Category: Investing Guides (page 1 of 1)

August 29, 2021 / 0 Comments

How To Diversify Your Penny Stock Portfolio

If you’re interested in diversifying your investment portfolio, it’s a given that you’re going to look for investment opportunities that will serve to enhance value while offering the safety of a range of vehicles, such that your risk of losing wealth should any portion of your overall portfolio go south is mitigated. Penny stocks might have a lower share price than other types of equities, but that’s the only difference when the subject is diversification: if you’re interested in diversifying your penny stock portfolio, you’ll be performing exactly the same exercise as you would if diversifying a portfolio made up of any other kind of investment products. The key is to seek portfolio enhancements over a range of companies and industries, spreading out your chances of earning significant gains while simultaneously minimizing your risk of loss, regardless of whether you’re investing for the short term or the long term, or whether you’re investing for growth or for value.

One proven method of portfolio diversification is to specifically seek out penny stocks in different industry segments, with different trajectories, and to purposefully place varying percentages of your available funds into each. It’s a good rule of thumb to try to limit your investment into any one stock to a maximum amount equal to 10% of your portfolio (some experts would argue that the cap should be at 5%), so that your risk profile remains as diverse as possible. Correspondingly, the companies into whose stock you invest your funds should be equally varied. Begin by researching businesses in industries which you understand, of which you have special knowledge or expertise or, at the very least, which hold a special interest for you, because the knowledge you have of the particular industry segment will be of great assistance in helping you to identify value when you find it. Regardless of the industry in which you begin to search for picks suitable for diversifying your portfolio, you should pay heightened attention toward identifying unpopular stocks that reflect this good value: when a stock is under-appreciated, regardless of its market capitalization or of which exchange it trades on, there’s extra room for growth in both share price and volume and thus, increased chances of trading for gains. Investing in under-appreciated gems is a prudent strategy for portfolio growth which you can literally bank on.

For those retail penny stock investors who lack specific industry knowledge of any kind, and who choose not to diversify their portfolio by investing in a mutual fund or ETF specializing in penny stocks, a solid guideline would be to seek to identify a target stock in each of a minimum of five separate business segments, being sure that the segments on which you focus your attention neither overlap, nor are highly seasonal. If you can further sub-diversify by finding stocks that individually are associated with differing degrees of risk, then you’ll be well-positioned to diversify your penny stock portfolio on more than one level; further, if these businesses play out in varying geographic regions, then you’ve added even another level of diversification.

Start by taking a closer look at penny stocks issued by companies which occupy space in growing sectors, such as technology, alternative energy and healthcare: such businesses suffer little to no seasonality and, depending on their specific niche within their category, shouldn’t be too dependent on any one particular customer or vendor for the on-going rolling out of their business strategy. Other sectors to consider could be as varied as mining, transport/logistics and even entertainment. When diversification is the issue, the specific industry is less important than the overall mix of equities which you are bringing together in your one basket of investments.
You’ll have to roll up your sleeves and dig deep in order to sift through all of the noise and find the penny stock picks that will make the perfect additions to your portfolio. Focus on certain companies’ stock for value, and on others for growth (another level of diversification). You’ll have to read balance sheets and income statements, as well as a host of investor materials, in order to weed out the non-contenders in the industries which you’ve chosen. Then, once you’ve arrived at a shorter list of investment candidates, you’ll have to sharpen your focus to narrow things down to your optimal investment choice. Pay close attention to this methodology, because with the next industry you move on to, you’ll need to perform the same exercise again.

It’s of great importance to this process to ensure that your research and analytical skills are sharply honed. Take a very close look at your chosen picks’ stock history to make sure that you’ve gotten a meaningful feel for its normal rhythm and movements: without knowing what’s typical for the stock, there’s no way to recognize when the stock may be trending, or whether it even has prospects to do so. Plot the stock’s history over time on your charts (or access charts from your full service broker or an online finance site such as yahoo finance or free real time), and then plot its most recent movements, comparing the two; be sure to look for any recognizable patterns which may help you to evaluate the optimal time to buy in, or to classify the stock as a non-starter. Investigate market cap, volume, net asset value, P/E ratio and book value, and compare these to industry norms to see where the company is situated in the pack. If the trend for growth is evident and the stock appears to be undervalued, chances are good that you’ve found a keeper. To verify your hunch, then, spend just a little more time looking into company management to gauge whether they’re generally considered competent, and whether they’ve got the chops to lead the company over the threshold to the next level of success, and don’t forget to check with the SEC to read company filings, if any are available. If all looks good, place your order, and remember: while all forms of investing are associated with certain risks, the risks of penny stock trading are significantly lower than when trading in other types of equities simply because the costs of buying in are so much lower. Hold your position while continuing to monitor your shares closely: if your initial analysis proves correct and the shares move in the right direction, you then have the luxury of deciding whether to increase your holdings, or whether to simply bask in the satisfaction of knowing that you’ve added portfolio value and diversified at the same time. When you’re done patting yourself on the back for a job well done, get out there and do it again with another pick from another industry, reinvesting your gains to maximize portfolio growth. After all, isn’t that what it’s all about?

