Dividend Growth Investing | What You Need To Know

what's up youtube david here today i want to dive into dividend stocks there's always people who want to start learning about passive income and in my opinion dividend stocks are a great place to start let's face it who doesn't want to just buy stock and then go scuba diving in the maldives while it earns you an income first we will look at the pros and the cons then we will talk about what to look for in a stock and lastly i'll show you three dividend stocks that i'm personally interested in oh yeah if you don't have a brokerage use my link to weeble in the description so that you can get two free stocks when you sign up and make a direct deposit of five bucks now we can roll the intro all right so understanding dividend stocks can be a bit overwhelming so i'm going to break this down step by step let's start with the pros and cons of dividend stocks pro number one is passive income so the way this works is very simple if you own the stock you will receive a dividend at certain times typically every quarter dividends are usually given out by larger companies that have decided to pay back a portion of their profit to at their shareholders it is entirely possible to build up a dividend portfolio that is so large you can live off the dividends themselves but fair warning it will take quite a bit of money to get to that point the second pro builds off the first one and this is what i mainly do with my dividend stocks right now you can automatically reinvest the dividends that you were paid directly back into buying more of the stock so in these accounts not only are you compounding interest you're now compounding the returns from the dividends as well think of it like this if you have two stocks that always have the same return over a one year period but one of them also pays a dividend that you automatically reinvest you'll be making more gains off of the dividend producing stock the last pro which something people tend to not think about as often is inflation rate dividend stocks do a great job at hedging against normal inflation levels and you can see this historically since dividends have increased about four percent in the last hundred years versus inflation increasing about three percent in the same time so dividend stocks are pretty sweet huh well let's look at some of the cons before you decide con number one is that pretty much all dividends are offered by large cap companies and this is due to the fact that they're already established and aren't needing that dividend money like a small or a mid cap would to expand and grow since these larger slowing moving companies aren't exploding in growth it means that their share price is probably less likely to have huge upswings but that also means they probably won't have huge down swings either so i guess this is more of a pro con con pro con number two is that the share price of a dividend paying stock will usually drop a little after a dividend is paid out so don't freak out if this happens it's pretty common and lastly a company that pays dividends can choose to change how much they pay or if they will pay a dividend at all dividends are not a guarantee like pretty much anything in life the only guarantee we do have is that if you hit the like button good things are going to come your way just like if you forwarded those weird chain emails like 10 years ago to all your friends so what should you look for in a dividend paying stock to help you not pick sketchy ones i recommend looking at the s p 500 dividend aristocrats index all you have to do is google aristocrats index and you can find a wikipedia page that has all 65 of them on there all the stocks in that index have increased their dividends for at minimum the past 25 straight years and based on that history you can feel safer investing with them and having confidence they will continue to produce a good dividend for you that leads me directly into the first thing i look for in a dividend stock their track record this is why i like looking at the aristocrats index since i can see dividend stocks with good track records and from there i can look closer at individual ones i may be more interested in i'm a strong proponent of work smarter not harder so using a list that is already compiled that is based on historical data that i can use to narrow down my choices is a no-brainer to me the second thing i like to look at is the payout ratio of the company this may sound complicated to some of you but it's super simple basically all you do is take the total dollar amount of dividends paid in a year and divide that by the net income and then multiply it by 100 to get the percentage don't worry though this percentage is already calculated for you and if you just google the ticker you're looking for or the company that you're looking for with dividends somewhere in there you'll be able to find all this information pretty easily if you look at clorox which by the way has had 45 consecutive years of dividend growth you will see that they have a 60 dividend payout ratio simply put this means they are giving 60 of their net income for the year right back into their investors pockets in the form of dividends this may shed some light on why smaller companies or growing companies don't do this a company that is trying to expand would greatly slow itself down if not fail if they didn't reinvest all their profits into the company with buying more buildings or doing more r d for the future