In discussing investments with others I am asked what is my investment strategy? I am going to try to outline my strategy here but you must remember that the strategy is a bit broad and in special cases I will make exceptions to certain criteria.
I only invest in:
1. Long standing, existing businesses. I tend to avoid emerging/startup companies and IPO’s.
2. Companies that pay dividends. This is the rule that is pretty much set in stone. No dividend then no investment from me.
3. Companies that have a dividend yield of between 2.5 to 5%.
4. Companies that have at least a 5 year history of dividend payouts.
5. Companies that show a positive dividend growth.
6. Companies that are rated at Average or below in risk and Average and above in returns.
7. Companies whose stock price allows me to maximize the quantity of share that I own.
The above points are all relative. Such as the dividend yield. If a company is paying out a dividend of $6/share and it’s stock price is $200, this gives me a yield of 3%. This passes my criteria.for dividend yields but does not pass my ability to maximize the number of shares that I own because I am limited by my investment budget. If I have only $200 to invest each month, buying the one stock for $200 only gets me that 1 share. But if I can buy another stock that sells for $50/share and pays 3% dividend yield I can get 4 shares. The dividends I can get will be the same for both at $6 but when I re-invest the $6 I can only get 0.03 shares of the $200/share stock but 0.12 shares of the $50/share stock. I try to maximize shares owned and maximize dividends earned.
I am focusing on the growth of my stock investments based on share growth in addition to any increase in stock price value. Share growth is more critical to me than share price growth. I will increase my position with a specific stock if the share price drops or increases no more than 10%. If the share price increases more than 10% I will just hold and wait for the next DRIP.
I’ll be detailing my different strategy points in later postings.
The answer to the question will depend on your investing strategy and your goal. Speaking for myself, I prioritize on dividend yield with an eye on stock price. Regardless of either one, the stability and longevity of the company is paramount. I’m the type of person that would have missed out of Tesla when it first came out. I don’t speculate/gamble with my money. My goal is to create an income stream from my investment where I can stop working (I am overdue to officially retire and I still work because I have bills to pay). Now, in order to reach that goal my strategy is to invest heavily in dividend stocks (those stocks that pay you cash dividend periodically). If the company hasn’t paid any dividend consistently for 5 years, I’m just not going to seriously consider investing my money with them. Am I missing out on some tremendous windfall profit? Probably. But then I’m missing out on all those tremendous jackpots because I don’t go to casinos, either.
When I look at a stock or fund I look to see what they are paying and how often. I then look at the stock price and determine if the stock price is worth paying to get that dividend. Again, this is a subjective determination for me. I don’t believe that there’s a right or wrong answer. Two people can look at a stable company that has been in business for a long time (i.e. Coca Cola or Intel) and based on the criteria I used, one person can decide that the stock price is worth it while the other one feels that it isn’t. Their choices based on their goals, strategy, and comfort zones.
I’ve come across a few stocks/funds that someone said was a great investment based on the dividend yield. The last one I encountered was YYY (Amplify ETF TR High Income ETF). The stock price is cheap at approx. $15/share. The dividend yield is at 10.39%. Very high. In the relationship to the share price this comes out to about $1.56/share. So for $1500 you can buy about 100 shares of this ETF and get $156 in dividends. Sounds great? To me the one factor that makes me pause is the Expense Ratio (both Gross & Net). It’s at 2.17%. I like my expense ratios below 0.10%. This is a deal-breaker.
In addition to dividend yields & payouts, and price shares I’m looking at expense ratios. I don’t want to invest in a fund with high dividend yields that end up being eaten up by fees. The dividend history and growth are also important to me. What about share price? Well, it is important in determining how many shares I can buy and the future acquisition plans going forward. If the share price drops it’s an opportunity to buy more (barring that all other factors remain basically the same) shares and collect even more dividends. If it goes up than the value of my shares increases and I still get to collect dividends.