Four Key Characteristics To Look For In Dividend Stocks

Written by Hank Coleman

There is a lot of talk about great dividend stocks to purchase for the long-term. But, how do you weed out the great dividend paying stocks from the hundreds of good or mediocre ones? There are a few key metrics that dividend investors need to consider before purchasing their first share. Here are a few of the biggest metrics to consider.

Dividend Yield

Dividend yield is simply the annual amount of dividends per year per share dividend by the price per share of the company’s stock. For example, Apple recently announced that it was issuing a quarterly dividend of $2.65 per share or $10.60 per share annually. With Apple’s share price currently hovering around $600 per share, its dividend yield is 1.76%. A company’s dividend yield provides investors with a way to visually see how much of their investment is being returned to them each year in the form of dividends issued by the company.

Dividend Growth Rate

Another key dividend metric that investors should consider before purchasing shares is the company’s dividend growth rate. Just as you would imagine, a stock’s dividend growth rate shows investors in percentage terms exactly how much the company is increasing their dividends over a period of time, typically annually. For example, McDonalds Corporation (Stock Symbol: MCD) has a 2.8% dividend yield and a history of increasing its dividend by an average of about 19% each year for the past five years. Whether a dividend growth rate is sustainable at these levels for the long-term is debatable, but showing a steady dividend growth rate over the course of several years is one factor that investors should consider. It is also a large factor in valuation models such as the dividend discount model (DDM) which allows investors a fairly simple way to value stock based on dividend growth at a stable rate.

Dividend Payout Ratio

The Dividend Payout Ratio is the percentage of earnings that are distributed annually as dividends. A company who has a Dividend Payout Ratio of 40% distributes 40% of its earnings back to shareholders in the form of a dividend. The other 60% can be used for things such as increasing the company’s retained earnings, buying back shares of its stock, and other financial transactions. Most investors consider 30% to 60% as the ideal Dividend Payout Ratio for a company to have. Comparing dividends against earnings instead of other financial numbers like revenue or free cash flow often give investors a smoother and more stable look at how financially secure a company is and whether or not they will be able to continue issuing a dividend at their current rate.

Free Cash Flow Payout Ratio

The Free Cash Flow Payout Ratio shows a company’s annual dividend payout as a percentage of its free cash flow. This is another ratio that can show you trends with respect to a company’s earnings and dividends. For example, while McDonald’s Corporation has increased its dividend growth rate by almost 19% annually over the past five years, McDonald’s dividends have also grown as a portion of their free cash flow as well. In 2008, dividend payouts accounted for 48% of McDonald’s free cash flow. This past year the ratio was just over 59%. This increase in the Free Cash Flow Payout Ratio may indicate that a company like McDonald’s could face increased trouble in the future continuing to grow its dividend at such a fast rate.

Conclusion

Another great way to find stocks with good dividend metrics is to use a stock screener. Google Stock Screener allows you to screen out stocks to meet certain criteria and show only certain companies. You can search for companies with a dividend yield in a certain range, and you can even screen stocks using a range for the Free Cash Flow Payout Ratio in the Google Stock Screener as well.

While these metrics are simple calculations in most cases to show investors potential undervalued dividend paying stocks, these are just a few methods for stock valuation. They will not replace investors’ need to further conduct their own research when deciding which stocks to invest in, but these metrics provide a good starting point for any dividend investor in search of good values in share prices.

Readers, are there other key dividend metrics that I missed that you use to help value dividend paying stocks? What is your favorite source for stock screening data?

From dividendninja.com

Related Books

The Single Best Investment: Creating Wealth with Dividend Growth

The Dividend Growth Investment Strategy: How to Keep Your Retirement Income Doubling Every Five Years

Dividend Stocks For Dummies

When to Sell a Dividend Paying Stock

If you watched one of your investments drop 10% in value, would you sell it?

What about 20% in one year?

What about over 50% since 2008?

Dividend stocks have lots of appealing factors. Some stocks have a great dividend yield, providing steady income in good markets and in bad. It’s a big reason why I’m growing my portfolio with them. Some of those same stocks have a great dividend history. Their history has been so strong there is no reason to think the future for these companies will be any different. Other companies still, the best of the best, increase their dividends year after year after year. There are many reasons to dividend paying stocks. What about reasons to sell them?

If your nerves are shot, here are some reasons for selling your dividend paying stock:

The company has changed (too much)

The market share has bottomed out or revenue has declined beyond repair. These are just a couple of outcomes from poor management and could be a few reasons to “get out” of a dividend paying stock. Businesses need to change with time but it needs measured and calculated. A key question to ask: is anything wrong with the company?

The company is overvalued

If a stock has become overvalued because of a market run-up, it might be time to take some profits off the table. Recognize if you do this, in some accounts, you will incur a capital gain. Markets are largely efficient in my opinion but valuations do get out of whack now and again. So, another key question to ask: if I take some profits, are there better opportunities available to invest the cash?

