there are two types of stocks such as non-dividend paying and dividend paying stocks. Try not to overpay for dividend stocks. By using price-to-earnings ratio and future price-to-earnings calculations you can get a sense if a stock is too expensive or not.

Remember Taxes

Generally, most of the dividends that you receive from your stock investments will be taxable. Even if you plan to reinvest your dividends you still have to pay the taxes. It will be counted as an income in the year in which you receiving it. Consulting a tax specialist can be also a good step for investors, in order to handle the tax issues.

Diversification:

You might have heard analyst’s talking about diversification. Diversification is considered as an important thing for dividend investors because they should not limit exposure to one particular industry, but should own stocks of different industries.

Company’s Dividend Payout Ratio

Another important thing that investors should pay attention is the companies Dividend payout ratio. The dividend payout ratio is helpful to tell the investors that how much of a company’s earnings are being used to pay the dividend to current shareholders.

Reinvesting Dividends:

A dividend reinvestment plan (DRIP) is good strategy that reinvests dividends as you get them. When you receive a dividend, you can reinvest and buy more shares. This will result in a quickly growing portfolio. Therefore, the more you use this method, the bigger your portfolio can be. You can setup a Dividend Reinvestment Plan either through your broker or directly through the company you are investing in. This plan automatically reinvests dividends into more shares of stock. It can compound the return on your investment and can help investors build wealth.

Consider the Source:

When you choose a company to invest your money you should consider the source from where the money is coming from your dividends. You can take examples from many companies that pay out monthly dividends. They are holding companies with several different streams of revenue. By focusing the source you can find a well-diversified company that has traditionally paid out a dividend.

Dividend Cut:

There are many successful investors who use the dividend cut as their number one rule for selling a stock. When a company cuts its dividends it may consider the right time to sell a stock. Dividend investors should consider those companies for building their portfolio that are growing continuously.

Watch The Ex Dividend Date:

Ex dividend date is an important date while you are buying a stock for the dividend payment. It is the date on which the shareholders need to own the stock to capture the dividend. If you buy a stock after the ex dividend date you do not receive the dividend for the particular period.

Putting It All Together

One of the best forms of passive income is investing in solid blue chip dividend paying companies. The investors can get the opportunities to build wealth by investing in these companies. Dividend investing also promotes dollar cost averaging and can give a potential for higher return on investments. It is generally paid on a monthly, quarterly and or annually basis. Investors should always look for companies that have a consistent solid cash flow. Thus dividend investing strategy may not take a lot of money but can be an important step in building personal wealth.

 
Tags: Dividend Investing, Dividend basics, dividend paying stocks, dividend investor, investment, dividend, dividends


Dividend Investing: - A Time Tested Buy and Hold Strategy
By: DividendInvestor On Wednesday, 17th April 2013

 

Dividend investing is the dependable strategy for creating wealth in the stock market through passive income sources. From Warren Buffet to John Paulson, “Many of the top stock market billionaires live comfortably on the passive income streams generated through dividend investing. Check out the dividend investing archive to uncover high-yielding dividend stock ideas, dividend trends, and tax-saving tips.”

What Is Dividend Investing?

Dividend investing takes place where investors choose stocks of those companies who pay dividends. Many companies offer quarterly dividends, which are either in the form of cash or stock payment. This can provide incentive for investors to put their capital into dividend paying stocks. Investors turn to dividend paying stocks because this can be a good source of income when the stock market is struggling.

Before dividend investing it is prudent for investors that they understand about dividends. Dividends are a kind of reward, which is periodically given to their shareholders. It is important to note that dividends are not guaranteed. In times during a financial struggle, a company might choose to cut or suspend its dividends as a way of saving cash. Still, investors that locate stocks that pay dividends on a consistent basis can prove profitable. Another advantage of dividend investing is that it allows the potential fractional growth of capital. When an investor receives a dividend in the form of a cash payment, they can save it or reinvest it in the stock, which gives them the opportunity of receiving more dividends.

Investors should follow some strategies to minimize their risk and maximize their potential profit while dividend investing. First, make a portfolio of dividend stocks and to balance out high-yield and low-yield dividend returns. The high-yield returns seem like an apparent choice, but these are also the stocks most likely to cut dividends out in hard financial times. In addition, investors look for those companies, which have consistently paid solid cash flow, because these companies are consistently offering dividends.

The goal of dividend investing is to increase household income each year so that more and more passive income is added to their bank account.  Successful dividend investors do not pay as much attention to stock market fluctuations they keep in mind the arrival of the dividend checks. The stock price becomes less significant except to the extent that it offers a chance to buy or sell additional shares on a favorable basis.

Who Prefer Dividend Investing?

Dividend investing is popular among those peoples who want to maintain their money or retired people to provide a source of income. Dividend investing is also popular among those who prefer to dollar cost average reinvesting their dividend income.

Points to Be Consider While Dividend Investing

There are many things related to dividend investing, which help investors to make better investment plans when they invest in dividend stocks. Some of them are:-

  • For gaining higher returns, you should have high risk tolerance capacity.
  • Understanding features regarding an efficient capital market because it is hard to deceive.
  • If you are a rational Investor than you may have less chance of risk.
  • Simple averages are not as simple as the name suggests at the time of evaluating return.
  • Be aware about transaction costs, taxes, and inflation as they play a role of enemy and reduce profits.
  • Keep in mind that time and the value of money is intrinsically related.
  • While investing using asset allocation it is a very important decision.
  • Make a diversified asset investment portfolio it will reduce your risk profile.
  • During value investment, asset-pricing models can be used.

Dividend investing is an important decision when it comes to personal finance. It not only gives personal wealth but also give higher returns. It is proven strategy and investment idea if implemented properly.

For choosing the dividend paying stocks which are important to your portfolio please visit: http://www.dividendinvestor.com/

 

 

 
Tags: Dividend Investing, Dividend basics, dividend paying stocks, dividend investor, investment, dividend, dividends


Do Dividends Matter?
By: DividendInvestor On Monday, 8th April 2013

 In the stock market some investors think about dividends while the others don’t. However, the numbers of investors who are interested in dividends are more than the ones that don’t. Therefore today we decided to share our thoughts “Do dividends matter”?

Do Dividends Matter on behalf of the company

A dividend is paid out to shareholders from a company’s net profit. Companies have two options to use its net profits. Either it is invested in the company to gain profits or distribute between shareholders. There can be a lot of companies that provide a high dividend yield. By providing a high dividend yield it gets investors attention. Some companies may prefer to pay dividends because they are less risky and reward shareholders. Dividend payments act as a barometer which is helpful to identify companies that are disciplined and efficient in their cash flow management and capital allocation. Therefore, management has confidence to pay dividends.

Economic Value of Dividends for Investors

Investors gain returns in the two forms such as capital appreciation or dividend income. The company declares dividend for the profit or fund which is left after paying all expenses are used to declare dividend.  According to behavioral research, “Investors would much rather receive a dividend than having to sell some of their shares to generate some cash flow. The reasoning is largely perceptual.”

Investors prefer dividend investing because:

  • For short term investment dividend has a higher probability to gain capital.
  • Dividend investing can offer a more competitive return on investment in a low interest rate environment.
  • It is easy to plan rather than the financial goals which give the same level of income or a specific amount of assets.

 Investors like to invest in companies that steadily pay dividends. Some examples of companies that pay steady dividends are:

  • Abbott Laboratories (ABT) paying dividends for last 49 years. The 5 year dividend growth rate is 9.7%. It is trading at a P/E ratio of 15 and dividend yield is 3.8%.
  • Johnson & Johnson (JNJ) paying dividends for last 49 years. The 5 year dividend growth rate is 10.6%. It is trading at a P/E ratio of 15 and dividend yield is 3.7%.
  • Procter & Gamble (PG) paying dividends for last 55 years. The 5 year dividend growth rate is 11.6%. It is trading at a P/E ratio of 16 and dividend yield is 3.34%.
  • Kimberly Clark (KMB) paying dividends for last 39 years. The 5 year dividend growth rate is 8.1%. It is trading at a P/E ratio of 17 and dividend yield is 3.96%.
  • McDonald's (MCD) is paying dividends for last 35 years. The 5 year dividend growth rate is 27%. It is trading at a P/E ratio of 17 and dividend yield is 3.25%.

Dividends Matter in both Bull and Bear Markets

  1. During market crises dividends provide investment stability.
  2. Dividend income is easy to calculate therefore it can limit negative surprises.
  3. Dividends give continuous feedback on how a company is performing in a short time period you can plan long term strategies of investing.
  4. If you are engaging in reinvesting the dividends than it can provide a significant portion of the equity returns.
  5. Continuously increasing dividend paying companies grow their dividend payouts annually.
  6. This can be a time and energy saving investment being that you can spend less time managing retirement savings or managing your portfolio.
  7. Dividends help to identify well-managed companies that grow the dividend payouts on a regular basis and are able to maintain earnings growth.
  8. If you plan for retirement than dividends are helpful in maintaining your principal investment.

