@1RBFjr
That’s a terrible idea. What time?
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@marcusluvsvols this is a good read again. You can also look at the ‘dividend aristocrats’ for ideas: https://money.usnews.com/investing/stock-market-news/articles/dividend-stocks-aristocrats These are companies that have been around for very long times. There are also ETFs comprised of these companies.It wouldn’t hurt to go pick up an intro to accounting textbook. Even if it is decades old, the basic concepts don’t change. Assets, liabilities (debts owed), equity (or “capital”), expenses, and revenue (which includes sales sales) are the basic elements and it is a good idea to become very familiar with those 5 accounts that are on EVERY organization’s financial statements. The first 3 on balance sheets and the other 2 on income statements.
Dividends (paid) are an interesting account. Financial beginners tend to think of the dividend payments to shareholders as an expense to a company - when it’s really a decrease in the equity (or a return of equity to shareholders). The bad thing about dividends is that the company is not allowed to deduct those payments on their income tax returns, but a shareholder receiving the dividend must report them as income on their personal tax returns. Equity grows when a company has earnings (or profits) and equity is reduced when a company has losses or pays out cash dividends to shareholders. So the lesson with dividends is that there is the simple math of a yield (dividends paid divided by a companies share price) that is expressed as a percent. But you also must consider the dividend payout ratio in order to assess if the dividends being paid to shareholders is sustainable. It is comparing the dividends paid per share and dividing that dollar amount into a company’s earnings per share. A company with a higher dividend yield isn’t necessarily better if their earnings are low relative to the dividends that it pays. They can continue paying the dividend for a short while, even without the profits to cover the dividend payment - but eventually they will have to cut the dividend. Wall Street hates it when companies cut their dividends. The share price will crash.
The P/E ratio is a very important measure. It is simply a company’s share price divided by its earnings (or loss - yikes!) per share. A price/earnings (P/E) ratio above zero is always preferred (which translates to positive earnings instead of a loss). P/Es that get extremely high can indicate several things. A company’s share price has been bid up more than it is worth in equity markets. A company has excellent future prospects and the growth is worth paying a premium for. Also just the math - a company that just turned profitable might only have a few cents of earnings per share but is expected to easily grow to several dollars of earnings in the near term. A $100/share company that is widely expected (by stock analysts) to earn $5/share NEXT year has a reasonable FORWARD P/E of 20x earnings. But if it is only earning a penny per share in the current year then the P/E ration (or “earnings multiple” or simply “multiple”) would be $100 divided by $0.01 or 10,000x - which is an insane P/E if not considering the other facts. Sometimes you will see a P/E ratio published as NM (not meaningful) with an extreme like that.
P/E ratios can be compared to other companies in the same business (Ford, GM, and Tesla for example) or to the P/E calculated on a broad index average (S&P 500, the Dow Jones Industrial average (the Dow or the DJIA), and the NASDAQ 100 (the QQQs being a widely traded ETF that reflects the NASDAQ 100 “index”)), or PEs can be compared to historical PEs for the same company. .
Good places to scan for companies paying reliable, sustainable, hopefully growing dividends are the components of the S&P 500 and the 30 companies in the DJIA. Also, one of the large ETFs with the theme of including good dividend paying stocks. I’m not as familiar with the best of those funds but I’d start with the largest that are in the Vanguard, Fidelity, iShares (BlackRock), SPDRs (State Street), and Schwab fund families. Here is a good list:
https://money.usnews.com/investing/funds/slideshows/best-dividend-etfs-to-buy-now
The cool thing about ETFs is that they publish the list of companies that they own in their funds. Those lists are in their annual reports that can be found on the fund websites.
I’ll look for a few names later, but I’m not as interested in dividends/income as some of the other posters. I’m more interested in long term growth in investment values and short term trading profits. There could easily be an entire VN thread focused only on dividends and income producing investments.
Another concept that most brokers offer for their account holders is automatic dividend reinvestment programs. They will take your dividends and automatically buy more shares of stock in the issuing company’s shares for you. It is an auto pilot for investors that believe strongly in a company (or a fund) and just want to grow their investment without pulling out the cash or be hassled with managing their own investments as closely.
Good dividend paying companies are often those with a long established track record (DJIA component companies for example). Low dividend payers shouldn’t be considered bad investments. Warren Buffet doesn’t like paying dividends - but Berkshire-Hathaway is an outstanding, well established, huge company that does not pay a dividend. Its P/E ratio is also very high at 50x plus, but BRK stock is a great LT investment.
Large petro and drug companies are good dividend payers. XOM, CVX, JNJ, MRK, and PFE to name a few. Large defense contractors can be good as well - LMT, General Dynamics, NOC, RTX, LHX.
You should also consider doing a drip (dividend reinvestment program) with companies that pay out dividends. Instead of you directly receiving the money in your account from the dividends, the money is automatically invested in buying you more stock in the company. The best part about that is there is no transaction cost for you in the drip.
Also, be careful chasing companies that offer high dividends/yield. They may not have sound fundamentals, and may be in trouble.