5 Reason to Invest in Dividend stocks

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If you’ve ever had occasion to look into the academic research comparing different types of returns from stocks that have different characteristics, as a class, dividend stocks tend to do better than the average stock over long periods of time.  There are a multitude of reasons as to why this occurs but it’s a powerful enough force that many investors have done quite well for themselves over an investing lifetime by focusing on dividend stocks, specifically one of two strategies – dividend growth, which focuses on acquiring a diversified portfolio of companies that have raised their dividends at rates considerably above average and high dividend yield, which focuses on stocks that offer significantly above-average dividend yields as measured by the dividend rate compared to the stock market price.

I happened to be up working late on launching the new asset management company my family is establishing this year and, despite it being 3:46 in the morning, am not quite ready to go to sleep.

 I thought it would be useful to sit down for a moment and break out five reasons dividend stocks are so intriguing to investors who prioritize long-term wealth accumulation.  My hope is that by giving you a basic framework, you can understand some of the forces at play; how human nature, accounting, business management, and the stock market all come together in a way that can allow a prudent investor to enjoy streams of passive income from his or her holdings.

1. Dividend Stocks Might Be Better for Many Ordinary Investors Than Stocks That Don’t Pay Dividends Because the Cash Flow Restrictions Result in Lower Accruals

Though it may be a bit early in the article to hit you with this one, I want to start off by talking about it first because it is the one I consider particularly important.  Usually, investors aren’t exactly interested in learning about advanced accounting techniques or diving into an income statement or balance sheet.  Nevertheless, it’s the heart and soul of the investing process.  After all, a business is ultimately only worth the net present value of the discounted cash flows it can and will produce for its owners.  In fact, when valuing a company or stock, most professional investors use a form of modified free cash flow rather than reported net income applicable to common.  In my case, my preferred metric is something known as owner earnings.

A company that pays dividends has to physically come up with cash that investors can receive; cash that is mailed to them in paper check form, direct deposited into their checking or savings account, or sent to their broker for deposit in their brokerage account.  As the saying goes, “you can’t fake cash”.  Either the dividend shows up or it doesn’t.  This has the effect of causing companies that devote money to dividends to have lower so-called accruals between free cash flow and net income.  In plain English, that means there are fewer meaningful adjustments in the accounting records of the corporation so the “quality of earnings” is higher in that the reported profits are almost in line with the conservatively calculated free cash flow.  It is a well established fact that, over longer periods of time, companies with lower accruals handily beat companies with higher accruals when measured by total return.

2. Dividend Stocks Might Be Better Than Stocks That Don’t Pay Dividends for Many Ordinary Investors Because the Significant On-Going Cash Commitment Reduces Funds Available for Managerial Allocation

Executives and managers are only human.  When cash begins to pile up in surplus, many men and women find themselves facing a constant pressure to spend it, even if spending it would be a mistake or lead to less optimal outcomes.  For those in Corporate America, when that spending is devoted to mergers and acquisitions, it can result in a much larger domain and all that comes with it, usually stock options, restricted stock, higher salary, bonuses, pension benefits, and, perhaps, even a golden parachute.  On the whole and in the aggregate, companies that pay dividends have a first-line of built-in inoculation in that the folks running the enterprise simply don’t have as much money on hand as they otherwise would have had were there no dividend in place.

This means that executives have to be far more selective when identifying potential merger and acquisition candidates than they otherwise would have had to be in a world of easy money.  Each project needs to be compared and contrasted to others with only the best projects selected and merely “good” projects discarded.