June 30, 2021 / 0 Comments

How to Use Limit Orders

When was the last time you went shopping and slapped the product on the counter and said, “charge me whatever!” You’ve never done that and neither have I. I don’t envision either of the two of us doing that any time in the foreseeable future either. When buying a stock you must set your stock limit price via a limit order or you could be paying “whatever.”

The diligent way to purchase a stock is by using a limit order. A limit order is exactly what it sounds like; you set the limit of what you’re willing to pay for a stock. If you do not use limit orders you risk paying any price for a stock. As an investor you want to get the best bargain for the company you’re investing in so you have to set a limit to sway the odds in your favor. I know you would barter with a real estate agent to get the best possible price for a house so negotiating with the stock market should be done too. Believe it or not, timing is everything in investing and using limit orders enables you to embrace this.

How do you place limit orders? When you are placing a stock order with your brokerage firm via telephone just simply tell your broker the limit you are willing to pay for a stock. If you are wanting to buy 100 shares of Disney then you’d say, “I want to buy to open 100 shares of Disney at a limit of $100.” You are opening a position to go long a stock so that is why you say, “buy to open.” When closing a position you are “selling to close” your position.

When placing a limit order online, just click limit and set your price.

In this order entry you would be buying 100 shares of Disney, stock ticker DIS, at a limit of $60.00. You are telling Mr. Market that $60.00 is the most you are willing to pay per share. If the stock price is $60.00 or lower than your brokerage firm will buy the stock for you.

You can take your limit order one step further and even limit your time frame. The only time frames you really need to know are Day, GTC and GTD. Day is self-explanatory: you are sending your order in and if your limit is hit by the end of the day then your order will be placed. GTC stands for “good till cancelled” and the order will stand until you cancel it. GTD is an acronym for good till day. After selecting this you will select a day when your order will be cancelled.

If you do not use limit orders then you would be placing a market order. With a market order you are telling your brokerage firm that you don’t care what price you pay for the stock. Disney could be priced at $60.00 or $67.00 and your brokerage would still buy the stock for you if a market order was placed. This is not the approach you want to take when investing or buying merchandise online. You always want to get the best deal for anything you buy, especially stocks, so always set your limits.

It is crucial that you use limit orders when placing stock orders. This will guarantee you get the price you desire for an equity that you want to invest in. This will further increase your return on investment and help you conquer investing.

June 6, 2021 / 0 Comments

Investing in Gold The Wise Way

If you’re anything like me, then you’ve been eyeing the buzz around investing in gold. We’re certainly not alone. Gold is a hot topic right now, and thanks to continued Fed and Congressional action (not to mention the disaster that is Europe right now), it looks like it will continue to be for quite some time.

This shouldn’t be surprising. Gold is up an astonishing 400% in the last decade – over 60% in the last year alone. Currency values are plummeting. The stage is set for continued inflation. Investing in gold has made more than a small number of fortunes recently and everything is in place for that to continue. Now is the time to learn about this form of investing so that you are prepared.
It should also come as no surprise to you that the key to investing in gold is not simply going out and purchasing some any way you can, waiting a while, and then selling it any way you can. If it was that easy everyone would flock to gold investing and those fantastic returns would disappear. No, the actual purchase is the easy part. Knowing what form to use when making a gold investment, how and when to buy gold at the best price, how and when to sell gold at the best price, and how your gold investment is helping you achieve your goals is the tricky part.

Investing in gold, like with any other investment, can be approached foolishly or wisely. Investing the wise way is what I want to help you with. Most people wouldn’t just go out and purchase any old stock without some research, and those that do will seriously hurt the returns they can see from their investment. Gold is no different, and blindly investing in gold can reduce your returns dramatically.

Through this site I want to provide you with the tools, advice, and information you need to make better gold investments. Before we do that, however, we’re going to need to know what those goals are.

