Welcome back to the newest installment of the Different Minds series. I am glad that everyone has been really enjoying it so far. Hopefully we will be able to continue bringing good content that everyone enjoys reading. It is very interesting to find out different peoples opinion on a matter. If you have any ideas for questions that you would like to see asked or if you would like to participate just head on over to the Contact Me page and send me a message.
So far during this series we have covered some interpretations of a speech by the head of the Fed Janet Yellen, we also looked at what sectors were poised to create a lot of significant gains. This week I want to step back and look at some advice that members of the community can pass on to someone who is just getting ready to start investing. There are a lot of differents ways this could go, so let’s go ahead and get right into it and see where it goes.
What is the best piece of advice that you would give to a new investor who is looking at investing in dividend growth stocks?
The best advice I can give to a new dividend investor is don’t chase yield. High yield doesn’t necessarily mean a stock is a bad one. It’s a signal that a company may be paying an unsustainable yield, or paying a high yield as a way to fund current operations with stock sales. Both of these scenarios are bad for a dividend growth investor to find themselves in. I’m guilty of chasing yield in the past; most of us are. It’s rarely worked out the way I intended.
The other piece of advice I have is to understand free cash flow, payout ratio, and dividend coverage ratio. It varies for REITs and MLPs, but for most stocks, a low payout ratio and a high dividend coverage ratio are two key indicators I look at when deciding to buy a stock. Low payout ratio means the company has a lot of runway to increase dividends. Dividend coverage ratio is the percentage of money a company has to pay their dividend. A coverage ratio of less than 100% means a company is most likely borrowing money to pays dividends.
Nathan from InvestmentHunting.com
As a new investor, first determine your timeline on when you need to spend your dividend income. If you don’t need to spend your dividend income for 10 years or longer, it’s be a good idea to focus on stocks with high dividend growth. Too many new dividend growth investors focus on high yield stocks without realizing these stocks have unsustainable payout ratios. These high yield stocks often end up cutting their dividends. For example, a stock with 2% dividend yield and 30% annual growth rate will over take a stock with 5% and 1% annual growth rate tin 7 years. It’s a great idea to determine the right low yield high growth vs. high yield low growth mix.
Tawcan from Tawcan.com
For anyone looking to begin investing period, it’s important to know what’s the overall goal. There should be an ultimate goal. Why are you investing? Whether it’s for supplemental income or building a retirement fund, dividend growth can certainly get you there. In my experience and opinion loading up on stocks of blue chip companies always fares better over the long haul. Invest in companies you know or can truly understand the business. It’s far more challenging to pick a great unknown stock than it is to select a reputable powerhouse. The goal of dividend growth isn’t solely about large dividend payments, it’s about consistency. Take the lower payout today with the greater opportunity for sustainable growth for the future.
The Wealth Junkie from TheWealthJunkie.com
Go for it! Dividend stocks are the best place to start as an individual investor. They are generally more conservative companies with a long term outlook, which means consistent returns for investors with less volatility. Don’t chase higher dividend yields. Invest in the best companies that pay dividends. Find a company that you understand, one that consistently pays dividends, and one that looks good for the long term. Then enjoy the passive income for your investing work.
Brian from MassiveDebtToMogul.com
I am just starting to explore Dividend Growth Investing, but I think one thing about this investment model stands out above the rest. Consistency. Is the company built for growing shareholder value over the long term? Have they consistently maintained or increased their dividend? How do they stand up to market corrections or a prolonged downturn? Seek out companies that have proven they can maintain their dividend for the long haul. I am also a huge fan of DRIPs, so that would be something I look for as well.
Mr. A.E. from ApathyEnds.com
Wow. Those are some awesome responses from all of our Different Mind participants. We see some similarities in their thinking like don’t chase high yield and to invest for the long term while others advise of metrics and specific things to look at while researching an investment. I think that this has been my favorite edition yet because we got some varying answers from investors of different experience levels. That is what I enjoy is seeing the different points of view from Different Minds.
Let me take a moment to thank all of the bloggers and investors who participated in this week’s Different Minds post. I hope that everyone reading it enjoys it, as much as I did while I was putting it all together. I highly encourage everyone to go and check out all of the blogs that are represented by this week’s participants because they are highly knowledgeable and all present a lot of great content on their sites. I look forward to reading what you think of this week’s edition of Different Minds, so please leave me some comments below!