Saturday, December 12, 2015

7 Best Dividend Investing Tips From the Experts

I am an avid dividend investor. I think owning dividend paying stocks are a great way to supplement and diversify your income streams. As the saying goes "you shouldn't have all your eggs in one basket", meaning you shouldn't rely solely on one income stream (i.e. your job).

You might be asking yourself, what is a dividend? Firstly, companies can issue shares of their company in the form of stocks to raise expansion capital. When you purchase company shares, you are investing in the company, thus becoming a part owner of the company. This entitles you to the company's profits (if there are any). Typically when a publicly traded company earns a profit there are two ways in which they can use them to benefit the shareholders: 1) The company can retain the earnings with the intent of eventually increasing the share price, or 2) The company can give some of the profits to the shareholders in the form of a dividend.

What are the best tips when it comes investing in dividend stocks? I recently stumbled onto an article by Jimmy Atkinson at Dividend Reference entitled "101 Dividend Investing Tips from the Experts". You can find it here:

I've selected what I found to be the seven best dividend investing tips from the article above:
  1. Diversify but don’t over diversify. Adding one stock to a 10-stock portfolio adds a great deal of value, but adding 10 stocks to a 100-stock portfolio may not add any value. Most studies show that a diversified portfolio of 15 to 30 stocks is the optimal number of individual investments.
    — Ken Faulkenberry, The AAAMP Value Blog
  2. While dividend yield has its importance, an intelligent investor should pay greater attention to a stock’s dividend growth rate and yield-on-cost. An investment that pays 3 percent on your cost is good, but what’s even better is an investment that pays you 10 percent on your cost down the line. Divided growth is what makes this possible.
    — Quinn Mohammed, Dividend Beginner
  3.  Be a net accumulator. Contrary to what the financial media blitzes us with on a minute-by-minute basis, there’s nothing glorious about buying and selling stocks. If you ascribe to that manic strategy of trying to cycle in and out of equities, you’ll wind up emulating the proverbial hamster on the wheel rather than Warren Buffett. Don’t get me wrong, I’m not blindly advocating buy and hold either. What I am suggesting is that you focus on being a net accumulator of assets; my favourite being dividend growth stocks. In my years of investing, I have only sold a single stock.
    — Ryan, Get Rich Brothers
  4. I like to buy shares (new position or adding on) soon after the ex-dividend date. Share prices tend to hit a short term peak just before ex-dividend and the price will often drop below the ex-dividend share value in the couple of weeks following ex-dividend. In many cases the price savings will be several times the just paid dividend amount. This strategy will produce a lower average cost per share and higher effective yield.
    — Tim Plaehn, Investors Alley
  5.  To gain an instant dividend portfolio consider low-cost indexed mutual funds or ETFs. Vanguard offer several dividend focused funds with low fees which pay qualified dividends.
    — Trevor, Dividend Life
  6.  A good portfolio is like a garden. It takes maintenance, time and attention to detail, but ultimately should grow by itself. It should not take continuous work, but occasional pruning. A well understood and well balanced portfolio can be a piece of beauty.
    — AlphaTarget
  7. The first place any investor should look for high quality dividend stocks is the Dividend Aristocrats list. This is how I constructed my own long term dividend investing portfolio. It’s a great starting point for further filtering and research to find some of the highest quality companies that have a long history of annual dividend raises.
    — Keith Park, Div Hut 
In addition, here is Dan Caplinger from The Motley Fool with three things you probably didn't know about dividend investing: