How to Build a Dividend Stock Portfolio With $100 (Free Course)

Summary

This video tutorial guides viewers step-by-step in building a robust dividend stock portfolio. It explains the concept of dividend stocks, their benefits like passive income and stability, and the importance of a diversified approach. The host covers the pros and cons of dividend investing, introduces popular dividend stocks, and provides a practical walkthrough of setting up a brokerage account and selecting investments. Key metrics for evaluating stocks, such as dividend yield and payout ratios, are discussed, along with strategies for safe and profitable dividend investing, warning against the pitfalls of dividend traps.

Takeaways

• 😀 A dividend stock is a company that pays a portion of its earnings to shareholders, providing passive income just by holding shares.
• 📈 Dividend stocks are typically well-established companies with a history of distributing earnings, offering stability and regular income.
• 💰 The appeal of dividend stocks includes regular income, safety and stability, resistance to inflation, and market fluctuations.
• 🚀 Pros of dividend investing include passive income, potential to beat market averages, reduced risk and volatility, tax advantages, and compound returns.
• 🔍 Cons include slower growth due to profit distribution, non-guaranteed dividends, and less diversification in dividend ETFs compared to broader index funds.
• 💼 To start a dividend portfolio, one must open a brokerage account, deposit money, choose investments, and execute the purchase.
• 🔗 Links to brokerage platforms like Moomoo, Weebull, and Robinhood are provided for signing up and potentially receiving free stocks.
• 📊 Websites like Vetify and Market Beats offer valuable resources for researching dividend ETFs and sorting stocks by yield.
• 🛑 Safety is paramount in investing; only invest money you can afford to lose, and conduct thorough research on each company.
• 📈 Key metrics for evaluating investments include 10-year average return, dividend yield, diversification, cost of owning ETFs, total return, and earnings per share (EPS).
• 🚫 Avoid common mistakes such as buying solely based on high dividends (dividend traps), and focus on financial stability over growth potential when selecting stocks.

Q & A

What is a dividend stock?

A dividend stock is a stock or company that pays out a portion of its earnings to shareholders, providing investors with passive income simply by holding shares of the company.

How does a dividend yield work?

Dividend yield is calculated by dividing the dividend payment per share by the stock's current price. It represents the percentage return an investor receives from the stock's dividends.

Why would someone want to build a dividend portfolio?

Building a dividend portfolio provides regular income, safety and stability, and resistance to inflation and market fluctuations. It's historically proven to be more stable than the market itself.

What are some pros of dividend investing mentioned in the script?

Pros of dividend investing include passive income, potential to beat the market with higher returns, reduced risk and volatility, tax advantages, and the potential for compound returns through reinvestment.

What are the cons of investing in dividend stocks?

Cons include potentially slower growth due to less reinvestment in the business, the non-guarantee of dividends, and less diversification in dividend ETFs compared to broader index funds.

How can one start building their own dividend portfolio?

To start building a dividend portfolio, one needs to open a brokerage account, deposit money, choose investments to buy, and then purchase those investments.

What are some popular dividend stocks that are often recommended for investment?

The script does not specify particular stocks, but it mentions that popular dividend stocks are usually well-established companies with a history of distributing earnings back to shareholders.

What is the significance of the 10-year average return in evaluating a dividend stock?

The 10-year average return provides insight into the long-term value and profitability of an asset, helping investors assess the historical performance of a mutual fund or stock over a decade.

Why is diversification important in a dividend portfolio?

Diversification is important to reduce portfolio volatility and limit exposure to any one type of asset or sector, which can help mitigate risk and enhance stability.

What is the role of payout ratios in evaluating dividend stocks?

Payout ratios indicate the percentage of earnings a company pays out as dividends. A lower payout ratio (ideally under 60%) means the company has more earnings to reinvest for growth and is less likely to cut dividends during economic downturns.

What is a dividend trap and how can investors avoid falling into it?

