The 11 Rules For Buying Dividend Stocks -- And The Cardinal Rule Of Selling Them
Many of you have probably filled out one of the "retirement planner" forms available online. Plenty of tax andprograms also have "Lifetime Planner" sections for folks to determine if they can afford to retire.
These sorts of programs plug certain assumptions into a formula, such as projected income, anticipated spending levels and portfolio growth rate. After you add your personal information, it projects how much you'll be able to produce annually during retirement and how long it last.rate, retirement
The first time I ran these numbers, the program said I was good until 116 years of age. At the time, I believed that if we followed the plan as outlined, my wife and I would never have any realworries. We'd be set for the rest of our lives and could proudly leave some to our children to help with their retirement. How naïve of me!
Things have sure changed asince then.
At the time, I'd estimated inflation at 2% and a minimum yield on our portfolio of 6%. In those days, that was conservative. Inflation was lower than 2%, and you could always earn 6% on a top-rated or CD.
Many retirees and CDs and top-quality no longer pay enough interest to keep up with inflation.are now rethinking the entire retirement process.
With these options out of the picture, it's no wonder theof big, solid, dividend-paying companies are soaring. Investors hoping to earn a higher return are pouring into them with the hope of staying ahead of inflation.
I'm a firm believer that the days of buying a company ikely have long-term relationships with certain dividend-paying ., putting it in a drawer and never worrying about it again are over. At the same time, folks contemplating their retirement finances l
While working on our special report, you can request a copy HERE), our lead , Vedran Vuk, really showed me how to sort through hundreds of dividend-paying . I wanted to share some of the tips I learned during the process, so here are the qualities to look for as you're searching for the best dividend .Every Month (
Tip No. 1: Long History Of The Company Paying The Dividend
Many companies pride themselves on a decades-long history of continuously paying dividends. For many, it's just part of the company culture. Every year a certain portion of profits is paid out to the owners of the company, and another portion is retained for growth.
Tip No. 2:Of No More Than 80% Of The Company's Per Share
When our team compiled the list of dividend-paying, they listed them by yield, going from the highest to the lowest. Naturally, I went straight to the top of the list.
But our analysts quickly pointed out that if a company earns $0.50/share and is paying a of $0.75/share, it could be in trouble. It's important to compare the earnings per share and the dividends per share of any candidate.
If you're considering investing in a company with an unusually high payout ratio, always investigate where the to pay the dividends is coming from.
Tip No. 3: WorldwidePresence
The Miller’sForever team is very concerned about inflation of the U.S. dollar. Companies that do business all over the world provide somewhat of a against inflation. McDonald's (NYSE: MCD), Coca-Cola (NYSE: KO), Procter & Gamble (NYSE: PG) and General Mills (NYSE: GIS) are a few household names that come to mind.
Tip No. 4: Stable Product Line
Whether it's beer, food, oil or computer chips, the company you're investing in should have a core business with a worldwide need for its product.
Tip No. 5:Of
This is why I bought and continue to hold Microsoft (Nasdaq: MSFT). Companies like Microsoft have plenty of cash and can pay their bills with plenty of left over to reward their stockholders.
Tip No. 6: The Company Sticks To Its Core Business
During the Internet boom, many companies were swappingand buying up businesses all over the place. To this day, I do not understand why AOL-Time Warner made sense as a business.
You can always follow a company's progress and invest if you think it's going to dominate a new business venture.
Tip No. 7:-Price Stability
Benjamin Graham, author of "The Intelligent Investor," recommended a portfolio of and high-quality bonds. Under his model, you switch part of your portfolio back and forth between the two, depending on conditions.
While that may have worked for him, the yield on fixed-income today no longer allows for that. You need to continually remind yourself that no matter how big or stable a company, its stock price still can fall.
Tip No. 8:Is Good
Some of the better yields are in sectors that experience more volatility. A prudent investordiversify his dividend-paying among different sectors to reduce the overall impact of swings.
Tip No. 9: A History Of Buying Back Stock
It's a big plus if the company has enough earnings to pay good dividends and buy back appreciation in addition to generous dividends is your overall goal.at the same time. Having stock
Tip No. 10: A History Of Increasing Dividends
It's prudent to check a company's dividend history to see if there's a pattern. Many old-line moneymakers have done very well for their shareholders by increasing their dividends every year.
[InvestingAnswers Feature: Ask The Expert: How Can 'Dividend Aristocrat' Stocks Help You Beat The Market?]
Tip No. 11: APercentage Of 3% Or Higher
There are many good dividend-payingout there, but you should factor in the price of any company you're considering.
Companies like McDonald's, Walgreen Co. (NYSE: WAG) and Shell have traditionally met our own requirement of 3% or higher. There are dozens of other good companies with good dividend yields.
You don't want to ride a stock down just to see your dividend income eaten up in loss of principal. A stop-loss helps to keep that from happening.
A traditional stop-loss uses a fixed price. If you buy afor $100 and in a 20% stop-loss on it, you have an immediate sell order on it if the drops to $80.
The sell order is executed automatically by a computer. If you trade online, it's easy to enter the stop-loss order when you purchase the .
A trailing stop loss is a little more sophisticated; it adjusts the start point every time the hits a new high. This gives investors the potential to lock in some profits and still protect themselves.
Assume that you bought the samefor $100/share and in a trailing 20% stop-loss order. You may end up holding the stock for years; collecting dividends along the way and watching the appreciate.
Imagine that the investment, but you still earned a $60/share , plus the dividends you've collected over the years.hits an all-time high of $200/share. The trailing stop-loss trigger an automatic sell order if the drops 20% to $160/share. In this illustration, the trailing stop loss protected your
When you enter your stop-loss order, make sure to mark it "good until canceled." My online brokerage enters every order for the day and then cancels it after the market closes unless they receive instructions to enter it for a different period of time.
Some online brokerages work differently. Even with a "good until canceled" order, somecancel the order automatically after 60 days, and you have to re-enter it. That's not necessarily a bad thing because it's a good time to review your investment anyway.
Take Comfort In Having a Plan
There's comfort in having a portion of your portfolio invested in solid companies that pay nice dividends. Retirees have to be much more active in managing their money than in the past.
Being a part owner of some of the finest businesses in the world and sharing in the profits is aof fun.
Like most areas of investing, finding the right companies and buying them at the right price are the major factors. It just takes a little time and common sense to sort through the hundreds of good possibilities and select the right ones for your individual situation.
Dennis Miller is a member of Mensa and has consulted with companies such as GE, Mobil, HP and IBM, among others. He has authored "Retirement Reboot" and publishes his monthly newsletter, " Forever," and the free journal Miller's Money Weekly.
This article was originally published on Miller's
The 12 Rules to Follow for Buying Dividend .