Investing in Dividend Stocks

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Avatar for BudgetHolics
3 years ago

Before you instantly hit the dislike button, hear me out! I realize that most of us in the forum consider cryptocurrencies to be the future. A way to right the wrongs of the previous generation, if you will. However, any investor needs do diversify, both in terms of assets, as well as in terms of asset classes. It is therefore important to understand the difference between all asset classes out there.

Here's a short introduction to dividend stocks! I’ll go into what is a dividend stock, what it means to own one, and different strategies when it comes to dividend stock investing.

When a public company, i.e. a company that is listed in tho stock market makes a profit, they have the following 3 options of how to invest this extra sum of money.

1. Reinvest these profits into RnD

Or they can decide to distribute those profits among existing shareholders. This can be done in two ways:

2. Buy-back shares: They buy back shares of their own company, if they believe the company is undervalued by the stock market, indicating that they have more trust in their company and thinking the price will go up in the future.

3. Distribute a percentage of those profits amongst shareholders in the form of a dividend. The company decides how much of it’s profit it will distribute to their shareholders, usually at the end or at the beginning of a financial year, and this is usually expressed as a fixed payment you will receive for each stock you have.

You can choose to buy Fractions of a stock. This means that you don’t buy a single stock but a fraction of the stock, which you can do in two ways. Either, you buy 10% of a $100 stock, thus $10 of that stock or $10 of a $100 stock, thus 10% of that stock. Fractional investing was a breakthrough, especially for young aspire traders in our age, as you can optimise your buys and sells, adjusting them to your budget, you ideal portfolio diversification and so on.

When it comes to individual stocks you can either be a passive or an active investor. A passive investor usually buys a stock and sits on it for a long time, whereas an active investor actively buys and sells stocks every day, every week, every month every year. A common misconception when it comes to dividend investing is that dividend investors are passive, i.e. they buy a stock and they just sit on it. The most common example of why this is not true is Warren Buffet. Buffet has a number of dividend paying stocks, such as apple, and coca-cola, but he is by no means a passive investor. He actively monitors the price of his holdings and increases or lowers his positions based on whether he perceives these stocks are overvalued, undervalued or fairly priced. Berkshire Hathaway, Buffet’s company owns 52 stocks, 36 of which are currently paying dividends (BH does not do so). BH uses those dividends to further his positions and open new positions in new stocks.

Steps to Take:

-Setup a Watchlist

-Shorten The List

-Look for advice, wither through your own research or online.

-Rank the stocks

-Decide on a buying price for each stock.

Dividend Investing Strategies:

-High Dividend Yield

-Dividend Capture

-High Growth Stocks converted into Dividend Stocks

-Investing in Stocks with High Dividend Yield Growth

If you want to learn more about Dividend Stocks, check out my video above.

Happy investing 🤑🤑

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