A dividend trap is a situation where a company with a high dividend yield is actually not a safe investment due to poor financial health or unsustainable dividend payments. Investors can avoid this by analyzing key metrics like the price-to-earnings ratio, free cash flow, and debt-to-equity ratio.

What are some dividend investment strategies mentioned in the script?

The script mentions dividend growth investing, which focuses on companies with year-over-year growth; dividend capture investing, a more risky trading strategy; and dividend reinvesting, which involves buying more shares with dividends to increase compound interest.

How can investors find rising dividend stocks?

Investors can find rising dividend stocks through resources like Dividend Aristocrats, Dividend Achievers, and the Value Line Investment Survey, which highlight companies with a history of increasing dividends.

What are some key metrics to consider when evaluating a company's financial stability for dividend investing?

Key metrics include credit ratings, which indicate the ability to pay back debts; earnings momentum, showing if the company is profiting at a higher rate; and intrinsic value, such as book value and P/E ratio, for assessing the true worth of a company.

Why is it recommended to reinvest dividends for higher compound growth?

Reinvesting dividends allows investors to buy more shares, which in turn can lead to receiving more dividends, creating a compounding effect that can significantly increase net worth over time.

Outlines

00:00

🚀 Building a High-Quality Dividend Portfolio

The video introduces a step-by-step guide to constructing a solid dividend stock portfolio. It explains what dividend stocks are, how they provide passive income to shareholders, and why they are valuable for long-term investment. The importance of established companies with a history of dividend distribution is highlighted. The script outlines the benefits of dividend investing, such as regular income, safety and stability, and resistance to inflation and market fluctuations. It also discusses the pros of dividend investing, including passive income, market-beating returns, reduced risk and volatility, tax advantages, and compound returns, while also mentioning the cons such as slower growth and the non-guarantee of dividends.

05:01

🔍 Understanding Dividend Stocks and Their Benefits

This paragraph delves deeper into the mechanics of dividend stocks, using an example to illustrate how dividends are paid out and calculated, resulting in dividend yield. It emphasizes the appeal of dividend stocks for providing regular income and stability, especially in volatile markets. The paragraph also discusses the advantages of investing in dividend ETFs for diversification and the importance of due diligence before investing in high-dividend yield stocks, which can sometimes be dividend traps. It provides a brief tutorial on how to open a brokerage account and the benefits of signing up with specific platforms for free stocks.

10:02

📈 Key Metrics and Strategies for Dividend Investing

The script outlines important metrics for evaluating dividend stocks and ETFs, such as the 10-year average return, dividend yield, diversification, expense ratio, total return, and earnings per share (EPS). It explains the significance of each metric and how they contribute to a well-rounded investment strategy. The paragraph also advises against certain practices, such as targeting only high-yield stocks without considering the company's financial stability and growth potential. It stresses the importance of a company's ability to maintain or increase dividend payouts and the investor's strategy for reinvesting dividends to achieve compound growth.

15:02

💼 Practical Steps for Starting a Dividend Portfolio

The video script provides a practical guide on how to start a dividend portfolio, beginning with opening a brokerage account and depositing funds. It discusses the process of selecting investments and executing the purchase. The paragraph also introduces useful resources for identifying dividend stocks and ETFs, such as Vetify and Market Beats, and explains how to analyze and compare different investment options. It demonstrates how to buy stocks on a brokerage platform and emphasizes the importance of investing safely, conducting thorough research, and aligning investment decisions with personal risk tolerance.

20:05

🌟 Maximizing Dividend Earnings Through Smart Investing

The final paragraph focuses on strategies to maximize dividend earnings, including dividend growth investing, dividend capture investing, and dividend reinvesting. It warns against the pitfalls of dividend traps and the importance of analyzing financial indicators such as the price-to-earnings ratio, free cash flow, and debt-to-equity ratio. The script stresses the long-term sustainability of dividend investing as a source of passive income, rather than a get-rich-quick scheme, and encourages viewers to consider dividend investing as a way to diversify their portfolio and secure a steady income stream.