Investing in Gold The Wise Way: Goal Setting Drives Strategy
Most of us don’t have the money to buy gold just for the fun of it. Instead, we’re investing for a reason. We have a goal. Some need to maintain the value of assets accumulated over long careers. Others want to set themselves up for high growth so that they can retire early. Some might set aside money that needs to grow enough to pay for a child’s college tuition.

Whatever your goal is, if you don’t want to rely on blind luck then you need to let that goal determine your strategy. Successful investors have a plan – a method – for making sure their gold investments work for them instead of against them. They understand that planning strategy are necessary for success. These things are important for any investment, but are especially important when investing in gold.

Gold can be purchased in a variety of forms, each of which has its own set of benefits that make it the right investment for certain goals. Unlike those working with most other financial instruments, those investing in gold need to concern themselves with storage and handling, liquidity when it comes time to sell, and even whether to purchase physical gold versus a gold ETF or stock in a mining company. These decisions can’t be made intelligently until a goal is identified.

Before you continue reading, put some thought into your goal for investing in gold. Then, read the list of how to buy gold below for tips on matching the different purchasing options to your goal. Really consider what properties an investment needs to have, such as security or liquidity, to meet your goals.

Ways to Buy Gold and the Goals They Are Best For
Coins and Rounds
One of the most common methods of investing in gold is the gold coin or gold round. Coins and rounds are physically the same. The main difference is that coins are legal tender and rounds are not. Gold coins also tend to have some sort of collector’s value while the vast majority of rounds only represent the value of the gold itself.

For those investing in gold the goal is to buy gold as close to the spot price as possible, which makes rounds generally a more attractive purchase than gold coins. That said, if you can find gold coins close to the spot price then it is probably a good buy. The American Gold Eagle, American Gold Buffalo, South African Krugerrand, and the Canadian Maple Leaf are your best choices for true coins close to spot.

The bottom line: Coins and rounds are fantastic for investing in gold. They are real, physical gold that you can hold in your hand and keep in your safe or safety deposit box. The importance of that can’t be overstated. They are small enough to be useful for barter and liquid enough to readily sell for cash. Because they can come in fractional ounces they open up gold as an investment for those with smaller budgets. Coins more so than rounds suffer from a collector’s premium, but that premium can be a boon later if it appreciates in value.

Gold Bars
Gold bars can be split into two broad categories for the investor to consider: small and large. Small bars act in every way like gold rounds. They are not legal tender, are sized for liquidity and barter, and have a relatively small premium over spot. Small gold bars are sometimes marked in grams instead of ounces or fractions of ounces.

Then there are the large bars. These are the bars people imagine when they think of Fort Knox. Large bars are minted in standard sizes of 100oz and, more commonly, 400oz for use as “Good Delivery” bars on professional gold exchanges. “Good Delivery” doesn’t mean that everything else is “Bad Delivery”, it just means that the mint that created the bar is a known, monitored agent in the market. This means those bars can be bought and sold more or less remotely without verifying authenticity. If you’re slinging around half a million dollars for a large amount of gold, you really want to know that the bar is as pure as the stamp says it is.

The down side of large bars is that the bigger the bar, the fewer buyers there are available. The up side is the bigger the bar, the lower the premium over spot. For individuals investing in gold, there are specialized bullion vaults that let you buy into their stock at lower weights. These vaults do most of their selling on large bullion markets with 400oz Good Delivery bars so you get the benefits of access at lower budgets with smaller premiums. They can be a good deal, but usually you don’t physically receive the gold so it’s not for everyone.

The bottom line: Small gold bars, like coins and rounds, are a fantastic investment for those who want the security of physical ownership mixed with better liquidity and conveniently valued denominations. Larger bars, either bought personally or through specialized vaults, provide the best prices possible. The convenience factor is lower compared to non-physical ownership and this form of investing in gold is also not available to the majority of IRAs.

Gold Bullion ETFs
Gold Exchange Traded Funds (Gold ETFs) are stock-like securities that let people investing in gold buy into a trust managed by the ETF. The ETFs actually own gold, and typically keep it in bank vaults used on professional exchanges (the Fort Knox-like vaults full of 400oz Good Delivery bars). Liquidity is extremely high, but returns are chipped away over time by built-in management and storage costs.

The bottom line: This is a good investment vehicle for those with existing brokerage accounts who like the idea of investing in gold but don’t want to mess with delivery and storage. It is obviously not a good investment for those investing for the purposes of hedging against financial disaster or who want the security of having the gold in their physical possession.