products the third thing i look for in dividend stocks is their dividend yield so what does a yield mean well if you had two thousand dollars and put one thousand of it into ibm you would make four point six four percent off that which is forty six dollars and forty cents and if you put another thousand dollars into clorox you would make two point four six percent which is only twenty four dollars and sixty cents and this is over the course of one year by the way right about now you're probably thinking well obviously you should just pick companies with the highest ratio done well in my experience that won't always work out too well for you let me explain why you also have to take into account how well does the company do with its share price growing over time if a company has an 8 dividend but their stock drops by 12 that year you made negative 4 which if you didn't know gives me slight chest pains just thinking about i will say that sometimes that dividend can be nice if the whole market takes a dive it can help lower your losses so if you're only losing that four percent versus someone else investing in something without a dividend and that stock drops 12 percent they're losing 12 you only lost four but let's uh let's not focus on losses because they're not fun right with all that out of the way let's look at some of these stocks so you can piece all this stuff together and start to grow your knowledge base and remember the numbers that i'm going to be talking about change over time so be sure to look at the most current info and re-evaluate if you need to first up is going to be mcdonald's they currently have a yield of 2.12 and their stock price has increased almost 21 percent the last year consumer discretionary has been on the rise and the last three years has been pretty big growth for the company in general with the emergence of food delivery and more and more people using services to get their food i think they will continue to do well but that's just my opinion plus if you're invested in mcdonald's and your friends want to go there at 3am and order 20 worth of food each because they had too much to drink you can support their bad decisions while profiting from it it's a win-win well for you at least next up is going to be ellington residential mortgage this is an reit which stands for real estate investment trust if you don't know anything about these be sure to join our facebook group and look in the events tab for upcoming classes on the subject don't worry though i'll be uploading them here if you miss them in person the reason for holding this at the moment is that four hedge funds are also holding it so they aren't going to be shorting it right now the yield was just raised and it's now at 10.32 percent and the stock over the last year has seen a modest 4.4 percent gain even if the stock declines 20 over the next five years and the dividend stays the same you'll still come out with around a 32 percent gain just from that payout i will say that sometimes companies will increase their dividend to attract new investors and then when they have all the investors they want they slash the dividend back down to where it was so if you're going to go after companies with high dividends like this you want to keep a closer eye on them to make sure they don't change it up on you and do any funding business and mess with your finances lastly is going to be procter gamble they are in the consumer staples sector and own companies like bounty charmin and gillette just to name a few if there is another run on toilet paper and you own this dividend stock maybe you won't be as pissed off while walking on the toilet paper aisle in the grocery store knowing that all of those suckers are just buying products that you have stock in procter gamble has a dividend yield of about 2.5 percent and their stock has risen about 11 in the past year it's also important to note that during the pandemic they only saw a drop in stock price from around 125 dollars a share to 100 a share and it's shown to be a little bit more resilient to recession than some other companies out there these are just three companies you might want to look at don't just pick them because i have them do some research and make a decision for yourself i hope i gave you some inspiration and knowledge to move forward with dividend investing if you liked the video please leave a like and comment down below if you have any questions or you want me to cover anything else in another video check out the links to our website to sign up to beta test our new social investing app or sign up for our newsletter first two weeks are free so check it out there's really nothing to lose you can also join our facebook group and find like-minded people to talk about investing with there's about 25k on there and we ban everyone who spams thanks for watching everyone i'll see you next time

Channel: PersonaFi

Views: 111

Rating: 5 out of 5

Keywords: dividend investing, dividend stocks, dividends, dividend investing 2021, dividend investing strategy, dividend investing for beginners, dividend investing explained, dividend investing for passive income, dividend investing portfolio, best dividend stocks, dividend growth investing, how to start dividend investing, long term dividend investing, dividend investing for income, PERSONAFI, personafi, dividend income, passive income, dividend portfolio, dividends explained

Id: zYlVPDet4Zk

Length: 9min 16sec (556 seconds)

Published: Tue Jul 27 2021