📚 Conclusion and Call to Action

The video concludes with a summary of key takeaways and a reminder of the importance of dividend investing in a diversified portfolio. It emphasizes the stability and reliability of dividend stocks, especially in a volatile market, and encourages viewers to take advantage of offers for free stocks. The script ends with a prompt for viewers to like, share, and subscribe for more content on personal finance, investing, and entrepreneurship.

Keywords

💡Dividend Stock

A dividend stock refers to a company that distributes a portion of its earnings to shareholders. In the video, it's explained as a source of passive income for investors who hold shares in such companies. An example given is a company that pays out fifty cents per share, providing a 5% dividend yield on an investment of a thousand dollars.

💡Passive Income

Passive income is money earned with little to no effort by the recipient, often as a result of investments. The video emphasizes the appeal of dividend stocks for generating passive income, where investors earn from simply holding shares without the need for active management of the investment.

💡Dividend Yield

Dividend yield is the ratio of the annual dividend payment to the market value of the stock. It's a key metric for investors looking at dividend stocks, as it indicates the return on investment from dividends alone. The script mentions a scenario where a $1000 investment in a stock with a 5% dividend yield would result in a $50 dividend payment annually.

💡Blue Chip Companies

Blue chip companies are well-established and financially sound firms with a history of stable and reliable growth. The video suggests that dividend stocks are often from such companies, which are known for distributing earnings back to shareholders and providing stability in a portfolio.

💡Risk and Volatility

Risk and volatility are inherent in the stock market, referring to the potential for loss and fluctuations in stock prices, respectively. The video discusses how dividend portfolios can offer more safety and stability compared to the overall market, with less risk and reduced volatility.

💡Tax Advantages

Tax advantages refer to the preferential tax treatment of certain types of income, such as dividends. The script explains that dividend payments, particularly qualified dividends from U.S. companies, are taxed at lower rates than ordinary income, providing an additional benefit to investors.

💡Compound Returns

Compound returns occur when the gains from an investment are reinvested to generate additional earnings. The video highlights the benefit of reinvesting dividend payments to purchase more shares, thereby increasing the dividend income over time through the power of compounding.

💡Dividend ETFs

Dividend ETFs, or Exchange-Traded Funds, are investment funds that pool resources to invest in a diversified portfolio of dividend-paying stocks. The video mentions using resources like Vetify to find a list of popular dividend ETFs, which can be a convenient way for investors to gain exposure to dividend stocks.

💡Dividend Traps

Dividend traps are situations where a company appears to offer high dividend yields but may not be financially stable or sustainable. The video warns against investing in such stocks based solely on high yields, as they can lead to financial risks if the company is unable to maintain dividend payments.

💡Payout Ratio

The payout ratio is the percentage of earnings a company pays out as dividends. A healthy payout ratio, as mentioned in the script, should be 60% or less, ensuring the company has sufficient earnings to reinvest for growth and maintain financial stability.

💡Earnings Per Share (EPS)

Earnings Per Share (EPS) is a measure of a company's profitability on a per-share basis. The video suggests that companies with a history of increasing EPS over time are more reliable dividend stocks, as it indicates the company's ability to grow and potentially increase dividend payouts.

💡Diversification

Diversification is the practice of spreading investments across various assets to reduce risk. The video emphasizes the importance of diversification in a dividend portfolio, suggesting that investors should have exposure to multiple industries to mitigate the impact of market fluctuations on any single investment.

💡Brokerage Account

A brokerage account is an account used to hold and trade stocks, bonds, and other securities. The video provides a step-by-step guide on how to open a brokerage account, which is the first step in starting a dividend portfolio, and mentions platforms like Moomoo, Weebull, and Robinhood that offer free stocks for new sign-ups.

Highlights

A step-by-step guide on building a solid dividend stock portfolio.

Explanation of what a dividend stock is and how it provides passive income to shareholders.

The benefits of investing in dividend stocks, including regular income, safety, stability, and resistance to inflation and market fluctuations.

Pros of dividend investing, such as passive income, market outperformance, reduced risk and volatility, tax advantages, and compound returns.

Cons of dividend investing, like slower growth and the non-guarantee of dividends.

Examples of popular dividend stocks and their comparison to other companies globally.

A detailed process for starting a dividend portfolio, including opening a brokerage account, depositing money, choosing investments, and making purchases.

Recommendation of brokerage platforms with free stock offers for new users, such as moomoo, weebull, and robinhood.

Introduction to websites like vetify and marketbeats for researching dividend ETFs and sorting stocks by yield.

A demonstration of how to buy dividend stocks on a brokerage platform.

Emphasis on investing safety and the importance of only investing money one can afford to lose.

The significance of researching and understanding key metrics such as 10-year average return, dividend yield, diversification, and cost of owning ETFs.

Advice on not falling into the trap of high dividend yields that may indicate financial instability.

Guidelines for setting up a portfolio, including buying good stocks, targeting several industries, and prioritizing financial stability.

Discussion of dividend investment strategies like dividend growth investing, dividend capture investing, and dividend reinvesting.

A warning about dividend traps and how to analyze them using price-to-earnings ratio, free cash flow, and debt-to-equity ratio.

Final thoughts on dividend investing as a long-term sustainable source of passive income rather than a get-rich-quick scheme.