The dividend has been reduced or eliminated

If the dividend is held static, at $0.29 per share per quarter, it could be sign that management does not acknowledge the dividend payment is at an unsustainable level. On the flipside, if management cuts the dividend, the stock price will rise over time and more importantly maybe the company will be back in favour sooner than later. Lowell Miller, author of The Single Best Investment says “dividend cuts are the kiss of death for stock pricing generally” but I don’t necessary subscribe to this theory. I never want a company I own to continue to pay a dividend just for the sake of doing so – it can be a healthy decision to make the haircut. The final key question to ask: what are the long-term prospects of this company? If in the short-term, a dividend cut is required to get the company through a rough patch, I can stomach and would applaud management for that. Dividend elimination – that would likely be my trigger to sell the company.

What would you do? Would you sell a stock that went down 20%?

From myownadvisor.ca

Related Books

The Single Best Investment: Creating Wealth with Dividend Growth

The Dividend Growth Investment Strategy: How to Keep Your Retirement Income Doubling Every Five Years

Dividend Stocks For Dummies

The Top 5 Things You Need to Know About Dividend Paying Stocks

Dividends are cash payments made to shareholders. As a shareholder you are part owner of the company and therefore are entitled to share in the profits. Dividends can also help you determine when a share is undervalued, and priced right for purchase.

There are a number of other additional benefits to owning dividend paying shares, and I discuss my top five in this article.

1. Dividends provide an immediate return

Dividends provide an immediate return on your investment. Suppose you buy shares in company XYZ, where the dividend is $1 per share per year, and the share price is $20. $1 dividend divided by $20 gives you a 5% return. This means that if you bought $2000 worth of shares in company XYZ you would receive $100 in dividends (in cash) every year for as long as you own those shares, and as long as the company continues to pay the dividend. The dividend is paid regardless of the share price. The share price could go up or go down (in fact share prices fluctuate every day) but you will continue to earn 5% each year on your initial investment of $2000. The dividends are yours to keep, you can choose to spend the money or reinvest it into buying more shares. Without dividends you solely rely on share price appreciation, the gains are only made if you sell the stock for a profit, without dividends there is no immediate return on your investment.

2. Your safety buffer against the worst case scenario

Dividends provide a safety buffer against share price fluctuations or even the worst case scenario, where the company goes bankrupt and the shares become worthless. Remember once dividends are paid to you, they cannot be recalled or taken back; the dividends (money) are yours to keep. So even if a company goes bankrupt, the dividends you have received to date provide you with some cushion to help minimize your losses. If you owned shares in a company that did not pay dividends, and the company went bankrupt you would lose 100% of your money. 

In a personal example I purchased $2479 worth of TRP (TransCanada) shares in 2000. Since then I have received $2475.26 in dividends, which almost equals my initial investment. By next year I expect to have earned over $2479 in dividends. TRP shares trade at around $43 today, but even if the share price dropped to $35 or $20, I’d still be making money because the dividends have provided me with a margin of safety against any losses.

What are dividends? Why should you care?

Dividends aren’t just something rich people talk about, or a Community Chest card in Monopoly. They are the most consistent and easiest way to gain passive income as an investor. When most people think about investing in the stock market they think about movies where young men with slick hair invest in little-known companies and then profit hugely when these companies suddenly explode. The phrase, “Buy low, sell high,” rolls off of most peoples’ tongues. The fact is that this not how most people get rich, and it doesn’t really do the stock market justice. Over the past 40 years almost 60% of the overall yield of the entire stock market was produced by dividends as opposed to capital gains (capital gains refer to the money you make as a difference between what you bought your stock at, and what you sold it for). That’s an amazing statistic when think about it. Investing with a focus on companies that have a strong record of producing consistent dividends has many advantages over other, more risky styles of investing. 

The actual definition of a dividend is cash that is distributed to shareholders from a company’s earnings. The amount of your dividend is determined by the number of shares you own, and the dividend that the company is paying out. The dividend is usually listed as the amount per share (so you simply multiple this number by the number of shares you own in order to get your overall payout). The dividend is paid for with after-tax money from the company. Some companies pay their dividends quarterly (the most common), while others payout bi-annually, monthly, or annually. Regardless, the number you are most likely to read is the dividend prorated over a year. In order to determine a company’s dividend ratio, you divide its annual dividend, by the current cost per share. These two metrics are the most important ones to look at when doing dividend investing. The higher the dividend ratio, the more money you will receive back as a percentage of your principle investment.