Gold Mining Stocks
Instead of physically investing in gold, you can gain exposure to gold through mining company stocks. While this has benefits, mining stocks have their own set of issues that add to the complexity of the purchase. Mining companies have to contend with politics, environmental legislation, falling new discoveries, and rising extraction costs. There are certainly good deals to be had out there if you can find the right company, but compared to investing in gold directly this is a whole other creature entirely.
The major benefit of gold mining stocks is taxation. Gold mining stocks can be held inside retirement accounts and are taxed at the normal capital gains rate.

The bottom line: For investing in gold I would choose a different route, but for investing in a company (who just happens to be in the business of mining gold) this can be a worthwhile sector to consider. This is also a good investment for those who want exposure to gold inside an account that physical gold can’t sit in, like most IRAs. Like Gold ETFs, this is not a good investment for those concerned with hedging against disaster or who are looking for physical possession of gold.

Gold Certificates
Certificates are a special vehicle for investing in gold issued by mints, banks, and other entities. These come in two varieties, allocated and unallocated.

Allocated gold certificates are a simple certificate of ownership. You purchase the certificate from a bank, which provides you with a reference to the bar(s) that are allocated to you. For example, you could buy a gold certificate giving you ownership over the 100oz bar #1000 in their vault. When you buy gold certificates you don’t have to worry about transport and storage of anything other than the certificate, though this service comes at a price in the form of a premium over spot built in to the certificate price. All in all you are giving up flexibility for convenience.

More common today are unallocated gold certificates. In these cases, there is not a specific bar of gold with your name on it. Instead, you are effectively paying the company now for delivery of gold later. The company now has a liability on its books because it owes you gold. It is fractional reserve banking, except with gold instead of dollars. Because of this you run the risk of losing your entire investment if the company goes insolvent. This introduces unnecessary risk in your gold investment. If you are investing in gold you should steer clear of any unallocated certificates as they introduce unnecessary risk into your investment.

The bottom line: Investing in gold through unallocated gold certificates is just a bad idea! Allocated gold certificates are better, but are outclassed in convenience by gold ETFs and outclassed in security by physical ownership.

March 27, 2014 / 0 Comments

20 Favorite Dividend Growth Stocks from 20 Dividend Growth Bloggers

I love dividend growth stocks. I love reading about dividend growth investing.

So I decided to combine the two by reaching out to some of my favorite dividend growth bloggers and asking them about their favorite dividend growth stocks. And be sure to stick around because at the end I will discuss both my current and my all-time favorites!

Hopefully you will enjoy the answers as much as I did!

What is Your Favorite Dividend Growth Stock (currently or all-time) and why?

The Conservative Income Investor – “I think there are five realistic candidates you can choose from–Coca-Cola, Johnson & Johnson, Procter & Gamble, Nestle, or Colgate-Palmolive. From there, it’s more a debate about style than substance. My guess is that everyone reading this will be six feet under while these companies are still pumping out profits on six different continents. If I could only own one of them for the rest of my life, I’d choose Coca-Cola. The diversification of 500 brands is huge, the distribution network that is unparalleled, and a brand name that actually means something significant is the kind of asset you want to spend your life acquiring. They spend a couple cents coloring water, and are able to sell it for a dollar. That’s a heck of a business model. It’s probably the safest way to get 8-11% annual returns over the coming fifteen to twenty years.”

Dividend Growth Investor – “The dividend stock I like best is Philip Morris International (PM), which sells tobacco products outside of the US. I like several things about the company, such as its current valuation, strong cash flow and the prospects for future growth, all of which could result in massive compounding of wealth. The stock is cheap at 15 times earnings and yields 4.70%. The company expects to grow earnings and dividends in the high single digits or low double digits in the foreseeable future, fueled by acquisitions and organic growth. Phillip Morris International has a high exposure to emerging markets, where number of smokers and their income is increasing. The company also sells popular brands of cigarettes, which have a loyal customer base that buy even if prices increase. Plus, PM generates a lot of cash flow that has allowed it to repurchase massive amounts of stock and double dividends per share since 2008. I actually reviewed the stock in early 2014: http://www.dividendgrowthinvestor.com/2014/01/the-security-i-like-best-philip-morris.html“

Income Surfer – “My favorite dividend growth stock (historically) that I own is Coca-Cola (KO). In the years I have owned it, the dividend has consistently risen and I have little worry about the business. The dividend growth stock I am currently the most optimistic about is China Mobile (CHL). I recently began accumulating China Mobile, and I believe it to be substantially undervalued. A look at its history will show you a stock that has all the characteristics of a great dividend growth stock.”

