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Live Off Dividends

How to pick your dividend stocks yourself?

You came to the right place.


Thanks to Alex who is the owner of this blog I have the honor to lead the dividend segment of his blog. I’m Adam, I come from Hungary, I work as a Restaurant Manager and in my free time I have some side hustles but most importantly I’m an investor in the stock market and real estate.


Let’s get right into it…

I will teach you once a month about key factors that you have to consider when it comes to the subject „picking a stock”. Of course, I’m just another financial guy like many others on this planet, I have no videos on youtube just a great performer portfolio. That’s why I dare to express my stock picking factors and teach you something.


The dividend yield isn’t everything! 💵


What? But you said….Yes, I know. Let me explain quickly what I mean.


I’m a long-term dividend investor so if I put my money into a stock I buy the company for at least 10 years. When I see a stock that offers me a 9% dividend yield I won’t run for it immediately and invest in it 10.000$ or not even 1000$.


Most of the time this much dividend yield isn’t covered by its earnings or free-cash-flow, they just started to pay out dividends, the company itself is in big financial trouble, they announcing shares every year to cover the dividend payouts, stock price just dropped recently, they are cutting their dividends over and over again…and it goes on and on with this list.


You see there is so much more than just looking at the dividend yield.


I will take the example of what I just wrote.


A company that offers me a 9% dividend yield. The first thing that comes to my mind about this company is that I want to look at the dividend record. How many years they are paying? And if yes, then was it always 9%? Or more?


Most of the time they just started to pay dividends and they think it will be more attractive for their investors if they pay out this much. The problem is that most of the time it isn’t well covered and sooner or later(roughly in 2-3 years) they have to cut the dividends.


Fully or just decrease but it will come. There are exceptions always, but more on that later.


Also, a good idea to look at the stock price chart. Most of the time these stocks are new to the market. Their IPO’s was announced in the last 5 years. The price is very volatile. Or it can be an old company where the price stays the same over decades, not too volatile, so it does not grow anywhere just pays a dividend. If the other factors are okay then it can be a good idea to use this stock as a retirement fund. To live off the dividends.

🏦What I like more is when stock offers a 3-5% div. yield.


Mostly this amount is well covered, the stock has a history of more than 10 years of dividend-paying, the stock price is increasing. I’m more into these companies than the big yielder ones.


Of course, it can fail by the other key points but this amount as a dividend yield is more likable in my opinion. If the company is healthy then most of the time it is a stock with a P/E of around 25 and it is considered as a middle growth company; so the stock price will increase yearly 5-15% and also you will get your dividends.


What about the other end? The small yielder companies are trash? 🚯


Not at all. I like also them but there are also other facts that we have to look at. It has to be/ can be a company which is a little bit older and they just announced their dividends with only 0,9% yield, there we have to drive into the company’s financial statement.


Deeply.


When a company stops growing 20-30% a year, mostly after that is the time for a small yield to keep their investors „alive” and feed them with some percentage. It doesn’t mean that the company won’t grow any further. It just slows down a little bit.


If you are young and you don’t need the money back soon from your brokerage account then it is a very good idea to keep some high-growth potential stocks in your portfolio. Mostly they are capable to grow 15-25% a year, a small yield of what you can reinvest, and 10-20 years later when you will need the money, sell them, put the money into a safe 5% yielder stock what you can just live off.


If you are over 50 years old I wouldn’t put money into these stocks. In this case, is better to stick with the big yielder companies which can pay for your retiring days.


I thought I will cover two factors in this Article but it turns out that about the div. yield I was able to write more than I thought.


Just to recap everything: ✔️

- Big yield, most of the time isn’t safe at all, be aware of. The stock price won’t grow anywhere.


- Middle yield, most of the time is safer than the big yield, if the other factors are good then you will get the most out of these stocks.


- When you are young buy some small yielder company which can grow much faster than the others what I mentioned in the article. For good diversification, it’s best to hold from every three.


Until next time. Kind Regards, Adam 👋

1 comment

1 Comment


Guest
Mar 10, 2022

It's recommended not to put all eggs in one basket. A stable and steady dividend yield stock is good to keep. Some spare cash can be used to invest in some more aggressive dividend yield stocks but have to keep an eye on it. 😀

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