I think all investors should look very hard at dividend investing, especially in today’s income-starved investing climate. There are several very strong dividend payers like AT&T for example, that are offering yields that are double, or even triple what the 10-year bond rates are on American Federal debt. By investing in these companies you are getting paid every year, and any value the company gains while you hold the stock is the “cherry on top” of your investing sundae. To stay consistent, if we keep AT&T as our example, their current dividend ratio is 6%. If you were to spend your dividends every year, you would have gained your principle back again in under 20 years (plus you would still own the shares you bought)! The real power of dividend investing occurs when you keep reinvesting them however. This allows compound growth to truly work wonders. If we think that AT&T might grow at an ultra-conservative rate of 3%, and keep their 6% dividend ratio, then we assume that all our dividends will be reinvested, your original principle will have doubled in only 8 years! In the long term, you could easily see your money double 4 or 5 times. Also keep in mind that great dividend paying companies typically increase their dividends over time. For example Coca-Cola has had 48 years of consecutive dividend increases. Procter & Gamble – 55 years of consecutive dividend increases.

Another reason why dividend investing is so attractive to many investors is because of the simple fact that if a company is paying a dividend, and has a strong history of paying/raising a dividend, these are two of the best indicators of the overall growth and maturity of a company. Think about the basic logic, if a company can afford to consistently pay shareholders, they have proven that they have sound management, and a pretty good business model. It is extremely rare that a company that has a good history of paying out dividends suddenly goes into bankruptcy. Instead, these are the companies that generally have the economic stability to withstand challenging conditions, and emerge with a stronger market position in spite of them. For example the Coca-Cola company has been paying dividends since 1893.

Dividend investing is a great way to give yourself a consistent stream of positive cash flow as an investor, and is a very useful way to screen out stocks that are too risky. They hold up very well during recessionary periods (like the present one) because their dividend payouts are so attractive to investors that need immediate money from their investments, and the capital gains they experience during a bull market provide a nice overall return for patient investors as well. These are some of the main reasons that dividend investing has always been, and assuredly will continue to be, one of the most solid long-term and short-term investing strategies in the marketplace.

From simplyinvesting.com

Related Books


The Dividend Growth Investment Strategy: How to Keep Your Retirement Income Doubling Every Five Years

Dividend Stocks For Dummies

These 10 Corporations Control Almost Everything You Buy

A chart we found on Reddit.com today shows that most products we buy are controlled by just a few companies. It's called "The Illusion of Choice."

Ever wonder why you can't get a Coke at Taco Bell? It's because Yum! Brands was created as a spin-off of Pepsi--and has a lifetime contract with the soda-maker.

Unilever produces everything from Dove soap to Klondike bars. Nestle has a big stake in L'Oreal, which features everything from cosmetics to Diesel designer jeans.

Despite a wide array of brands to choose from, it all comes back to the big guys.

Click this image to see full size:

From businessinsider.com

I think the title of this article actually telling us "10 Corporations that you must Invest".

Warren Buffett: Why stocks beat gold and bonds

In an adaptation from his upcoming shareholder letter, the Oracle of Omaha explains why equities almost always beat the alternatives over time. 

FORTUNE -- Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire Hathaway (BRKA) we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power -- after taxes have been paid on nominal gains -- in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date.

From our definition there flows an important corollary: The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability -- the reasoned probability -- of that investment causing its owner a loss of purchasing power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period. And as we will see, a nonfluctuating asset can be laden with risk.

Investment possibilities are both many and varied. There are three major categories, however, and it's important to understand the characteristics of each. So let's survey the field.

Investments that are denominated in a given currency include money-market funds, bonds, mortgages, bank deposits, and other instruments. Most of these currency-based investments are thought of as "safe." In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge.

Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal. This ugly result, moreover, will forever recur. Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation. From time to time such policies spin out of control.

Read More  fortune.cnn.com

Diversification vs. Concentration

You've probably heard the saying, "don't put all of your eggs in one basket." Whoever came up with that was probably someone with a diversified investment portfolio because it's a very pertinent topic in personal finance. 

Diversification is the strategy of spreading your money out among a number of investments. The thought is that if you own many stocks and one does poorly, your portfolio won't be affected as much. But also, if one stock does very well, your portfolio won't reap all of the benefits. So you are supported by all of your stocks, rather than depending on just one or two.

Concentration is the exact opposite strategy. Someone who has a concentrated portfolio may own just a couple stocks. If those stocks do really well, his portfolio will do really well too. But if they do poorly, he can end up losing a lot more money than planned. By having a concentrated portfolio, an investor is exposed to more risk but can earn higher returns.

It's highly unlikely that a new investor will be able to achieve diversification on their own. Going out and buying 50-100 stocks is pretty difficult to do. If you invested $1,000 in each of them, you'd need $50,000-100,000. Not to mention that commissions will cost you a fortune. So your best way to do this is to invest in a mutual fund or exchange-traded fund (ETF) that will buy many stocks for you. 

So which one is better? Well, it's pretty hard to say. Most investment advisors will tell people to own many stocks because putting all of your money in one or two stocks is too risky. However, some investment professionals will argue that concentrated portfolios are better because it's easier to keep up-to-date and follow your companies when there are just a few of them. They feel that people with diversified portfolios are clueless about the latest happenings with most of their stocks. 