Transcripts

in this video i'm going to show you

exactly how to build a solid diving

stock portfolio step by step we're going

to cover everything you need to know

when it comes to investing in dividend

stocks i'll show you all the things you

need to know to build a high quality

dividend portfolio today let's get

started okay so first of all what is a

divin stock so a dividend stock is a

stock or company that pays some of its

earnings to shareholders so basically

what this means is that investors earn

money by simply holding shares of a

dividend paying company and when you do

this this results in passive income to

you as the shareholder different stocks

are usually going to be well-established

companies with a track record of

distributing earnings back to

shareholders and that leads us to the

question how do dividend stocks work so

imagine you buy a hundred shares of a

company right and you're paying ten

dollars per share this means you're

spending a thousand dollars in total for

those hundred shares now let's say this

company pays out fifty cents worth of

dividends per share that you own so if

you invest one thousand dollars you're

going to receive fifty dollars for that

year and that results in a five percent

dividend yield that fifty dollars is

basically your dividend payment or the

passive income you are uh making from

holding that stock now why would someone

want to build a dividend portfolio one

of the biggest things is of course you

get regular income so instead of relying

on the appreciation of price for a stock

there's not safety net in that you are

actually receiving payments for just

owning that stock you also have more

safety and stability and dividend

portfolios are historically proven to be

more stable than the market itself

equity portfolios have their own risks

so you know in uncertain markets there's

volatility then yeah that's when having

a dividend portfolio can make a lot of

sense it also allows you to balance

resistance to inflation as well as

market fluctuations so by investing in

these dividend-paying solid blue chip

companies that provide reliable income

that's just another sense of

diversification now let's talk about

some of the pros of dividend investing

right the first one being passive income

you are able to make money without doing

any work this is arguably the most

passive form of income because you don't

need to spend any time you know keeping

your business up to date or anything

like that all you need to do is buy the

stock hold it and you'll get paid out

this is literally 100 your money working

for you another pro is that it often

beats the market right so the return on

dividend stocks is actually greater than

the average return from the market if

you do factor in those dividend payments

it also allows you to reduce risk and

volatility so dividend stocks they grow

a little bit slower but they're also

less volatile and you won't lose money

as quickly during bear markets there's

also tax advantages right so these

dividend payments they are taxed at

lower rates than your ordinary income

and that's because the payments that

you're getting they're likely going to

be qualified dividends which include

those dividends paid out by u.s

companies and those are going to be

taxed at long-term capital gains rates

on the other hand you have non-qualified

or ordinary dividends such as those paid

by real estate investment trusts and

those are actually taxed at regular

income so yeah there is a big benefit to

holding dividend stocks you also get

compound returns right so when you get

that dividend payment you can actually

reinvest that money back into that given

stock and buy more of it and from there

on you're going to receive more

dividends so you kind of compound and

see that exponential growth that way in

bear markets or when there are big

corrections sort of like right now

dividend stocks actually tend to beat

out those high growth stocks that

traditionally fall during those times

now we talked about the pros of

investing let's also talk about some of

the cons the first one being that there

is probably less growth right so

dividend companies they take profits and

they distribute those two shareholders

and when they do that that means they

actually have less profit remaining to

reinvest into their business and that's

one big reason why dividend stocks tend

to grow slowly in terms of their price

there's just less money for those

companies to reinvest back in themselves

but of course the trade-off is that some

of that money actually goes to investors

and that's why we like these types of

stocks dividends are also never

guaranteed so companies they can

actually temporarily suspend or

eliminate dividends altogether if they

are struggling financially if we're

looking at dividend etfs those are also

not as diversified as some of the other

big index funds and that's because they

tend to be large caps so you are missing

out on a lot of those medium two small

cap companies here's some examples of

some very popular dividend stocks that a

lot of people invest in you've probably

heard of most of these names but yeah

always pay a relatively high dividends

compared to most of the other companies

that exist in the world now let's get

into the process of starting your own

dividend portfolio we'll get into each

of these steps in more detail but the

first one is just to open up a brokerage

account the second is to deposit money

into it third step is to actually choose

what investments you want to buy and

then the fourth step you actually have

to buy those investments so that money

sitting in your account needs to

actually be turned into these stocks so

now i'm going to show you guys how to

open up a brokerage platform i'll

include three links down below in the

description and if you guys use those

links you can actually sign up for

moomoo for weeble and for robinhood and

get free stocks when you do that

definitely recommend it because it's

literally free money so i'll actually

show you guys what the whole signup

process looks like if you want to sign

up for weibull you'll click that link

down below and this is what the page is

going to look like right now you'll see