Buy Smart Never Sell – “The trouble with picking a “favorite” dividend growth stock is that I don’t want to give the impression that any 1 stock should be purchased no matter what the current price is. None the less, in terms of performance and growth, I’ve been most happy with 3M Company (MMM). They increased their quarterly dividend by 35% this year which was awesome. Currently it’s at PE Ratio below 20, yield over 2.5%, and has increased dividends for over 50 years and has a payout ratio percentage in the 40′s which gives it plenty of room for future growth.

Dividend Vet – “I would say Johnson & Johnson (JNJ). This is my favorite of all time because it is a truly bulletproof stock. It is a true core stock to build your portfolio around. It is vastly diversified within the healthcare industry. It has historically steady dividend increases. The stock is fairly valued below a P/E of 20. It has a solid dividend yield at 2.85% and huge potential especially for the long term investor.”

My FI Journey – “I’ve got a few favorites, but one that that is quite memorable for me is Lowes. I bought LOW the middle of the debt ceiling debate back in 2011 when the stock market was in free fall. Since then, the stock has treated me very well, providing substantial capital gains and dividend increases. At the same time I bought LOW, I sold a put against it which netted even more cash for me.”

HelloSuckers.net – “It is not an easy question as there are plenty of great dividend growth stocks and it is impossible to list just one. I have two great stocks which are my favorite and the reason is simple – they make me money. A lot of money. The first stock, and probably an all time favorite stock of mine is Johnson & Johnson (JNJ). It was my first purchase ever and since then the stock doubled my money (and I only have owned it for circa 3 years). I like it for a few reasons: its price appreciation; the company is so big, that any recalls or problems, it went through, were insignificant for the company and investors failed to see it, so for dividend investors, this was a great buying opportunity – so it is safe to invest. And last, but not least, I love its dividend yield and growth, which makes your yield growing every year without doing anything. The second stock I love is Realty Income (O). Although the growth is not as impressive as JNJ, its monthly dividend payout of great yield can help you with growing your portfolio faster as you reinvest dividends. After a few years of investing into this stock I managed to be receiving 30 dollars every month in dividends just from this stock. Isn’t that great? And wait when it turns out to be 3,000 dollars every month!”

Retire Before Dad – “My all-time favorite dividend growth stock is Chevron (CVX). In 1995 my uncle gifted me one share for my birthday and explained that if I invested money consistently over a long period of time and reinvested the dividends, my shares would be worth a lot down the road. Every dollar I have ever invested in Chevron has increased my wealth, and I’ve witnessed 18 dividend increases over the years. Receiving that one share was my first experience investing and it opened up a whole new world for me, and even influence my college major and career path. Today I’m putting new money toward other stocks to diversify my portfolio, but I will likely continue to reinvest my CVX dividends until I retire. I wrote an entire post on this stock called “CVX and How I Got Started Dividend Investing“.

Financial Freedom – “I have only been investing for about 8 months, so I would say my favorite dividend growth stock is Kinder Morgan (KMI). It has great growth potential and its dividend yield and increases are great.”

Simply Investing – “My favorite all time and current dividend growth stock is TransCanada Corporation (TRP) trading on the Toronto Stock Exchange (TSE). In 2000 I bought 185 shares of TRP at $13.40 each for a total investment of $2,479. Since then I have received a total of $3,126.46 in dividends alone from TRP! In 2000 the annual dividend for TRP was $0.80, the dividend has increased every year since then and today the dividend is $1.92. My yield on cost is 14.3%. If I was to sell all my holdings in TRP today the return would be over 400%.”

Brick by Brick Investing – “Believe it or not but I’m really liking Cisco Systems (CSCO), they have tripled their dividend since 2011 and I believe they will be a growing company in the future.”

The Dividend Guy Blog – “On the US market, I’d go with Coca-Cola (KO). It’s the perfect dividend growth machine. On the Canadian Market, I’d go with Telus due to their aggressive dividend increase.”