So, again, which one is better? Here at TeenAnalyst, we generally recommend a combination of diversification and concentration. We recommend you put at least half of your money into a diversified mutual fund. You can then open another account where you own just a few stocks and follow them closely. 

But the general rule of thumb is that it's better to be more diversified than concentrated. However, that's entirely up to you.

From teenanalyst.com

Related Books

Investment Management: Portfolio Diversification, Risk, and Timing--Fact and Fiction (Wiley Finance)

Creating a Portfolio like Warren Buffett: A High Return Investment Strategy

Five Basic Investing Rules That Investors Easily Forget

In this article you will find information about five investing rules you should not forget.

You will also find information about when you should start investing, how much money should you invest, the importance of investment goals,and the associated investment risk.

The Basic Investing Rules

It is very easy to jump into stock investment bandwagon following others to make money, but without strong investment philosophy straight from beginning, it is quite difficult for you to be successful. Not only in stock market but in any investment decision you ever do.

It takes me years after investing in stock market to discover these basic investing rules. It is not my intention to impose new rules to investing, but you'll be on the winning side if you know the basic rule of the game. 

Basic Investing Rules 1: Investing Needs Money 

Companies are approaching bankers, wealthy individuals and public investors asking for money. Therefore, only capable investors (at least have the money) should invest in the stock market. Though not the fastest way, saving money is the easiest method to accumulate wealth.

How much money will you be saving is depend on your financial goals, income capability and time availability. I myself allocate 30 to 50 per cent of my salary as a 'forced saving' to expand my investment muscle. Find out how much you should save from my retirement planning step by step guide.

Latest US surveys found that more than 50 per cent of the population is expending more than what they earned. Make sure you are not one of them! 

Basic Investing Rules 2: Start Investing Only If Enough Money 

Having money to invest is just not enough. After all, you aren't going to invest with your medical fund are you? Lying at home without proper medication just because you'd lost the money in the stock market should be the last thing you ever want to be happened.

Under normal circumstances, you should not seriously consider investing unless you had satisfied at least one of the three following conditions:

• You have six months income worth in savings.
• Your current assets equal to your current liabilities.
• You have just acquired a sudden windfall or inheritance, which should be thought as capital and not as current income. 

Basic Investing Rules 3: Know How Much Money to Invest 

Greedy stock traders risking ALL their money in stock market, but smart stock investors invest within their surplus in savings. It is just a common sense, but you will be amazed on how investors around you get greedy when stock market appear to be very bullish.

I let six months worth expenses all the time in my bank account. In case the market turn against me, I'm not panic like other investors do. In fact, I will take advantage from this market inefficiencies to double my return by buying undervalued shares, while continue living my own life!

Basic Investing Rules 4: Have Investing Goals 

Understanding your objectives is the major part of successful investing, and many don't have them since the very first day they start investing.

Ask yourself, do you invest:

• For short-term, medium-term or long-term?
• For your kids' education, buying new homes or for retirement?
• For income (dividend) or for growth (capital appreciation)?

Specific goals can direct you to specific investment plans. Having definitive investment plans will then make your stock investment practice much easier. More importantly, you are not influenced by the crowd; not easily tempered by the bull market and not panic in bear market. 

Basic Investing Rules 5: Aware of the Associated Risk 

There are always risks in investment. In stock market, the risks include:

• Individual Financial risk. 
  Probability that you went broke, either because you lose your jobs or businesses. You didn't know when you get fired due to downsizing or business went down due to stiff competitions.
• Companies Business risk. 
  Probability that the companies that you invest in went down either due to stiff competitions, mistakes in business directions or corruptions in it's own management.
• Stock Market risk 
  Sometimes, the stock you invest in has nothing wrong but because the market sentiment went down, will also effect the price of your stock.

Risk is everywhere.

In stock investment, it is not about avoiding risks that matters, but rather reduce the risks to the lowest level right from the dollar you cash in till the dollar you cash out.

Though all the basic investing rules are really that basic, don't take it lightly when it comes to money. Strictly follow the rules, and the money is yours.

From stock-investment-made-easy.com

Related Books

The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)

Buy and Hedge: The 5 Iron Rules for Investing Over the Long Term (Minyanville Media)

The Winning Investment Habits of Warren Buffett & George Soros

Three Simple Retirement Planning Guide

Best Time to Start

Now is as a good time as any. The earlier you start, the bigger the nest egg you’ll have on retirement. But as we know, it is difficult to start in our twenties, as at that age we save for a car and then a house. And soon after, there will be educational expenses for kids.

But you cannot afford to keep postponing your financial planning for retirement. In order to have sufficient income to cover all those non-working years, you cannot leave the plan to the very last moment. If you decide to retire at 55, you need a nest egg that can generate an income for another 25 to 35 years.

Three Simple Retirement Planning Guide

The amount you need to save will depend on the retirement lifestyle you have in mind and the income that you are earning currently. There are three steps in retirement planning guide,

Step One: What’s your monthly retirement income?