that you'll get up to six free stocks

when you open and fund a new account so

you can click here and you're gonna

enter in your phone number as well as

the verification code that is sent to

your phone super simple the whole signup

process takes a few minutes and yeah

weeble's a really great app that i've

been using for a long time if you guys

want to create a robinhood account they

are giving one free stock when you use

the link down below and this is what the

page is going to look like they'll have

you enter in your first name your last

name your email address as well as your

password that's gonna take you through

the standard brokerage signup process

and lastly we have moomoo this is

another really great app that i've been

working with long term you'll get five

free stocks when you open up an account

and make your deposit and if you

actually deposit a hundred dollars or

more you'll get an extra share of lucid

stock which is pretty amazing so you'll

click here open account and it's gonna

have you enter in your email as well as

your password to sign up really the

platform you choose does not matter that

much because the process of buying

shares is going to be the same on all of

them there are tons of other brokerage

platforms out there but the three that i

showed you they'll actually give you

those free stocks when you sign up so

that's why i really recommend going with

those so another really cool website is

called vetify they have a great dividend

etf list and i know that this video is

not just about etfs

but investing in dividend etfs is a

really great way to hold dividend stocks

so you come here you'll see that they

have a big list of some of the most

popular dividend etfs that you can buy

so of course we have our vanguard funds

over here like v-i-g and v-y-m you have

some of your schwab funds like s-c-h-d

you have your i-shares ones yeah it's

gonna tell you the symbol it'll tell you

the etf name the asset class the total

net assets price changes in daily volume

and yeah if you want to learn more about

them you can click on the actual name

and i'll take you to this page with a

lot of other information for example the

expense ratio so you can see that for

this etf the expense ratio is just 0.06

percent which is extremely low i'll give

you an analyst report as well as a bunch

of other stats that are very helpful and

yeah all this information can actually

be found uh in a weeble muumuu robin

hood as well so yeah like i said it does

not matter what platform you're using

because all the information is going to

be there another really interesting site

is market beats and you can actually

sort

all these stocks by their given yield

now we'll say that you don't want to buy

a stock just because it has the highest

dividend yield those are called dividend

traps and those companies are not safe

to invest in but you can see that this

list is going to sort it out uh buy that

dividend yield and you can see that's a

sort of capital has a dividend yield of

68.32 percent all these are very

dangerous to invest in but you know it

just gives you an interesting list that

you can look at and i'll say that you

have to do your own due diligence before

investing in any of these companies

especially for these higher risk high

dividend yield stocks so i'm gonna show

you guys what it looks like to buy one

of these stocks and i have weeble pulled

up and i've searched up khc craft heinz

this is a very popular divin stock that

is on the safer side so i'll click here

and yeah this is what the page is gonna

look like you can see the current price

is 37 and eight cents you can look at

the price chart for the last year three

months one month whatever you want you

can scroll down here it's going to have

even more information you can look at

the news as well you can see the

analysis ratings now if you want to buy

it you'll click here trade you'll select

buy or sell so if i want to buy some

i'll click buy the order type is going

to be set as limit but if you want to do

a market order you can do that as well

we'll leave the limit price as 37.03

we'll select how many we want to buy so

let's say i want to buy 10. and then

i'll click buy right here so yeah super

easy all these apps make it very very

easy for you to actually start buying

stocks now when it comes to investing

safety is going to be one of your

biggest priorities now i'll say that

you'll always want to only invest an

amount of money that you are willing to

lose 100 now the chances of you actually

losing all your money with you know

traditional stock trading like this is

very very low so as long as you're not

trading options you should be fine but

just a heads up you'll also want to do

your own due diligence before investing

in anything especially stocks so what i

recommend doing is one hour of research

per company you're interested in and

just make sure that the risk of buying

that company

matches your risk tolerance you want to

develop your own rules guidelines or

boundaries for investing and yeah just

stay consistent with those rules don't

trade based on impulses or emotions and

that's going to result in you having a

higher chance of succeeding in the

market here's some other things to

consider these are some key metrics that

we'll be going over more in detail but

they include the 10-year average return

dividend yield diversification cost of

owning etf so the expense ratio the

total return as well as earnings per

share eps so the 10-year average return

is the percentage used when reporting

the historical return of a mutual fund

specifically the 10-year average return

reports the average return of an asset

for the past decade and this can be

really helpful in assessing the

long-term value and profitability of an

asset we can do so you can actually

stack these 10-year average returns on

top of each other when you do that it's

going to showcase the profitability of

an asset over several decades dividend

yield is another really important key

metric that we've already talked about

but this is the amount of money a

company pays shareholders for owning a

share of its stock divide by its current

