Saturday, August 1, 2009

Part 1: Dividend Investing 101

Part 1:
Dividend Investing 101

  By Andrew Gordon 


Dear IDE Reader,

Welcome... and thank you for subscribing to Investor's Daily Edge! You can expect each daily issue to arrive before the market opens, and to be filled with clear recommendations and practical strategies for growing your money safely in any market. 

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By way of introduction, I've asked each of our distinguished experts to send you a brief educational article over the next week. We thought it would be a good way to introduce ourselves... while providing you with profitable information you can act on right away.

In today's issue of IDE 101, you'll hear from income investing expert, Andrew Gordon. If you think dividend-paying companies are boring, think again. 100 years of stock market history tells us that the best long-term strategy (by far) is to buy solid, dividend paying companies, hold them for the long term and reinvest the dividends.

And in today's article, Andrew will show you which dividend-paying companies make the best investments... and how to find them.

Good Investing,

Dividend Investing 101
By Andrew Gordon

Did you know that there are hundreds of companies that want to pay you for investing in them? These dividend-paying companies come in all sizes. They're from all industries. And many hail from outside the U.S.  

Besides sending checks to you four times a year, these companies offer superior returns. Consider: Ned Davis Research found that since 1972, non-dividend paying stocks gained an anemic annual return of 2.5% on average. But dividend-paying stocks generated annual returns of 10.9%.

That's a huge difference, especially when you consider that dividend companies do much better than other companies when the market is going through hard times. For example, during the market slaughter of 2000-2002, non-dividend paying stocks fell 35% ... while dividend payers broke even on average. 

 It's easy to see which companies offer dividends. Just go to Yahoo Finance, and type in a name or ticker of a company. Yahoo will send you to the company's "Summary"page. You'll see two short columns of numbers. The bottom category in the right-hand column will say "Div & Yield."The "Div"will show the dollar amount. The "Yield"will show the dividend yield percentage. If you see "N/A"instead of numbers, it means the company does not offer a dividend.

Selecting dividend-paying companies involves much more than just finding the ones with the highest dividend yields. Those yields may look nice, but they could be hiding a weak company. And this company could be trying to lure in investors with the promise of generous dividends. Chances are those companies won't be able to keep their promise.

So what kind of dividend-paying companies make the best investments? In my INCOME Newsletter, I look for companies with a track record of at least 10 quarters of offering dividends which keep on going up from quarter to quarter ... or at the very least don't go down.

And to make sure that these companies can afford their dividends, I also look at their payout ratio. This number measures the amount of the dividend compared to their earnings. If the ratio is too high, it tells me the company is at risk of lowering or stopping dividend payments in the near future.

It's not all about the dividends, though. These companies should also have outstanding leadership ... a record or being able to grow their earnings ... and the price of their shares should be reasonable. I prefer to buy companies which are underpriced but show excellent growth prospects.

That way, you not only get cash from your dividend payments. You also get a company that can grow its share prices. Dividends plus capital appreciation equals an outstanding total return - and with much less risk than you'd be getting from many non-dividend companies.

[Ed. Note: Andrew Gordon is the editor of INCOME, a research service whose sole purpose is to uncover the safest and most profitable income-generating investments in the market. And we don't mean 5% from a bond fund. We're talking about a safe way to make 7%... 8%... 10% yields... with the expectation of capital gains to boot!

Andrew Gordon has prepared a FREE Report that shows you how you can start cashing $8,881 a month checks from government backed companies. To read this FREE report click here.


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