First decide how much you think you will need every month to retire comfortably. For example, you may think that if you were to retire today you would need $2,500 per month. But you are only 45 years old and your retirement is still another 20 years away. Because of inflation, you will need more than $2,500 a month in 20 years time to spend on the same things you are used today. 

Assuming an average inflation rate of four per cent per annum, you will need $5,477 per month in 20 years time, so that you still have the same purchasing power as $2,500 today. The higher the rate of inflation, the greater the sum needed per month to give you the same purchasing power as today.

Step Two: Required lump sum

From previous assumption of four per cent inflation rate, you will need $5,477 per month or $65,733 per year. The next stage is to calculate the lump sum required to generate $65,733 for the rest of your life. The interest or return on your investment will determine the lump sum required to earn you a regular income of $65,733 a year.

The higher the rate of return, the smaller lump sum needed and vice versa. For example, if the average interest on your investment is 10 per cent per annum, then the lump sum needed to generate that income is $657,337. But if you managed to find investment with 20% potential return, $328,668 is enough for your retirement planning.

Step Three: How much to save?

Along the way, let say you can earn ten per cent interest per annum, you will have to save $11,128 a year or $927 every month for 20 years to get lump sum of $657,337. How do I get that? You can derive the annual or monthly savings required by multiplying the lump sum figure with the respective figure in the table. In my case, I multiply $657,337 with 0.01693.

However, if the rate of return or your interest earnings is 15 per cent per annum, then you would only need to save $5129 a year. Same if you start a bit earlier, you only need to save $5826 a year for ten per cent interest rate but 25 years of savings. 

Some Precaution Though

With retirement planning, you are looking into the future. So you will be making a lot of assumptions. Though how much you need to save depends on the assumptions made, working through the three steps will give you some better picture of what is expected and whether you are on the right track to a retirement lifestyle that you want.

From stock-investment-made-easy.com

Related Books

How to Retire Happy, Wild, and Free: Retirement Wisdom That You Won't Get from Your Financial Advisor

Can I Retire?: How Much Money You Need to Retire and How to Manage Your Retirement Savings, Explained in 100 Pages or Less

You Think $1 Billion Was Expensive For Instagram? They Originally Asked For $2 Billion

Facebook raised a lot of eyebrows when it bought Instagram for $1 billion last week.

But that's actually a bargain compared with Instagram CEO Kevin Systrom's original asking price of $2 billion.

That spectacular number appears in Wall Street Journal, which this evening ran down the details of the intense negotiations between Systrom and Facebook CEO Mark Zuckerberg.

Zuck apparently phoned Systrom on Thursday, April 5, after talking to Facebook COO Sheryl Sandberg and telling her he wanted to buy the company. He reached out directly because he was afraid that going through lawyers, as is normally done with big M&A deals, would have turned Systrom off.

Systrom drove from his home in San Francisco to Zuckerberg's house in Palo Alto repeatedly over the next three days, hammering out a deal. Zuck only told the board of directors about it on Sunday, April 8.

Read more: businessinsider.com

Common Investing Mistakes

Investing for the long-term can be extremely beneficial to the person who takes advantage of it. But that doesn't mean that there aren't any pitfalls. Here are five common investing mistakes that you should avoid if you hope to fully benefit from a long-term investing approach.

Investments Are Too Conservative/Risky A big mistake people make is that they pick investments which are too conservative or risky for their investment goals. For example, a person who invests too conservatively with quite a bit of time before retirement might find that they will need to save more than they planned to because their investments aren't appreciating enough. An investor who is nearing their financial goals who decides to put their money in more volatile investments will find that they are taking unnecessary risks with their portfolio.

If you want to find out how much risk you should be taking with your investments, take time to ask yourself three questions: "What am I investing for?", "How much time do I have before I need the money?", and "How much can I invest?" Then you might want to talk it over with an investment professional. Or look at our model portfolios.

Losing Interest in Investing I know it's hard to imagine but there are actually some people who just aren't interested in investing. While you don't have to have a passion for investing to accumulate wealth in the long-term, it definitely helps. What I've found is that a lot of people lose interest in their investments after a couple years. When they first begin investing, they might tell themselves "I am going to invest $100 each month until I retire" but as time passes, they decide that they would rather spend that extra money each month. This is a big pitfall that you should avoid because that extra spending money could literally cost you hundreds of thousands of dollars in the long run.

Losing Sight of Your Financial Goals The 1990's had an incredible bull market that spawned a new type of investing...daytrading. This bull market led to great gains and has made quite a few people extremely wealthy, and the media has hyped high-flying stocks to get people's attention. The problem with this is that it has caused many people to forget their financial goals. With all this hype, people are investing in these hot stocks, even with college or retirement just around the corner.If you're nearing retirement or whatever it is you're saving for, don't give in to the hype. Instead, keep your mind on your goals, instead of ways to get rich quick.