In the end, the preference of dividend stock investing is based on your perception, it is important for those who want to invest consistently. Hence, dividends do matter but they may not be for everyone.

To locate more companies that continuously pay dividends visit: http://www.dividendinvestor.com/

 

 
Tags: Dividend, dividends, dividend stocks, stock dividend,best dividend paying stocks, ABT, JNJ, PG, KMB, MCD


How to Create a Dividend Stock Portfolio
By: DividendInvestor On Tuesday, 12th March 2013


In the investment term, portfolio is the gross collection of investments or securities that make up the holdings of an investor. Dividend investing is a great way for investors to seek yield and capital appreciation.

Making a dividend stock portfolio can be challenging to determine which stocks, what yields etc. It requires research, strategy and discipline to implement and then to follow the strategy monitoring the dividend paying stocks that you invested in.

Here are some simple steps to help build and manage a dividend stock portfolio:

1. Decide the goals: The first thing you should decide goal that what type of portfolio you want. A common thing that all dividend portfolio’s share is that they provide passive income. Therefore ask yourself:

  •     How experienced am I in stock investing?
  •     What type of rate of return am I looking for?
  •     How much risk am I taking?
  •     What are my retirement plans?
  •     How much time I can devote to divided stock research?

2. Open a brokerage account then transfer the money you want to start with: Today there are several online brokerage companies which have low trading fees, high levels of customer service, trading communities, automatic wire transfers etc. Here are some online trading accounts:

  •     Trade King
  •     Fidelity
  •     Scottrade
  •     Trade Monster
  •     Share Builder
  •     Options Xpress
  •     E*TRADE

3. Consider an average yield: Once you open an account, it is essential to consider an average yield therefore the portfolio receives the benefits from dividend paying stocks. To get a meaningful average yield start with companies that are paying greater than the S&P 500 average dividend yield. Average Yield = (Total Dividend Income) / (Total Dividend Stock Worth)

4. Identify your competencies: No 0ne is an expert in all the fields. Identify some sectors that you feel that you have solid knowledge of and use this as your starting point. Decide which type of dividend stocks and sectors to invest in. Some areas for investing:

  • Global International Dividend Stocks: Know the social issues, geographic risk, and demographics of the areas   the company.
  • Dividend Paying Technology Stocks: Check dividend paying history, what types of technology is developing and how the company fits into that segment.
  • High Growth Dividend Stocks: Is the company increasing its dividend? Companies that consistently increase the dividend payout’s annually show confidence in the underlying business.

    Select the sector’s to invest in some of which are:

  •     Basic Materials
  •     Capital Goods
  •     Conglomerates
  •     Consumer Cyclical
  •     Consumer Non-Cyclical
  •     Energy
  •     Financial
  •     Healthcare
  •     Communications
  •     Technology
  •     Transportation
  •     Utilities

5. Research: After identifying your goal, yield and sector of interest, construct the portfolio. By using DividendInvestor.com you can help identify the companies in   which you want to invest. There are several services which provide you information, such as Google and Yahoo finance. Seeking Alpha provides a lot of investor commentary and analysis and DividendInvestor.com provides comprehensive dividend Stock data and screening tools.

  You can start your research with some basic criteria:

  •     Dividend Yield >3%
  •     5 Year Dividend Growth >1%
  •     Dividend Payout Ratio < 75%
  •     5 Year Annual Income Growth >1%
  •     P/E Ratio

Take a deeper look and be sure for the research:

  •     Metrics of company
  •     Dividend history of the company
  •     Company financial materials, including the 10k, 10Q, annual report, and other materials
  •     Updated news, and particularly bad news
  •     Subjective analysis

6. Determine how many dividend stocks you want to start off: Once you have decided which companies you want to invest in then determine how much capital you have available. If you have $5000 it is likely that you will start off with 2 dividend stocks while larger portfolios might reach 10, 20 or more.

7. Use different asset classes: To maintain a solid dividend portfolio, it is important to complete your diversification by owning other asset classes like preferred stocks, bonds etc. Use of different asset classes can minimize the risk of investment.