Compounding Income – “My favorite dividend growth stocks tend to be from the consumer staples sector. Think soft drinks (KO, PEP), food (GIS, KRFT), and cigarettes (MO, PM). These types of businesses are very easy to understand, sell products people will always consume, have wide moats, and have been rewarding loyal shareholders with rising dividends for decades. I try to imagine what the world might look like 20 years from now and try to determine which products might still be popular. Every time I go through this mental exercise I come to the same conclusion: people will still be drinking Coke, people will still be eating Cheerios, and people will still be (gasp!) smoking Marlboros. Picking a single favorite dividend growth stock is tough because there are literally hundreds to choose from. If I had to pick only one, I’d go with Philip Morris (PM). PM offers a nice combination of yield (currently 4.7%) and dividend growth (5 year average of 10.4%). A dividend growth investors dream! The nice part about Philip Morris is that the company sells an iconic brand (Marlboro) worldwide except in the United States & China. Because of that fact PM can take advantage of world’s growing population, the world’s rising disposable income, and avoid the heavily regulated tobacco environment in the United States. As with any individual stock there are risks. The biggest being exchange rates, foreign government regulation, and declining smoking rates in developed nations. While there are risks, I believe Philip Morris is poised to do well over the long run. So much so that I made it my largest holding. However I would always recommend staying diversified so as to minimize risk and not rely on the fortunes of one company.”

The Loonie Bin – “Enbridge (ENB) on the TSX. Solid dividend growth and it doubled my investment after 4 years. You can’t ask for anything more from a dividend growth stock.”

All About Interest – “My favorite dividend growth stock is Coca-Cola (KO). KO has been rewarding shareholders with increasing dividend payments for over 50 consecutive years! There’s not many companies that can say this. I can also relate to their products. I love an ice-cold Coke on a hot summer day. I’m also a fan of Powerade, especially the Mountain Blast flavor. Coke also owns many other well-known brands like Minute Maid, Dasani, and Monster to name a few. Coke is one of those companies that you can count on to produce higher earnings and consistent dividend raises each year.”

A Wealth of Common Sense – “I have always been impressed with Altria Group (MO). It’s been a compounding machine. From September of 1989 to the end of February of 2014, the total return on the stock was 16.1% versus 9.4% for the S&P 500. Investing $10K in MO turned into $380K while $10K in the S&P 500 would have made you about $90K. I think the best future dividend payers could be Apple and Google. Apple already sports a 2.3% yield and I could see that increasing for a long time with their cash hoard. Google isn’t paying anything yet but they also have substantial cash reserves that could translate into a decent payout some day.”

Roadmap2Retire – “My favorite stock is Johnson & Johnson (JNJ) – because it is a blue chip stock with a proven record for dividend growth (51 years consecutively) and the fact that it operates in two sectors – consumer goods and healthcare.”

Financially Integrated – “Coca Cola (KO): Talk about a proven performer. Coca Cola has made its shareholders wealthy over extended period of period, and I don’t believe its done yet. This is a company with strong barriers to entry and a great business model that is simple and transparent to understand.”

Write Your Own Reality – “My favorite DG stock is Aflac (AFL), as it was one of the first true dividend growth stocks I bought, and really epitomizes what a dividend growth company looks like with multiple decades of dividend growth.”

Dividend Growth Stock Investing – “My all time favorite dividend growth stock is McDonald’s (MCD). I love McDonald’s because it was the first dividend growth stock I ever purchased. The company has a 38 year dividend growth streak. Looking over the financials, McDonald’s is able to consistently grow their earnings which means the company is consistently growing in value for investors. My current favorite is Deere & Company (DE). Currently Deere trades with a P/E under 10 offering great value for investors buying at today’s prices. The dividend yield may start out low but the company has been growing the dividend rate strong for the past 10 years. I grew up on a farm and love having this current opportunity of picking up shares of Deere stock at a great price.”

There were some great stocks in this selection of favorites. As you can see, there is quite a variety of companies you can invest in as a dividend growth investor. Thanks to all of the investors that gave their answers to this favorite stock question!

Now it’s your turn! What is your favorite dividend growth stock and why? Share your responses in the comments!

If your interested in dividend growth investing, be sure that you have signed up for my free monthly dividend growth investing newsletter!

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November 11, 2013 / 0 Comments

Getting Started With Dividend Growth Investing

What is Dividend Growth Investing

Dividend growth investing is a strategy that involves purchasing stocks for the long term of quality, industry leading companies with a history of annually growing their dividend rate paid to shareholders.

The investor will buy shares of some of the greatest companies in the world. While the investor owns these companies, they will receive income in the form of dividend payments. If the investor has chosen his companies wisely, his dividend income should grow over the years because the companies are annually increasing the amount they are paying out.

Why is Dividend Growth Great

Companies that have the ability to annually grow their dividend rates tend to be great companies. Think about it. If a company can continually increase the amount of income they pay out to shareholders, then they must also be continuously increasing the amount of income they are earning.

When we invest in companies, we want to buy the companies that have the ability to make more money year after year. Yes there will be some down years for net income. But the idea is that more often than not, the companies we want to own should be making more and more income.

Dividend growth companies generally have a history of not only growing their dividend payments to shareholders but also their own bottom lines.