Investing in What You Don't Know You may have heard of the popular investing concept "invest in what you know." Another way of saying this is "don't invest in what you don't know". A lot of people invest in companies that they know little or nothing about. This can hurt them because a situation might arise that they didn't know about.You can't expect to know everything about a certain stock but it does help to invest in what you know the most. Rather than investing in what you don't know, get out a piece of paper and write down the names of some companies that you do know about and then look up their stocks.

Not Educating Yourself The previous four mistakes that investors make are important ones but this is probably the biggest mistake of all. Far too many people want to invest but they don't know enough about it. Rather than taking the time to learn what they can, they decide to try investing on their own first.It is extremely important to have a good understanding of how investing works before you actually start, especially if you plan on investing in stocks or any riskier investments. Getting experience in investing is important but it's wise to have at least a basic understanding before you decide to do so.From time to time, investors do make mistakes but these are five of the biggest mistakes that you should try to avoid. If you can do that then you will be tipping the odds in your favor when you are investing.

From teenanalyst.com

Compounding Interest

Compounding is sometimes referred to as the "Eighth Wonder of the World" and it's also an investor's best friend. Why do people love compounding so much? Well, it's because compounding makes many people incredibly rich!You're probably wondering what compounding is so we'll get to the point. Compounding is actually a very simple concept. Compounding is the idea of earning money on what you have already earned. It may sound a little silly but it's really not. 

Here's an example: Let's say you are given $1000 by Aunt Susan for your 16th birthday. After sending her a big thank-you card for your new wealth, you decide it's best to put the money into a savings account that will pay you 3% interest each year. After one year, your $1000 would have grown into $1030 (1000 x 1.03). Because you then have $1030 in the savings account, you would make 3% on that the next year which would give you $1060.90. If you were really patient and kept the money in for 20 years, you would have $1806.11 because the money has compounded. That's $806.11 that you have made by doing nothing but being patient. However, if the money didn't compound, you would only have $1600, over $200 less.

That's nice but didn't you say that it could make me rich? Yes, and now that you see how it works with a savings account, now you're ready to see the wonders that the stock market offers. Over the years, the stock market has returned an average of 13% per year so we will use this number for the following example.Compounding really begins to work when it comes to investing in the stock market. Did you know that if you invested that $1000 that Aunt Susan gave you into the stock market and kept it there for 20 years, you would have $11,523 compared to only $3600 if it did not compound.But compounding works the best when you start adding more time into it. Do you know how much you would have in 50 years, about the time of retirement? More than $450,000! And that's just with one investment! Imagine how much you would have if you added to that over the years!Because we are young investors, we have the advantage of time. When it comes to investing for the long-term, compounding and time go hand in hand. If you want to save $1,000,000 in 50 years, you would only have to invest $18 per month. However, if you start investing 20 years later, you would have to save $237 per month and your goals keep getting harder and harder to reach as time goes by. So, by investing at a young age, you're giving yourself a head start and beginning your path to becoming rich.

From teenanalyst.com

Calculating a Stock's Intrinsic Value

You've found a great company, possibly the best investment opportunity in your lifetime... 

Not only that, you understand the Basic Principle of Investor Return which says, "the price you pay determines your rate of return."

So all you have to do is take advantage of your expert knowledge and buy a great company at a great price.

Right?

Well, almost.

You've still got one problem left...

How do know a company's selling for a great price?

Easy...

You calculate its intrinsic value.

What's Intrinsic Value?

In his 1938 publication "The Theory of Investment Value," John Burr Williams first articulated the idea of calculating a stock's intrinsic value.

His idea essentially adds all of the expected future cash flows produced by a company and assigns them a present value. This present value represents the price you should pay.

So, in financial circles, "intrinsic value" is defined as the present value of all expected future net cash flows to the company.

Warren Buffett Investing Secrets

The E-Book of The Nine Investing Secrets of Warren Buffett.

Warren Buffett: Choose sleep over extra profit

" I have pledged – to you, the rating agencies and myself – to always run Berkshire with more than ample cash. We never want to count on the kindness of strangers in order to meet tomorrow’s obligations. When forced to choose, I will not trade even a night’s sleep for the chance of extra profits."

 Source: Letter to shareholders, 2008

Read more: businessinsider.com

Warren Buffett: The right moment to strike

"The best thing that happens to us is when a great company gets into temporary trouble...We want to buy them when they're on the operating table."

Source: Businessweek, 1999

Read more: businessinsider.com

Warren Buffett: The "lack of change" appeal

"Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it's the lack of change that appeals to me. I don't think it is going to be hurt by the Internet. That's the kind of business I like."

Source: Businessweek, 1999

Read more: businessinsider.com

Warren Buffett: About Socks and Stocks

"Long ago, Ben Graham taught me that 'Price is what you pay; value is what you get.' Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down."

Source: Letter to shareholders, 2008

Read more: businessinsider.com

Warren Buffett: Game pressure

"The stock market is a no-called-strike game. You don't have to swing at everything--you can wait for your pitch. The problem when you're a money manager is that your fans keep yelling, 'Swing, you bum!'"