stock price and like i mentioned earlier

even though it's better to of course

receive higher dividends don't get

fooled by insanely high dividend stocks

right so those ones that pay you know 20

to 60 dividend yield those are going to

be called dividend traps those are

probably not going to be the best

companies to invest in as they just mean

that the company is giving away way too

much money to shareholders and not

reinvesting that money into its own

growth more important is the company's

ability to maintain and slash or

increase their dividend payouts another

really important term is diversification

right so you definitely want to practice

distributing your investments to many

assets so that your exposure to any one

type of asset or even one sector is

limited the main objective with this is

that you want to reduce your portfolio

volatility over time and this can

actually be measured by examining the

correlation coefficient of a portfolio

you can see that this is an example of a

pretty well diversified portfolio you

have six different types of investments

and they are spread out pretty evenly

cost of owning an etf right so this is

how much does it cost to actually you

know invest in this fund so the expense

ratio while this is not like the biggest

factor to consider this only applies for

dividend etfs or other types of etfs

it's not going to apply for your

individual dividend stocks but i'm a

really big etf person i think that

that's probably the best way for most

people to invest in all types of stocks

of course you're going to care about the

expense ratio because that's how much

you're paying basically in management

fees in my opinion anything under 0.1

percent is relatively good and anything

above that is going to be a little bit

more on the expensive side yeah just be

aware because a lot of your growth in

your portfolio can get eaten up by these

fees so that's why of course it always

makes sense to choose ones that have the

lowest fees possible now the key term is

total return so the increase in stock

price which is known as capital gains

plus any dividends paid the company

whose shares delivers strong returns

results in more profits

and that also results in greater

dividend payouts and finally earnings

per share eps this actually allows you

to normalize the company's earnings to a

per share value companies that show

their ability to regularly increase

earnings per share over time are going

to be solid dividend stocks that are

more reliable and we can do is compare

the eps for a company's respective

sector with both the company itself as

well as its biggest competitors so when

it comes to setting up your portfolio

there are some things that you

definitely shouldn't do and we'll get

into each of these in more detail but

they include buying good stocks

targeting several industries caring

about financial stability over growth

you want moz payout ratios you want a

history of rising dividends and of

course you want to reinvest your

dividends if you want to take advantage

of higher compound growth so buying good

stocks right the whole goal is to earn

good dividends

not to multiply your money tenfold this

means that you don't need to incur

unnecessary company risk and some things

that you'll want to consider are having

good profitability right so both good

current profitability as well as future

profitability you'll care about the way

that the company actually uses its money

in assets so like how does it actually

reinvest in itself you want to look at

the earnings momentum so is the company

profiting at a higher rate than before

as well as the intrinsic value so

instead of just looking at the market

value and comparing it to like the last

year or so look at metrics like the book

value and p e ratio another thing that

you'll want to do is target several

industries so if you look at the economy

and past history you'll see that

economic cycles affect each business and

respective stock differently for example

a bear market

due to a war in a gasoline exporting

country could lead to a bull market for

weapons due to the purchase of weaponry

you'll see that right now some

industries are doing a lot better than

others and yeah this is just lower your

volatility i'd say that typically five

to seven different industries is the

sweet spot and you might want to balance

relatively stable industries like food

and textiles with higher growth

industries like tech and energy when in

doubt i'd say that financial stability

is more worthwhile so it's less risky

than the chance for massive growth

especially with dividend stocks and what

you can do is you can actually assess

this by examining a company's credit

ratings so this is the ability to

reliably pay back debts and when you can

do that that leads to financial

stability a lot of the higher growth

companies for example in tech they can

incur massive debt and so their

financial stability and ratings may not

be as good another thing to look at is

the payout ratios right so think about

dividends as a percentage of earnings

what you guys will want to do is you'll

look at the payout ratio and look for

something that's 60

or less this means that the company is

paying less than 60

of their net earnings to shareholders

meaning they have at least 40 percent to

reinvest back into their business and

grow this also creates some flexibility

for the company in terms of economic

trouble so of course if a payout ratio

is like let's say 95

and you see a dip in earnings for a year

then it's very likely that that company

is going to have to lower their

dividends for that year or just stop

paying them like i mentioned before

avoid those dividend traps and yeah

don't let those high yields fool you

because you know these companies they're

really bad at utilizing their assets to

build their business there's a reason

why they're paying such high dividends

compared to the share price that being

said i'd say don't restrict yourself to

just the really really really safe lower

yield companies because you still

deserve a hefty regular income and there

are tons of companies that pay out you

know pretty good dividends while

maintaining that safety and reliability