Dividend investing is not the next quick growth stock it is more for slow and steady patient investors. Just like Warren Buffet says, one of the basic lessons of investing: “patience is a virtue”. Over time buying dividend stocks, reinvesting and compounding dividend income can prove to be a solid long term strategy.

 
Tags: Dividend paying stocks, dividend, dividends, dividend yield, dividend stocks, google finance, yahoo finance, portfolio, dividend stock portfolio


Preferred Stock - An Understanding
By: DividendInvestor On Saturday, 9th February 2013

Preferred stock is another name of preference shares having some characteristics of equity and debt security. That is why this security is often considered as hybrid security. As the name suggests it has preference over common stock holders in dividend distribution. The major effect comes at the time of liquidation of company, as they hold priority after bond holders in company’s assets and earnings. Preference shares do not carry any voting rights so it does not dilute the voting rights of common stock of a company.

Dividend distribution aspect: 

Preferred stocks have fixed percentage of dividend distributed by the company. If in any financial year the dividend is skipped by the company, no further distribution can take place before distribution to preference shareholders. However, it is discretion of a board of directors of a company whether to distribute or not to distribute the dividend. When you buy a preferred stock, you will have an idea of when to expect a dividend because generally they are paid at regular intervals. It can be said to be a kind of definite income as they are having not only fixed percentage in company’s earnings but also given preference in distribution. 

Tax incident:

There is no direct tax advantage to the company on issue of preferred shares but the major advantage to the company is that issuing preferred stock does not lead to added debt in company’s books of accounts and company is benefited with this indirect saving in long run.

Preferred stock dividend is not tax deductible in the hands of individual investor, thus the only reason seems for holding preference shares is less riskiness and stability in share price with definite amount of income. The combination of preferred stock and common stock with other securities in a portfolio may derive the income, individual investor is looking for. Preferred dividends are paid out of profit after tax; therefore it can be suspended by the company if the surplus is not enough. But it is to be noted that failure to pay dividend does not consider a firm to be bankrupt. 

In comparison with corporate, preferred stock dividends are more useful in terms of tax saving than such stock holder i.e. individual investor. Companies don’t need to pay tax on 70% of the preferred dividend they received on the investment made in other firms, if any. On the other hand if there is any other lending to company the entire interest income is taxable.  

Preferred stock: Global symbols 

Symbols are short abbreviations used to identify a particular security traded on a particular stock exchange. These symbols are also called as trading symbols. Symbols assigned to each security are a help in making the trading easy. It can be in numbers or letters or both. Preferred stock is also having its symbol determined by particular stock market.

United Nations

There are many stock exchanges working in U.S. major of them are AMEX, NASDAQ AND NYSE. Securities of companies like MICROSOFT, INTEL and DELL are traded on NASDAQ. Stocks traded on the New York and American Stock Exchange will normally have symbols with three letters. On the other hand, stocks on the NASDAQ have four letters. On the NASDAQ, a fifth symbol is added to stocks that are delinquent in certain exchange requirements. For example, the letter "Q" will be added to the stock symbol of a company in bankruptcy proceedings. For example Sun Microsystems used the symbol "JAVA" for its Java programming language.

Stock symbols for preferred stock have not been standardized yet generally it is denoted by the letters "PR" and the letter denoting the class will typically be added.

For example, a fictional preferred stock called Cory's Tequila Corporate Preferred A-shares would have a symbol such as CTC.PR.A.

Canada

The major stock exchange in Canada is TORONTO STOCK EXCHANGE. NASDAQ CANADA and CNQ are also hold good. Like United States, symbol for Canadian preferred stock is “PR.” Some of the other special symbols in Canadian stock are: DB- debentures, E- equity, WT- warrants etc.

Bottom line:

Preferred stock seems to be lucrative on the face but it should not be given preference all the time unless there is a thorough understanding of the same. There are other options also having almost same characteristics and are less complicated then preferred stocks such as high quality bonds etc. An individual investor who wants to go for preferred stock should carefully examine its pros and cons. The fact is undeniable that the return in preference shares is relatively safe, but only when the other aspects are not overlooked for example investment grade stock should be chosen rather than speculative grade. For a risk averse portfolio it is advisable to have preferred after having a deep study of it and at the same time other diversified securities should also be added to ensure desired returns.

 
Tags: Dividend, Dividends, Preferred Stock, Stocks, Dividend Investor, Dividend Stocks


 
 
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