DIVIDENDS increase income every year.
Increase your income every year! and Eliminate 90% of the bad companies
Using dividends to create income is easier than you think. I used dividends as an income investing source for all my clients when I was in "the business." When you no longer work for your income, you can use dividends for cash flow. The successful investors will not just buy dividend stocks, you will need to find stocks that increase your income every year. You can pay someone to manage your dividend stocks or you can do it yourself. Read on for a strategy geared to ordinary investors.
Don't dividend stocks also expose you to risk?
Indeed any investment is risky. Even the current 10 year U.S. treasury that pays a measly 2.8% may be at risk. With that in mind, you can manage the risk associated with dividends by following a few simple rules. Use the disciplined investment approach I describe below and you can create dividend income on the low risk end of the scale.
Find dividends that increase every year.
One of challenges for those who use their investments to create income, is to find income that increases every year. Dividends are a source of income that increases every year.
Consider my approach to investing for income using dividends. I call this a simple approach because I use only four criteria to screen for my dividend stocks.
Four Dividend Machine Criteria
Greater than dividend
Three Percent minimum
Five year minimum
Debt to Equity Ratio
Less than 1 or industry standard
- Earnings per share known as EPS. Always buy a company that has positive earnings per share. Never buy a company with a negative earnings per share number. Earnings per share must be greater than dividends paid per share. My colleagues may argue that EPS is not always the best measure of a company's ability to make money but when combined with the three other measures I use to select a dividend company, I believe you will find EPS to be the easiest data to find to determine if a company makes money.
- Dividend yield. Every company you buy must share their income in the form of a dividend that is competitive with the10 year U.S. treasury; right now a 3% yield is my target.
- D/E ratio (debt to equity ratio;) I like a company that is financially solid. I used D/E ratio because it is one of the easiest measures for ordinary investors to find. Like EPS, I have colleagues who would argue that D/E may not be the perfect measure of the financial condition of a company, but it will eliminate 90 percent of bad companies. I like a D/E ratio of 1 or less or in the case of companies that always carry a lot of debt like utilities, go with the industry average. Pick a company with no more and hopefully less D/E ratio than the other companies in the industry.
- Our fourth measure is to find a company with the above three measures and that has increased the dividend every year for at least five years. After all, five years ago things cost less than now. You must have a dividend income strategy designed to increase your income.
When you combine all four of these measures, you can personally direct your dividend income strategy.
In 2011 I profiled fifty two stocks that met all these criteria. In 2012 I profiled forty eight stocks that met all these criteria. In 2013 I profile stocks and you see how these stocks have performed so far by clicking on the link provided below.
Dividend Stocks for 2013
When investors use a disciplined approach, you are more likely to be successful. The dividend machine strategy outlined above is not difficult. The four criteria for each stock are easy to find on the internet and easy to evaluate.
Review the list of stocks profiled so far so that you can determine if this strategy is appropriate for the income producing portion of your dividends and income portfolio.
Very Truly Yours,
The Money madam