There are 6 simple steps on the road to hitting the jackpot. If you follow them, it’s almost guaranteed that you will get at least 12% in total annual returns… how do we know that?
Well, because these are pretty much the safest investments around… if you buy right.
The trick is to find primarily strong, attractively priced businesses that happen to pay dividends, and this is how you do it:
1. Never trade income for value
Even in an expensive market with overpriced companies, there are stocks available at discounted prices, even of dividend-paying businesses, which have proven to be tougher than other companies.
Dividend-paying companies grow when the market grows and are much better off when the market slows down.
Dividend + value = double protection against a declining market.
2. Watch payout ratios
These state the proportion of earnings that goes out as dividends. The historical average is 55%; nevertheless, there is no guaranteed number.
As a rule, anything below 55% is fine. If the payout ratio is over 55%, consider this: if it has gone up over the past 6 quarters, drop it, if it has gone down, buy.
You should look for companies that can give dividends and grow; they should give shareholders good cash but not so much that they sacrifice growth.
The higher a company’s dividend yield is, the more likely its payout ratio is going to be high. If you find a company with a high payout ratio and low dividend yield, you are in front of a loser.
3. Do not accept a dividend yield lower than 4%
There is not enough choice above 4%, and too many businesses are below it. Not worth it!
4. Seek at least 10 quarters of uninterrupted dividend growth
Dividend checks must grow, not shrink; thus, you need evidence that a company can maintain sustained dividend growth.
Get a record of dividend growth and identify a solid growth plan executed by experienced leadership.
5. Verify past price performance
The company you choose must already be climbing up the charts.
6. Seize the stock on a dip
Dividend companies are, in general, less volatile; however, it is worth buying them on dips. This could improve you return between 5 and 7%.
Of course there can always be sad surprises, but dividend companies are normally a winning choice. Nevertheless, finding primarily strong companies requires thorough research; if you don’t have the time, look for professional help.
With dividend-paying companies you don’t have to choose between great returns and safety, you can get both!
If you liked this article, tell all your friends about it. They’ll thank you for it. If you have a blog or website, you can link to it or even post it to your own site. You can get more tips on how to invest your money wisely at CherryShares.com
No comments:
Post a Comment