another thing to look at is the history

of rising dividends so some really good

sources that you guys can use to find

these rising dividend stocks are

dividend aristocrats dividend achievers

and the value line investment survey

basically companies that raise their

dividends steadily over time are more

reliable and durable and if they have a

good history of paying out dividends on

time and you know increasing them then

we can reasonably expect these companies

to you know continue growing their

dividends throughout the future the last

one reinvest dividends this is more

aimed at you yourself the investor and

what i would recommend is if you don't

need the dividend money if you don't

need that money right now to live

actually just reinvest it back into that

company especially if you are a believer

of it this is going to lead to higher

compounding growth which as you guys

have probably heard results in the

biggest increases in net worth for

people now let's talk about some

dividend investment strategies we have

three in particular the first is

dividend growth investing so this is

investing in dividend companies that

experience growth year over year this is

pretty optimal because you're getting a

dividend payment but you're also

investing in the company that you know

is also growing itself and therefore the

share price is also going up so you're

making money from appreciation as well

as those continuous dividend payments

obviously this is the optimal investing

strategy then you have dividend capture

investing uh this is more inefficient

and more risky and it's basically an

income focused stock trading strategy

where you hold stocks long enough to get

the dividend payout and then sell them a

lot of times these stocks actually

correct for themselves so yeah it's hard

to make this work and it is more risky

the third is dividend reinvesting we

already talked about this but that's

just buying more shares with your

dividends to add extra compound interest

long term on the focus one more time on

dividend traps because i think this is

something that a lot of beginners fall

into and they see a company you know

with like 20 to 60 dividend yields and

they're like of course why should i buy

something else with like a three percent

dividend yield when i can buy this with

a 60 dividend yield the fact is that

companies with poor financial and

business fundamentals tend to have these

high yields and oftentimes they cannot

sustain those listed dividend yields for

any long period of time so to actually

analyze these dividend traps you'll want

to look at the price to earnings ratio

free cash flow and debt to equity ratio

the price earnings ratio is something

that helps you determine whether a

company is overvalued or undervalued so

generally the higher the pe ratio the

more expensive a stock is relative to

its earnings you absolutely cannot use

just a stock's price to determine if

it's you know worth it or not instead

focus on things like the p e ratio

because this actually allows you to

compare it to other companies in the

industry to better determine value so

let's say for example you have a company

that's trading at 100 and the earnings

per share is let's say five dollars 100

divided by 5 is going to be 20 and that

is your p e ratio free cash flow is the

money that companies can use to pay out

dividends make acquisitions and buy back

shares so generally it's really good if

a company generates more free cash flow

than dividend payments and if a company

pays out more in dividends than it

generates in free cash flow then it may

not be able to sustain dividend payments

for a long time and then your debt to

equity ratio is how much of a company's

funds are from debt versus from

shareholder equity generally it's going

to be considered more risky if a company

has more funds from debt than you know

shareholder equity and in that case

investors might have their dividends cut

if the company runs into financial

problems or if it's heading towards

bankruptcy so yeah here are some of the

last things that you guys should

remember first dividend investing is

better as a long-term sustainable source

of passive income and not a short-term

money-making scheme you're not going to

get rich often investing that's

impossible rather when you're doing this

type of investing you're just trying to

get a steady paycheck from your stocks

and this continues to build up over time

and you can actually take that money and

live off of it or you can reinvest it

back into those shares or into other

companies for most people dividend

investing is not going to be their main

source of income but after a long time

you might be able to build up a very

very significant dividend portfolio that

pays out enough money for you to

actually live on for example let's say

you have a one million dollar given

portfolio with an average uh you know

dividend yield of let's say uh three

percent this means that you'll get you

know pretty much guaranteed thirty

thousand dollars every single year from

those payments and while the total net

value of your dividend portfolio might

not go up as much as another one of your

growth portfolios you do get that

sustained payment from the dividends

which is really nice to have so yeah

that's it for this video i hope you guys

found it useful and you know with

everything going on right now given

stocks are becoming more and more

popular you've seen higher growth tech

stocks and the s p 500 really go down in

the last half year but at the same time

a lot of these dividend stocks have

really held their value quite well as

well as continued to pay out those

dividend payments yeah overall great way

to invest shouldn't be everything that

you invest but it can be a good way to

diversify your portfolio like i

mentioned if you guys want to get some

free stocks i'm gonna put links down

below and if you enjoyed the video make

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this i make a ton of content about

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entrepreneurship thanks so much for your

time and i'll see you in the next video

peace

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