DIVIDEND INVESTING: Maximizing Returns while Minimizing Risk through Selective Stock Selection and Diversification (2023 Guide for Beginners)

By Baz Greene

"Dividend Investing " is a comprehensive guide to understanding and implementing a dividend investing strategy. This book is ideal for those who want to generate a reliable income stream from their investments without ha

• Language: English
• Publisher: Baz Greene
• Release date: Feb 9, 2023
• ISBN: 9783988318947

Book preview

Introduction

Dividend investing is popular because investors want a consistent income stream. 

They receive a steady stream of income in the form of dividends, which they reinvest. dividends to purchase additional shares These businesses are mostly successful. Business models and share prices are also expected to rise steadily. Furthermore, these well-established corporations frequently increase dividends. Each year For example, 3M has increased its dividends over the last 59 years. In addition, its shares have increased by more than 160% in the last three years. only in the last five years. Because the majority of dividend-paying stocks are less volatility as a result of their consistent business model and cash flow generation.

They are popular among both new and experienced investors due to their high potential. There are numerous reasons why dividend stocks, in general, perform well. superior to their competitors Let's take a look at each one separately.

Data from the Past

Dividend stocks are always regarded as a hedge against volatile markets. The business environment Despite the fact that past performance never predicts future performance, Dividend stocks outperformed the S&P 500- Stock index returns over time: Since 1960, nearly 29% of the S&P 500 has returned. Dividend stocks contributed to the S&P 500's overall returns. Stock that pays dividends Over the last few decades, it has outperformed non-dividend stocks. Analysts expect dividend payers to continue the trend in the long run. According to RBC Global Asset Management, dividend stocks had In the last three decades, it has generated compounded annual returns of 11.7%.

According to the Hartford Funds white paper, nearly 81% of the S& P 500 Since 1960, dividend reinvestment has been linked to returns. This is because of a program called dividend reinvestment.

The power of compounding Quality Earnings Increase

Accounting is all about making estimates and making assumptions. Several businesses Businesses have recently attempted to demonstrate false assumptions and estimates. This is simple for them. How? It's simple; just make a few changes. changes in their methods of depreciation. Overall, it's quite simple for the management to demonstrate higher income figures and assumptions in comparison.

The actual figures

Companies have typically been working on these behaviors in order to provide a better service. The share price and traders' confidence received a temporary boost. investors as well as To detect these, traders should be familiar with forensic accounting techniques. However, in the case of dividend-paying corporations, the possibility of The likelihood of presenting false figures is very low. Management cannot lie investors in real money Non-cash items are not included in real cash. Thus, management's ability to present higher figures is limited. I invest in companies with a long dividend history and that pay out dividends on a regular basis. The real money-making machines are those that increase their dividend payouts.

Dividend yields are falling during a market downturn. Despite the fact that value investing has the potential to provide higher returns, In the event of a price increase, investors will They do, however, have the During major meltdowns, the potential for large losses for investors is high. On the stock exchange, dividend-paying stocks performed well during the Great Depression. Dividend stocks will always outperform non-dividend stocks. Dividend-paying Companies typically have a strong balance sheet and a profitable business. Models are more stable in the face of a market downturn. as well as The share price of a dividend-paying company has always increased rising at a consistent rate.

Let's make a test portfolio to see how market changes affect it. Shareholders value a company's performance. Assume that the investors are I have put $100,000 into two stocks: Berkshire Hathaway and Johnson. The investor put $50000 into both stocks. as well as We suspect the investor has not been managing its portfolio effectively.On the other hand, Berkshire Hathaway has not paid a dividend since 1960. Johnson & Johnson, on the other hand, has a long dividend history and In the last three decades, it has increased its dividends every year. Even so, Even though there was a global financial crisis in 2007 and 2008, the company still raised its dividends. It will be profitable.Furthermore, the company's share prices rose in front of the market due to its stable balance sheet and cash position, despite headwinds.

Assume the market crashes and stocks lose nearly half of their value. This means that the portfolio's value dropped from $100,000 to $500,000 on a single day, resulting in a loss of $50,000 to both investors. stocks. Regardless of the drop in share price, JNJ will send you a dividend check. Furthermore, JNJ's dividend has declined in tandem with the company's share price. The yield will more than double. Dividends will also assist investors in establishing a floor underpin and stabilize the stock price.

Human instinct also prefers to keep investments that provide them with benefits. Checks are sent out regularly, and the value of the initial investment goes up steadily. increased share value Stock investments are preferred by investors. That provides strong resistance to market volatility Furthermore, regular Dividends are very appealing; specifically, the markets will face extremely complicated business circumstances.

Capital Investing Discipline

Dividend-paying company management should be more aggressive in general. disciplined in their financial management These businesses sell their products. Sales and earnings can be sustained gradually. growth while also returning cash to investors If the CEO suddenly changes his mind, He must choose between two potential acquisition opportunities. lucrative alternative with a better guarantee of benefit extension.Dividends have a significant impact on the share price performance of any company.

Dividend payments and dividend growth, in particular, increase share prices Furthermore, the stock prices of companies with the The company's track record of increasing dividends at a reasonable rate stands out against the competition. Market volatility and stable business models provide a hedge against Market turbulence It stands to reason that the likelihood of earning a consistent stream of income is high by investing in dividend stocks or holding those stocks for a long time. This term boosts the share prices of these companies. During this time, Although inspiration may appear to be mild, the fundamental Shares are affected by convictions about the organization's earnings. most. To see how dividends have a strong influence on financial specialists, It is critical to understand how stock market mechanics work.

Chapter 1

Your Money Isn't Safe!

The best location to save money Is the stock market the best place to invest your money? What Can you park other vehicles with your money? Below the mattress Saving money and keeping it on hand year after year is not the solution. the wisest thing to do. Aside from the immediate danger of someone breaking in, If someone breaks in and steals your money, or your house burns down, you must also Consider inflation and how it will affect your purchasing power in the future. Account for Savings In 2006-07, you could open a savings account that paid 5–6% interest. rate. Nowadays, you'll be lucky to get one higher than 1%. Despite the fact that Although money in a savings account appears to be safe, it is losing purchasing power. If Inflation is 3.5% per year on average, which means that goods and services are becoming more expensive.

Today, your dollar is only worth Next year, 96.5 cents. Most people keep their money in a savings account out of fear of losing it if they lose their job. They put it to use. However, your money will become worthless over time. This also applies to CDs, as interest rates have fallen. Investing in mutual funds A mutual fund is a fund in which the money of a large number of investors is pooled. and then used to invest in various securities, such as stocks and bonds. When you buy mutual fund shares, you own a small percentage of these resulting in a more diverse portfolio As you are probably aware, stocks are the riskiest investment.

To a financial professional who manages a mutual fund tries to limit that risk. Distribute the risk across a large number of securities. The issue with mutual funds is that they have numerous fees. management fees, administrative fees, and reinvestment fees, front-end load, back-end load, and other factors. The expense ratio, which is a percentage, is the fee that I always look at. that your bank charges on a yearly basis These expense ratios can be calculated. ranged from less than 0.5% to more than 1%. If you invested $100,000 in this mutual fund with a 5% return, You would pay $500 in expenses for that year if your expense ratio was 0.5%. If, after that, After a few years, your investment had grown to $200,000, and you would now pay $1,000 at a cost-to-income ratio of.5% That is a high price to pay because you could have taken that $1,000 and spent it elsewhere. You invested in it yourself. Remember that when you buy stocks on your own, the When you buy or sell, the only cost you have to pay is the