What this means is that these investments are more likely to increase in value over the long term time frame. And isn’t that the main goal with investing? Increasing the value of the stocks we own? Yes it is.

Another great thing about dividend growth investing is that an investor has the ability to grow their wealth and purchase enough assets (shares of stock) that are paying out a passive income to eventually retire and live completely off the passive income. The investor can use this passive dividend income to cover their live expenses. Also, the companies we should want to invest in will be growing their dividend rates faster than inflation. This means that our income will grow faster than our expenses.

Goals of Dividend Growth Investing

The main goal of dividend growth investing is financial freedom. Dividend growth investors are aiming to be able to own enough stocks where they can live completely off the dividend income. The investor will no longer need to work but instead can meet all their financial obligations with the passive income they earn from the stocks they own.

Dividend growth investing can provide:

Financial Freedom – eventually a dividend growth investor will be able to live completely off the passive dividend income earned from their stocks.
Financial Security – the more wealth one has, the more financially secure they are. By building wealth through dividend growth investing, the investor is increasing the amount of financial security they have.
Investing Stability – dividend growth companies are usually very consistently good performing investments. The stocks you own will provide an income. The dividend rate will provide a floor to how low the stock price may fall. When a stock price falls, the dividend yield increases. As a yield increases, the stock will become more appealing to investors and investors will move in buying shares. This creates a sort of floor to how low a dividend growth stock will go in value.

Investment Accounts

When you’ve decided you want to start investing in dividend growth stocks, you need to think about what type of account you should use.

I would recommend opening up an online discount brokerage account to keep costs low.

Scottrade – I personally use Scottrade which has $7 commission trades. I also like the fact that they have physical brick and mortar locations I can go to if I need help.
Charles Schwab – Schwab has trades as low as $8.95.
ETrade – ETrade has trades for $9.99 commissions.
TDAmeritrade – With Ameritrade, the investor trades for $9.99 commissions.

I’m sure there are many others to consider. These are the few that are the most well known and where I would look first when considering a brokerage to invest through. Things you will want to look at when considering a brokerage are minimum account values, commission rates, inactivity fees and dividend reinvestment policies and fees.

Along with deciding where to open an account, the dividend growth investor needs to decide what type of account they want to open. There are a few different account types investors will want to consider based on their personal goals:

Taxable Account – The taxable account is exactly as it sounds, fully taxable. The money you contribute to the account comes from after tax dollars. Once that money is invested, you are taxed on any dividends you earn as well as any short term and long term capital gains you may recognize. However, funds in taxable accounts are available without penalty any time you should need to access them.
Traditional IRA – The traditional individual retirement account (IRA) is a tax advantage account where the investor contributes pretax dollars. Money is invested before you are taxed on it and is allowed to grow without paying any taxes. At the point the investor begins to pull this money out of the account it is taxed as ordinary income. This type of account should be used for retirement savings because there are penalties for withdrawing and spending this money before a certain age.
Roth IRA – The Roth IRA is also tax advantaged. Money is contributed to the account with after tax dollars. Then the investments are able to grow tax free. When the investor begins to withdrawal the money from this account, it is also considered tax free. Like the traditional IRA, there are penalties involved with early withdrawal of the funds in the account. Therefore, it is best to use this type of account for retirement investing.

Once the investor has decided where to open an account and what type of account to use, he needs to figure out where exactly to find dividend growth stocks. Fortunately there are some good resources for this.

Where to Find Dividend Growth Stocks

Finding dividend growth companies may seem like a challenge but there are actually a few decent resources to give the investor a start.

S&P 500 Dividend Aristocrats – the dividend aristocrats are companies that have grown their dividend rate for at least 25 years in a row.
DRIP Investing Resource Center – At this website there is a good resource of dividend growth stocks. Under the information section, you can see the U.S. dividend champions list. Open in excel or PDF and you will see a list of all companies who have increased their dividends for at least 5 years in a row. This is the resource I use most often.
35 Top Dividend Growth Companies – This is my Kindle ebook where I feature the 35 companies I am using to personally build my own dividend growth portfolio. Part one gives a brief introduction to dividend growth investing. Part 2 discusses the most important metrics used in evaluating dividend growth companies along with detailed info on each of the 35 chosen companies.
Free Dividend Growth Stock Investing Newsletter – Along with my site, I write a monthly newsletter in which you will find information about different dividend growth companies. Sign up and you’ll also receive my free Dividend Growth Investing Guide.