3. Dividend Stocks Might Be Better Than Stocks That Don’t Pay Dividends Because They Enjoy a Phenomenon Known as “Yield Support” During Stock Market Crashes

Imagine that you are looking at a stock that trades at $100 per share.  Now, imagine that stock pays a 3% dividend.  The company itself is extraordinarily stable.  Earnings cover the dividend sufficiently and those earnings are from diversified underlying sources so there’s only a tiny probability of a dividend cut.  Now, imagine that the stock market begins to crash.  This company falls to $90 per share, $80 per share, $70 per share.  It keeps going, down through $60 per share, $50 per share.  At some point, provided that dividend is safe and investors are convinced it is going to be maintained, the dividend yield on the stock itself is going to be so attractive that it brings in buyers from the sidelines; people who otherwise cannot stand to see the yield right there in front of them without doing something about it.  Consider that the exact same $3 per share dividend would be a 6% dividend yield if the stock were trading at $50 per share instead.  This explains why dividend stocks tend to fall less during bear markets.

4. Dividend Stocks Might Be Better Than Stocks That Don’t Pay Dividends Because of the Return Accelerator Phenomenon

But that’s not all.  That yield support leads to another phenomenon that has been studied by respected Wharton professor Dr. Jeremy Siegel, which he calls the “Return Accelerator” or bear market protector.  In essence, investors who reinvest their dividends accumulate more shares during stock market collapses as the dividend yield expanding allows them to gobble up more equity with each dividend check they shove back into their account or dividend reinvestment plan.  As we discussed in my in-depth article on investing in the oil majors, that is one of the reasons the oil companies, as a class, did much better than the average component of the original S&P 500 stock market index back when it was introduced in 1957.

In fact, Dr. Siegel demonstrated that the worse the volatility, the better the long-term investor did!  The reason has to do with the mathematics.  The lower the cost basis of each subsequent purchase, the faster the average weighted cost basis of the entire position is drug down and the more shares the investor accumulates which, themselves, pay dividends.  This means it takes a much smaller increase – certainly far less than the previous breakeven point – to get the position into profitable territory.

5. Dividend Stocks Might Be Better Than Stocks That Don’t Pay Dividends Because They Provide a Huge Psychological Advantage to Certain Types of People

As the father of value investing, Benjamin Graham, once wrote, “The real money in investing will have to be made – as most of it has been in the past – not out of buying and selling, but out of owning and holding securities, receiving interest and dividends, and benefiting from their long-term increase in value.”  When you own a company that distributes some of its profits in the form of a cash dividend, it becomes a lot easier to focus on things that matter like “look-through earnings“; to make the connection between the success of the enterprise and you actually getting your hands on some of the cash that flowed through the corporate treasury.  It can make you more patient, focusing on whether or not your dividend checks are getting larger with time, mostly ignoring the quoted stock market value.  This, in turn, can lead you to buy and hold investments, reducing frictional expenses, increasing your odds of taking advantage of things such as deferred tax liabilities, and, ultimately, the stepped-up basis loophole.

It may not sound like a major advantage but, in the real world, it can mean the difference between failure and success.  One of the things most secret stock market millionaires have in common is they aren’t particularly keen on hyperactivity.  Whether it’s retiree Anne Scheiber amassing $22 million from her New York apartment or a minimum-wage janitor like Ronald Reed accumulating $8 million in equities through paper certificates and DRIPs, they tend to find exceptional companies, diversify so as to avoid wipe-out risk, and then hold on as if their life depended upon it.

 

 

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6 Must-Do Practices To Reach Millionaire Status

This blog was written by Matt Reiner the CEO of Wela, a digital financial advisory service.

You don’t have to be the next Mark Zuckerberg or CEO of Apple to reach millionaire status. In fact, we’re seeing the “millionaire next door” mindset pushing more people into this status at retirement, but it’s still taking a lifetime to reach this goal. What if we told you that you could do it sooner? Maybe even as soon as your 30’s? Combine some ambition and perseverance with smart financial decisions and you could have what it takes to be a millionaire…before retirement.

The road to prosperity is paved with good business strategies and responsible financial choices. Check out these simple but powerful practices you can apply to your day-to-day life that may help increase your wealth enough to reach that seven-figure mark.

1. Develop Multiple Streams Of Income– Find an opportunity where you have the ability to increase your income. Making more money is easier said than done, but if you can find several ways to rake in some extra cash it can help you grow your net worth more quickly.

In a five-year study of self-made millionaires, author Thomas Corley found that most of them had three or more streams of income.

After doing some research and consulting with a financial advisor, you may want to start investing in the stock market. The stock market has many ups and downs so think long-term when you ride out the waves.

Or if you’re the entrepreneurial type, start your own business on the side and work on projects you’re excited about. If you develop a product you love which you’d use yourself, create an online store or sell your products through other vendors.

2. Focus On Your Overarching Goals – When you start making some extra cash and increase your savings, you may be tempted to buy a new luxury car or designer clothes. Although these purchases would be a nice treat, it could spiral into blowing all of your savings for the future. Don’t let all your hard work vanish after splurging on a few big purchases. People who are determined and focused tend to attract (and keep) more money; so make sure you are respected for your work ethic, not the extravagant items you buy.

3. Put Your Savings To Work By Investing – Consider increasing your savings by investing. Put your money in an investment that you can’t easily access. You can start by contributing to your 401(k)and taking full advantage of your employer’s match program if they offer one. Once you’re taking advantage of any free money your company is offering, consider adding money to a traditional IRA or Roth IRA.  Jason opinion “For this part I don’t recommend investing in 401(k) or IRA, don’t rich doesn’t do this and why should you. You need you saving working hard for you right now and right away. If you ever get fired from that job you will need to transfer those funds to something else and then you will get very little returns anyway. Plus a lot of people withdraw money and they usually buy a boat, car, or a down payment on a house.”

4. Keep Learning – The safest investment to make is in your future. Build a plan, set goals, read books, blogs and listen to podcasts. Expand your mind with good information that will help you reach your goals sooner and more securely. Be willing to learn and talk with others about multiple subjects. By furthering your education and professional development, you are setting yourself apart from others. You don’t need to be the smartest person in the room, just try to be the most prepared.   Jason – “never stop learning, so much info out there”

Don’t let mistakes paralyze you from reaching your goals. Invest time and energy to plan for the future and learn how you can improve. There are multiple paths you can take to achieve your goals and being versatile will lead you to the quickest solutions to your problems.

5. Shoot for $10 Million, Not $1 Million- People often believe that becoming rich is out of their control, but the rich understand that by committing to their financial goals and continually working towards them, their financial future is in their hands. When you change your mindset about money, you may begin to see a clearer path to that millionaire title.

If you believe you’re thinking big, think bigger. To get and stay rich you should make it a priority. Those who strive to be successful and have a positive mindset are more likely to reach their financial goals. You don’t want to be thinking back on what you could have done.

6. Associate Yourself With People Who Inspire You And Have Similar Goals

If you are around people who discourage you from going after your big dreams, you have to learn to ignore them. Prove them wrong, but be humble about it. Your results will speak louder than words.

The truth is that millionaires think differently than most about money, so surround yourself with hard workers who have a similar vision. We become like the people we are always around, so steer clear of the doubters and nonbelievers.

Matt Reiner is CEO of Wela. As a founding partner and Portfolio Manager, Matt also coordinates the Investment Committee and translates the decisions into trades and allocation adjustments within the Wela Models. Matt also serves as a Partner for Capital Investment Advisors (CIA). Matt uses his experience and education in Financial Services to craft the digital advisor experience to bring users the same level of personalization they would receive from a traditional financial advisor. 

 

For more info check out similar post and other information. Great info.

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Jewelry Designer working hard to build her investments.

This jewelry maker is doing the right thing working hard on her online jewelry store and reinvesting the profits to grow her income. She also is a dog lover and she likes to donate to different dog organizations.  She has a big heart for those little furry people.

Check out her website she has many great looking designs Chunky chains and Bracelets, and her selection is always growing. C&C Collection

Tips on Cruises

  • Travel  insurance  is cheaper thru a 3rd party than buying  it direct thru the cruise company check out Travel Guard  and get a price quote, do a search for  others as well, they usually  cover more and you get a better  price. Check out www.travelguard.com  they have insurance packages at reasonable prices.
  • If you are taking a cruise but need to take a flight to get to the port I highly recommend getting there a day before just in case their is a delay or something goes wrong with luggage, give you more time to react.

