Investing in Dividend Stocks can be a great method to create a truly passive income. Dividend stocks are equities that pay out an amount per year per share you own. An example would be Microsoft (MSFT) they are paying out $0.23 for each share you own. This equates to a 3.31% dividend yield. This means if you hold a position in Microsoft, you will end up earning 3.31% if the stock does not change in price over the year. This is not too bad considering stocks not paying dividends would issue you no money at all if the same where true. While there is obvious support for dividend stocks, there are some drawbacks as seen by companies not offering them. But knowing the best time to enter any position on stocks in the key.
By a company offering a dividend, it entices people to not only buy shares, but to also hold them. It also tends to provide some degree of certainty that the company is indeed doing well enough to be able to offer them. This especially rings true for those companies that have been offering dividends for years and perhaps have even raised their payouts over time. If company decreases dividends this may trigger a bit of a red flag for investors. It will at least make people raise an eyebrow as to the reason.
So why do not all companies offer some degree of dividends? Some are uncomfortable doing so or they feel it would be financially irresponsible. Some argue that investors can in actually create their own dividends by changing their ownership of shares. There is also the fact that taxes on dividends are higher than capital gains taxes. A dividend in fact an expense for the company so if these do not exist, share prices may rise higher than the would anyways.
What is the best time to enter positions when buying stocks? This is the age old question that if we had a perfect answer everyone would be rich. There are some that say if you have the money, “now” is the time because no one owns a crystal ball to see the future regardless of all the technical indicators and experts out there. My approach is I look at some great dividend paying stocks that look financially solid and have been paying out dividends over many years. I then like to use various technical indicators such as Moving Averages, Relative Strength Index, Bollinger Bands and the Moving Average Convergence Divergence (MACD) to try to gain any upper hand possible as to a direction (You can read more about technical indicators on wikipedia for more information ) After this if it appears that a stocks price looks a little on the lower than average price over the past year. I will then pull the trigger and buy.
Another thing I like to keep in check is my greed factor. I refer to this as if a stock or the market in general is climbing really high, and people are all talking about how much they have made etc, in my view it indicates a Strong Get Out. People often will buy into the hype as a stock or index has climbed very rapidly in a short period of time and regret it. Ask people who bought at the top of the Nasdaq in 2000 or the Nikkei in 1990. Also when everyone says the sky if falling, put all the money you can afford into the market! “Buy When There’s Blood In The Streets”
Y and T’s Weekend Ramblings at Young and Thrifty.ca
Carnival of Retirement at The Money Mail
Yakezie Carnival at Financially Digital
Carn. of Financial Camaraderie at Thirty Six Months
Carnival of MoneyPros at Nickel by Nickel