Conclusion

Hope you enjoyed this brief article on getting started with dividend growth investing. In the upcoming few weeks I plan on going much more in depth on the many topics involved with learning dividend growth investing. My goal here is to create successful dividend growth investors. Stick around and hopefully you’ll learn all you need to know about creating wealth using dividend growth!

January 15, 2012 / 0 Comments

Introducing Trading And The Stock Market For Dummies

First, a few words of warning
I will list some of the basic and essential trading guidelines later in this piece, but first a general word of caution to introduce the stock market for dummies approach to the would-be trader in stocks.

I do not like the term “dummies” and I only use it here to make a simple point, not to put anyone down, so to speak. The truth is that without an understanding of the stock market basics, it is unlikely a trader will be successful and without a knowledge of basic guidelines to follow, trading would often be no better than leaving your money at the casino.

Start small and learn the “ropes” gradually
When someone has been around the block a few times and traded in the “Market” for years, their first word of advice to the eager newcomer is that this is not a game. This is not betting on the Broncos vs. the Patriots, this is business with your money and your retirement as part of the equation.

You can make money by trading stocks, but some losses are inevitable
I would suggest that it is best to start in a small way so that any losses that may occur will not be devastating but can be limited to an amount that can be tolerated and can be seen as a cost of a learning process that brings you out of the “stock market for dummies” category. There are ways to limit losses but it takes action. And everyone experiences losses, especially in the early days of learning how to trade.

Stock brokers and education
You need to approach stock trading with a maximum of education even if you use a broker. The stockbroker wants you to make money and to continue to make winning trades, because that’s good for business. But the brokers have their own agenda and you need to understand this if you use them. They get their commission in part for trading stocks and selling what the company finds attractive. They are not in business to see your portfolio increase since they do not get a percentage of the “profits” but rather they receive sales commissions. It is to their advantage to have you buy and sell stocks since they make their money on trades. That said, many brokers are good guys with your best interest at heart, but be aware.

Read all you can, books and items by William J. O’Neil, Peter Lynch, and others and columns such as John Waggoner’s in USA Today on Fridays for example, or go to the website SeekingAlpha. The more you learn the better you will be able to assess the merits of the information provided. Not everyone comes to the same conclusions about given stock or market situations, so with conflicting viewpoints offered, you, the trader, must make the judgement – aided by your existing fund of knowledge and accumulated experiences. The more you read the more you will understand and the better investor you will likely become, but it takes time and effort.

Online trading
But most trading is done online these days, without the aid of a broker, especially in the case of the small trader, who is classed in the category of “retail trader” as opposed to the bigger professional traders whose combined actions comprise, by far, the greatest portion of all trading in the stock market and thus responsible for most of the movement in their underlying stocks of interest.

The stock market is not for the faint at heart, but there always opportunities to make money. Buy and hold may not be the best option as the market has periods where it swings like a tempestuous pendulum.

So what are some of the basic guidelines?
While these suggestions are aimed at the so-called stock market for dummies category of newcomer to trading, actually they also often guide the decisions of some of the biggest, most successful, and most famous traders of all time. These guidelines, and many others, are discussed in greater detail in separate posts elsewhere on this website and can be found listed there by going to: Stock Market Basics Guide. The more experienced and expert trader can successfully break the rules and still make gains but for the beginner, such rules should be learned and adhered to.

Up or down markets
As a trader, you can make money in the stock market regardless of whether the market is moving up or down but the beginning trader is usually more comfortable trading when the market is primarily moving up over a period of time.
So from that comes a basic guideline:

Don’t trade against the trend. Don’t buy stocks when the market is falling, if there are stocks that you believe are really worth more than their current price in a falling market then wait until they reach a “bottom” and turn around, once that is confirmed, they can be bought on the way back up. Do not “average down”.
Cut losses early. Sometimes expectations for your stock don’t pan out, be alert, if the stock starts to decline, regardless of the reason (which may not be connected to the actual stock itself) be ready to sell. If the stock price falls by about 8% or so from its recent high, it’s time to exit the position. Take the money and move on.
Let your profits run. When a stock does rise in price the objective is to capture as much of the potential gain as possible, without being too greedy and waiting too long of course and having to watch those gains evaporate. Remember, however much higher the price, you won’t book a profit until the winning stock is sold. It can be tricky sometimes. There is a trading routine called a “Stop Loss” that might be appropriate in this situation, explained elsewhere.

There are many more guidelines to become familiar with but I will just close with an often quoted rule attributed to the great Warren Buffet:

- Rule #1 Do not lose money
- Rule #2 Remember and follow Rule #1