Tips on improving your Credit Score

Tips on improving your Credit Score

Key to having a great credit score is to make your payments on time, esp credit cards.

Your biggest ally (healer) is TIME! Time heals all with credit scores but you need to make payments on time and above the minimum balance.

Ways to improve your credit score:

  • Get a credit card and have it link to a bill like a cell phone and/or gas bill, and only use that credit card to pay that one bill. Set up automatic payments so that the monthly bill will automatically charge your credit card on file. Don’t use the card for anything else lock the credit card away in a lock box or desk. Every month as you making payments your score is going up. – Don’t abuse those credit card keep those balances low
  • Debit cards from your bank that you use with a pin number do not count towards your credit score because this money is coming directly out of checking out and no line of credit is giving to you. So debit cards do not help to improve your credit score.
  • Try to get another credit card and repeat the process this time use a different bill like car insurance and gas, and think of this credit card as vehicle only use. Gas / Car Insurance / Repairs – you will need a minimum of three credit cards.
  • If you have a family member with a great credit score and is welling to add you to their account and the family member can hold on to the credit card to be on the safe side to make sure the card is not being miss used.
  • When you are about to buy a house do not make a large purchase like a car, because now the bank has to redo your file, and now you bought a car that has no credit history, no payments, and is a full balance, another thing to remember once the car loan is paid off the account will close and the payment history will close with it, and over time the credit score will drop. So that is why it’s a good idea to have three credit cards on file.
  • How do companies fix my credit score? They sent out 100’s of letter asking to prove that discrepancy on the account and if they can’t prove it by responding to all 100 letters than they have to remove the discrepancy on your account and they process repeats, sometimes this take months to work.
  • Mortgage Companies take the middle of the three credit scores from the credit bureaus = (Equifax, Experian, TnasUnion) // Car Loan Companies usually only go with just two bureaus and use the better of the two.
  • Don’t forget to check your credit score by getting your free credit report

Advice on Real Estate Investments – Rental Properties

Advice on Real Estate Investments – Rental Properties

  • Don’t  use your address on your checks always use your Po Box on your checks and any other information papers. Same goes with section 8 ask them to use your PO BOX for your mailing address and not your home. The reasons you want to use your address is because you want to keep your address private and you don’t want an angry tenant showing up because of a dispute or deposit refund.
  • When something breaks always replace it with an item  that last the longest, don’t  just buy the cheapest, use the replacement parts that last the longest.
  • When choosing a paint find something that is a neutral color like a tan not too light and not too dark, a color that can go with everything. Once you have that color picked out stick with it for all your rooms and all your other houses, this will make it so much easier when you have to touch up when tenants move out, repairs, and keeping track of what paint you used. For the Kitchen and Bathrooms use a semi-gloss paint and for the Bedrooms and the rest of the house use a satin paint. Do not use flat or egg shell they just get dirty too fast and these types of paints love dirty hands. Buy some Rubbermaid bins to store all your paint supplies and to help keep it in one place to find, items: paint brush, rollers, rags, paint pans, drop cloth, lid opener, and also get a rubber hammer and when you seal the lid of the paint can make sure you cover the lid with a rag so the paint don’t splatter everywhere.
  • Your biggest repairs will more than likely be plumbing and a/c units for the south and heating in northern areas. So make sure you have good people on standby for these repairs. Over time you will notice that these repairs are NOT too hard to fix yourself. So plumbing if you need to start saving money on repairs start buying the tools that are plumbing related and store them in a toolbox or bin that is plumber tools related, and plumbing supplies as well. Buy a book on plumbing and start learning plus this will help you with any repairs at your house. For the a/c and heating part somethings is easy to do and somethings you just need a professional to take care of. One of the easiest things to check is if the fuse is bad or breaker. Also don’t forget the a/c drainage line to make sure it’s clear.
  • Use the “Keep” app from Google this is a very useful app and it stays sync with your other devices. Make a list of the things you have to do or things you have to buy at the hardware store. It can store notes, pic, and a to do list. Even  use it as a grocery list and you can check off the products as you put them in your cart.
  • Use Google Voice as your main contact number instead of your cell phone number, later on you can give them your cell phone number once they signed a lease agreement. Google voice let’s you forward the number to a different  phone or multiple  phones. When you answer your phone from Voice you can hear the person leave a voice mail and you can hit a number to start talking in case it’s important. Another great option is that you can have the incoming number come up on your cell phone as your google voice number and you will know right away what the number is about and the purpose.
  • For bank loan purposes keep your property P&L (overview) up to date. This is needed for loans and is helpful guide for you. It shows the price you purchased the property, loan balance, and value of the porperty. Has all the insurance and taxes listed for each property you want a copy of it send me an email.
  • Here are some websites to use to find rental properties Realtor.com  shows almost every property listed on MLS / HudHomeStore.com wait for properties to be listed ready for investors, select investor from the drop down menu. / Homepath.com is the official foreclosure website owned by Fannie Mae. Some properties are not even listed on other sites, and they have a section for investors.
  • When you first buy a property that is vacant make sure you have someone at the house when they turn on the water, sometimes this is hard to time but try to have a list of things to do so you can wait for water dept. If not try to shut off major items like the hot water line or if possible shut off the water at the water intake line into the house, but sometimes the water department turns that back on, usually they shut off the line when the water keeps flowing then they shut off the line and let you do the repairs but sometimes they leave it on and it does happen.