Source: The Tao of Warren Buffett, by Mary Buffett and David Clark, via Engineeringnews.com

Read more: businessinsider.com

Warren Buffett: No limits

"When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever."

Source: Letter to shareholders, 1988

Read more: businessinsider.com

Warren Buffett: Timing is everything

"Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful."

Source: Letter to shareholders, 2004

Read more: businessinsider.com

Warren Buffett: Watch carefully...

"After all, you only find out who is swimming naked when the tide goes out."

Source: Letter to shareholders, 2001

Read more: businessinsider.com

Warren Buffett: Time is ticking away

"Time is the friend of the wonderful business, the enemy of the mediocre."

Source: Letters to shareholders 1989

Read more: businessinsider.com

Warren Buffett: No need to be a genius

"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ."

Source: Warren Buffet Speaks, By Janet Lowe, via msnbc.msn

Read more: businessinsider.com

Warren Buffett: Wonderful v Fair

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

Source: Letter to shareholders, 1989

Read more: businessinsider.com

Warren Buffett: Essentials Rule

"Rule No. 1: never lose money; rule No. 2: don't forget rule No. 1"

Source: The Tao of Warren Buffett, by Mary Buffett and David Clark

Read more: businessinsider.com

Boustead edges up on positive outlook

KUALA LUMPUR (APRIL 10): Boustead Holdings Bhd shares advanced on Tuesday after its group managing director Tan Sri Lodin Wok Kamaruddin said the company aims to grow the diversified group’s profit before tax (PBT) to RM1 billion and net profit to RM750 million in the next two years amid the expected improving prospects in all divisions.

At 12.14pm, Boustead added three sen to RM5.47 with 410,500 shares traded.

“Personally, I would like to see the group breach the RM1 billion mark for PBT within the next two years,” he said after the company AGM’s on April 9.

“If we can move revenue towards the RM10 billion mark this year, that will be a good achievement,” he said, adding that based on the first three months of 2012, the group’s prospects were looking very healthy.

For FY11 ended Dec 31, Boustead recorded a 14% increase in PBT to RM831 million from RM726 million a year ago. Its revenue rose 38% to RM8.6 billion from RM6.2 billion.

Lodin said the group was allocating some RM1.3 billion for its capital expenditure this year. The largest portion of RM400 million will be for the property division, RM300 million for plantation, RM200 million for shipbuilding, RM100 million for pharmaceuticals and the balance for other operating units.

Lodin expects the plantation division, which contributed 41% to the group’s bottom line last year, to exceed the RM300 million achieved in 2011 if the price of crude palm oil continues to be as strong at between RM3,000 and RM3,500.

By Surin Murugiah of theedgemalaysia.com

Bought KMLOONG, 4th April 2012

Today I have bought KMLOONG at price RM 2.64. KMLOONG has just announced quarterly report on consolidated results for the financial period ended 31/1/2012 (bursamalaysia.com). 

KMLOONG Highlights :-

1. For the quarter, the company reported revenues of MYR 177,707,000 compared with MYR 156,015,000 for the same period a year ago. Profit before tax was MYR 35,955,000 compared with MYR 22,866,000 for the same period a year ago.

2. For the full year, the company reported revenues of MYR 768,710,000 compared with MYR 563,408,000 for the same period a year ago. Profit before tax was MYR 165,293,000 compared with MYR 90,633,000 for the same period a year ago.

3. The company will give 10 sen dividend.

Kim Loong Resources Berhad, the Group together with its subsidiaries, engages in cultivating, processing, and marketing oil palm products in Malaysia. The company also involves in extracting residual oil from wet palm fibre and conversion of palm fibre; trading fresh fruit bunches; and manufacturing health supplements and food ingredients. In addition, it manufactures concrete culvert and bio fertilizers, as well as engages in bio gas and power generation activities. The Group operates in Malaysia.

Stock Portfolio April 2012

For Stock Portfolio April 2012, I have received dividend gain from MPHB RM 37.5. Therefore, MPHB purchase price will be adjusted from RM 2.84 to RM 2.8025. I'm still waiting dividend from TM and GENM. 

TM - Dividend 9.8 sen and capital repayment RM 0.30 so total equal to RM 398.

GENM - Dividend 4.8 sen so equal to RM 48.

Today 3rd April 2012, KLSE Index has hit the high 1609.33. We can see that due to GE14 coming, most of the stock have now trade at their high. Recently, a lot of penny stock also starts to move. Many people have started to speculate the penny stock and some have made a huge gain and some have burnt their wallet. Please be cautious if you intend to speculate in the stock market.

As for me, this year I will only focus on dividend gain strategy on stock market so I will ignore all the noise. My 2012 dividend target is to build my dividend gain to RM 5,000 / year.

