How to Build a Dividend Stock Portfolio With $100 (Free Course)
Summary
TLDRThis 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
🚀 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.
🔍 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.
📈 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.
💼 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.
🌟 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.
Mindmap
Keywords
💡Dividend Stock
💡Passive Income
💡Dividend Yield
💡Blue Chip Companies
💡Risk and Volatility
💡Tax Advantages
💡Compound Returns
💡Dividend ETFs
💡Dividend Traps
💡Payout Ratio
💡Earnings Per Share (EPS)
💡Diversification
💡Brokerage Account
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
sure to share with a friend like and
also subscribe for more videos just like
this i make a ton of content about
personal finance investing and
entrepreneurship thanks so much for your
time and i'll see you in the next video
peace
[Music]
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