Tips for Investing in Dividend Stocks

Tips for Investing in Dividend Stocks

How I got into investing in Dividend stocks since I was interested in all things real estate I heard about REITs and started looking into it and learned about monthly distribution and the rate of return on investments, plus it’s an easy way to get into commercial property investing.

  • Always diverse your investments  use a mix portfolio of investments monthly and quarterly  payments. High risk and low risk stocks – REITs / MLP / Blue Chip Stocks, build a mix portfolio of 20 or 30 stocks or whatever you are comfortable with, but more than 10 stocks.
  • Don’t keep checking the price of the stocks everyday or every month, it’s like buying a house once you buy a house you don’t keep checking the price of your house every month to see how much it is worth. If you have to check the price just check the stock price once a year or 6 months if you need to. Just remember you bought this stock for the dividend not the price of the stock.
  • Warren Buffet said during an interview, he likes it when the price drops on a stock because he can buy more of it at a discount. When the price goes down means cheaper price = more stocks.
  • Investing = is investing for the long term you have to be in it for the long haul for it to work. Also I hear people say I will put only 10% of my income in investments and max out my 401k at work. The hell with that invest like you about to lose your job in a couple of weeks, invest as much as you can and try to change your lifestyle to live off the dividends and other investments.
  • Some helpful websites to use for investing in dividend stocks go to Dividend.com  they have a lot of useful tools, options to see different categories, tips, calculators, and so much more.

Check out my eBook to find out some of the things I use to make investing easy for me and some of the ways to create income.

Advice on fixing up rental properties.

This section is for rental properties but trust me you can use this advice on your on home, plus this will help you out if something happens at your house you will have the experience to deal with the situation.

When getting new carpet  installed  take the time to throw  away the carpet yourself. Even if you have  to  cut it up and place it in a few garbage  cans, when I had my carpet installed  labor was a great deal price of carpet was great and the materials, but since  I already had carpet in my house  they charged my a disposal  fee which cost around $900 so this was less than 40% of the total bill, next time I will dispose of the carpet  myself.

Some people hate negotiations or negotiate  on repair jobs, or asking for quotes one thing to do, is have repairmen come out at the same time as the other repair person so they will know  that they better give a great price the first time, and if you like the person but not the price you can ask if you can do  it  for this  price you will beat the other  bid and you have the job.