TM: Capital repayment to boost yields

TM: Capital repayment to boost yields
Written by Insider Asia
Friday, 30 March 2012 14:49

In previous articles we have highlighted telecommunications companies as the new generation of high-yielding stocks amid expectations of slower industry growth. In addition to upping the annual dividend payout ratio, some are boosting shareholder returns through capital repayment exercises.

Following DiGi.Com Bhd’s proposed capital repayment exercise last year, Telekom Malaysia Bhd (TM) is the latest to announce a similar move. This would be in keeping with investor perception of the stock as a relatively less risky, high-yielding investment.

The company’s growth prospects were weak following the de-merger in 2008. Its bread-and-butter fixed line telephony business remains in a gradual decline as consumers switch to mobile lines. The fixed line broadband business, Streamyx, also came under pressure in an increasingly crowded market, with the emergence of WiMAX and 3G wireless broadband operators.

In short, its generous dividend policy — minimum payout totalling RM700 million or 90% of net profit, whichever is higher — has been the biggest attraction for investors, until recently.

Strong take-up for UniFi rejuvenates outlook
The surprisingly strong take-up for its high-speed broadband service, UniFi, appears to have rejuvenated the company’s growth prospects and investor interest in the stock.

From less than 33,000 subscribers in its first year of launch in 2010, total subscribers surged to 236,501 by the end of last year while the average revenue per user (ARPU) stood at about RM184 per month.

The strong momentum continued into the first few months of the current year. Total subscribers have now exceeded 300,000, translating into a take-up rate of roughly 25% of the total premises passed.

Strength in the broadband business — where turnover grew 21% y-o-y underpinned TM’s 4.1% revenue increase in 2011, up from 2.1% growth in 2010 — is expected to remain the key growth driver for the foreseeable future.

Margins improved on the back of the higher turnover last year. Net profit totalled RM1.19 billion. Even after adjusting for one-off gains/losses, including tax incentives from last-mile broadband investments, normalised profits were up sharply on the year at roughly RM635 million, from a comparable RM422 million in 2010.

Riding on the positive momentum, TM has upped its turnover growth target to 5% for 2012. Total UniFi subscribers is expected to reach 400,000 by year-end, which appears to be fairly conservative if the pace recorded in the first few months of the year is sustained.

More competition for UniFi
UniFi will start to see competition from Maxis Bhd and Packet One Sdn Bhd (P1) in the coming months. Both companies have signed wholesale agreements giving them access to the estimated 1.3 million households by end-2012.

Maxis in particular could be a formidable competitor with the experience of its sister company, Astro All Asia Networks plc, in terms of Internet protocol TV (IPTV) content and video on demand offerings. P1 aims to attract higher-end business customers with its bundling of fixed and nomadic broadband services. The company targets to launch its high-speed broadband (HSBB) package by end-1Q12.

Celcom Axiata Bhd and REDtone International Bhd have recently signed similar wholesale agreements with TM.

Lower margins despite top line growth
Despite expectations of stronger turnover, however, TM expects margins to compress this year on the back of higher content cost for HyppTV, rising advertising and promotion expenses with increasing competition as well as higher maintenance costs.

On balance, we forecast net profit totalling some RM663 million this year, which implies its shares are trading at a fairly pricey 28.4 times our estimated earnings. The high valuations are being supported by TM’s expected yields this year.

The company has proposed a 30 sen per share capital repayment, on top of the minimum 19.6 sen per share dividends. That translates into a net yield of 9.4% at the current price of RM5.26. The exercise is slated for completion by 3Q12.

Yields likely to fall in 2013
Looking further ahead, yields are expected to normalise in 2013.

The proposed capital repayment and annual dividend will cost the company some RM1.77 billion and push gearing higher. Net gearing stood at 31.5% at end-2011, up from 15.4% at end-2010, and is expected to rise to roughly 63% by end-2012 after the capital repayment and dividend payments and estimated capital expenditure of about RM2.6 billion.

This may cap the prospect for future special dividends, at least in the medium term. TM’s regular annual dividends of 19.6 sen per share would translate into a net yield of roughly 4% for shareholders at the prevailing price, adjusted for the 30 sen per share capital repayment.

DiGi’s strong balance sheet bodes well for sustainable dividends
DiGi is expected to complete its RM509 million capital repayment exercise this year. Excluding the small portion that was disbursed last year, total payment (including dividends) this year is estimated at about 22.4 sen per share. That translates into a net yield of 5.7% at the current share price of RM3.93.

We expect DiGi to pay at least 100% of its annual profit as dividends. Thanks to strong cash flow from operations, the company is flush with cash — net cash totalled over RM1 billion at end-2011. Its balance sheet is well off the optimal capital structure of 35% to 45% debt-to-equity ratio.

Dividends to shareholders are limited by distributable reserves but the company has hinted at further capital management measures to raise the amount payable and move closer to its target debt-to-equity ratio.


Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.

This article appeared in The Edge Financial Daily theedgemalaysia.com, March 30, 2012.