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Investing Strategy For The Beginning Investor
After the five year wild ride the United States economy and stock market has gone through, one may believe the stock market is too dangerous a place to have ones money. Many believe the low interest paid by bonds or savings accounts is the way to go. Without a proper education about the stock market, this may be true. However, if one takes the time to research and invest in companies that one is familiar with, the odds of beating the market are in one's favor. I do suggest investing only after one has enough money in the bank to pay the bills for 6-12 months.
Today, I will start with a very simple concept that any beginning investor can follow to get their portfolio off the ground. Investing in solid companies that pay solid and increasing dividends is a great start to beating the market. This is a step-by step process that I will now take you through. Ready? Let's get started!
The Stock Screener
The first step is to head over to a site like Yahoo!, MSN, or any financial website. I will use Yahoo! Finance for this demonstration. Once at Yahoo! Finance, click on the Investing tab then click on stocks. Over to the right you will see Research Tools. Under that heading, click on Stock Screener.
To set up your screener, go to the Preset Screens section and click on more Preset Screens. Page down until you come across the Dogs of the Dow Screen. This screen will set your screener to filter out stocks from the Dow Industrials with a Dividend Yield of 3% and greater. After running the screen you can head to the last column and arrange the results by highest yield to lowest yield.
After doing so, this is the list returned to me:
Merck & Co.
Johnson & Johnson
Procter & Gamble
My picks from the above list are as follows:
- Merck & Company
- Johnson & Johnson
- Intel Corporation
- Home Depot
AT&T, with a dividend yield of 6.4%, has increased it's dividend payment for 29 straight years as of 2012. T has a profit margin of 11.26% which is above the telecom sectors industry average of 10.4%.
AT&T is also up 16.75% year to date.
AT&T YTD Chart
Intel has had a good year this year with a 12.10% increase in stock price. Intel also has a large stash of cash on-hand if needed. The profit margin that Intel maintains, 23.16%, is also above industry average. This stock is a money maker.
Intel Year to date chart
Home Depot (HD)
Home Depot has not let us down this year. Home Depot has turned a 25.70% increase in share price year to date. I like this stock because it does not have anything to do with what is going on in Europe right now. What goes on over there has no influence on HD's stock price.
Merck & Company (MRK)
Merck has had a so-so year with a positive gain in share price of 2.43%. Merck has a promising pipeline of drugs that have the potential to bring in a lot of money for Merck. The quarterly earnings per share growth of Merck is over 66%, not bad at all.
Merck Year to date
Johnson & Johnson (JNJ)
Not really much big news on JNJ. The stock has a positive gain of 1.28% so far this year but I like it because it has a rock solid business model and is well diversified in the medical field. JNJ produces everything from drugs and cotton balls to contact lenses.
JNJ Year to date
Do Your Homework
Please do not take blind recommendations from people as to where you should put your money. You know your goals, write them down and use the stock market to get you there. There are many great books that you can read that will provide the knowledge you need to be successful in the stock market. Do your homework and check up on your stocks at least once per week. Most of all, do not be afraid to sell. The people who were hurt the most in the recent downturn of the market were those who turned a blind eye to what was really going on. Study, have fun, and good luck!
In the interest of full disclosure I currently own shares of AT&T. I do not intend on buying or selling shares of any of the above mentioned stocks within 72 hours.
Books to Learn From
Guide to creating an investment plan that works.
Great book on how to pick stocks.
Mad Money's Jim Cramer teaches you the ins and outs of the new stock market, producing incredible results