HOW TO INVEST IN FOREIGN STOCKS

Investing in foreign stocks means holding shares of companies that are not only based in different geographical locations but also driven by the respective economy-specific factors. Investing in foreign stocks helps to spread the investment risk among the international markets that are different from the home economies.  

People who choose to invest in international markets look to gain from the diversification and growth in other economies. This is an important factor since no particular market has consistently remained on the top, and there are a wide range of high-performance markets all over the world.

But note that, just like most other things, International investing has its flip side. When measured in terms of Volatility, foreign stocks are considered to be more risky.  Besides, the risk of dramatic changes in their market value, international stocks also have other risks associated with them e.g. Currency Risk which stems from potential unfavorable movements against the home currency. But at times currency movement can also work in favor of the investor and help in enhancing his/her returns. Political Risk that arises from an unstable government or military action in the country of investment. We also have a Inadequate Regulation Risk in the global markets as compared to developed markets like those in the United States. This increases the risk of manipulation or fraud. Another Risk is Insufficient Information available about various international markets, which can limit the investor’s precision of market movements. You can have difficulties interpreting the international market’s information  as an outsider investor in addition you need to take note of the fees involved like the commissions and Taxes.

The are various Routes that one can trade foreign stocks as discussed below:

  1. Direct Investing – There are two ways by which investors can invest directly in foreign stocks. The first way is by opening a global account with a broker in their home country, providing the ability to buy foreign stocks like E*TRADECharles SchwabFidelity etc. in the United States. The second way is to open an account with a local broker in the target country that offers services to international investors like OCBC Securities in Singapore , Boom’s Trading Platform in the Hong Kong. These two trading Platforms gives access not only to local market but other stock markets. Investors should make sure that these brokers are registered with the market regulator in the home country. In order for investors to pick the right trading platform based on their investing style and interest, they need consider other factors like fees, costs, and facilities provided by the brokerage firm. It is not advisable for small investors to go direct as the system is complicated involving so many things like currency conversions, costs, taxation issues, technical support, research etc. Only serious and established investors should indulge in this process.
  2. American Depository Receipt (ADR) – ADRs work well for investors as well as for non-US companies. ADRs offer investors a convenient way to hold foreign stocks and also provide an opportunity to non-US companies to establish an US presence and even raise capital in the US stock Markets.  Example is one of Alibaba Group Holding Limited World’s largest IPO. The ADRs can be either sponsored or not and have 3 different levels depending upon foreign companies’ access to US markets, as well as disclosure and compliance requirements. Level 1 ADRs cannot be used to raise capital and are only traded over the counter while level 2 and level 3 ADRs are both listed on an established stock exchange e.g. NYSENASDAQ only Level 3 ADRs can be used to raise capital.
  3. Global Depository Receipts (GDRs) – With GDRs a depository bank issues shares of foreign companies in international markets typically in Europe and are available to investors within the US giving them an opportunity to invest in foreign stocks. Though they GDRs are dominated in US dollars and at times in Euros or Sterling Pound, they are typically traded, cleared, and settled in the same way as domestic stocks. London and Luxembourg stock exchanges are the most common destination for listing of GDRs other exchanges include those in Singapore, Frankfurt and Dubai. Online offers
  4. Mutual Funds – These funds are like regular mutual funds in terms of the benefits they offer and how they work. except they hold a portfolio of foreign stocks rather than domestic stocks. These funds come in a variety of flavors with something for everyone from aggressive to conservative investors. The main types of funds that invest in foreign funds are Global Funds, International Funds, Region or country specific funds and international Index Funds. But note that just like many other international investments, these funds tend to be costlier than domestic counterparts.
  5. Exchange-Traded Funds (ETFs) – Picking the right ETFs is easier for investors than constructing a portfolio of stocks by themselves. While a single ETF can offer a way to invest globally, there are ETFs that offer more concentrated picks e.g. on a particular country. There are a wide range of international ETFs within different categories like Geographical Region, Market capitalization, Investment style, sectors etc. Some of the ETFs come from Providers like Schwab, Flexshares, iShares, SPDR, Vanguard etc. Investors should research the costs involved, liquidity, fees, trading volume, taxation and portfolio before buying any international ETFs. Find Investing Books
  6. Multinational Corporations – If you are not comfortable investing in international stock using the above methods, then  you can look for domestic companies that have a majority of their sales and revenue overseas. For an US investor Coca-cola company(KO) or the McDonald’s Corporation (MCD) provide a good example.

Bottom Line

There are many routes to choose from if you want to invest in foreign stocks but it is paramount that the investor first learn about the product they are investing in before they make an informed decision which one he/she can pick besides having knowledge about the political and economic conditions in the country of investment which is essential to understanding the factors that could affect the investment returns. Investors should put focus on their investment objectives, costs and prospective returns, balancing it with their risk tolerance when they are making a choice on international foreign stocks.

 

KEY PRINCIPLES TO INVESTING IN A STOCK

In this article we look at the four keys that we believe every stock investment should have. These are not new things but rather the core principles that successful investors have been following for decades.

  1. Invest in sectors and industries that you understand – Becoming an expert in certain areas of the market will give you an upper hand when it comes to selecting stocks to buy. This is like a foundation for all other steps that follows. Pick a given sector or industry and try to get information on it as much as possible. This will enable you to make informed decision when it comes to buying stock.
  2. Find companies with a Long-Term Competitive Advantages – Companies with long-term competitive advantage have an ”economic moat” i.e. Economic protection.  These companies have the following advantages:
  • A recognized brand.
  • The ability to produce products cheaper than anyone else.
  • The ability to sell their products cheaper than anyone else.
  • Barriers to entry that make it difficult for competitors or new companies to compete.
  • The opportunity to grow at a cheaper cost than anyone else.
  • A duopoly situation where two companies dominate the industry like Airbus or Boeing.
  • Networking effect where the users of the product or service makes the business more valuable like Google. Check for an Investing Book

3. Look for companies with Excellent Management – This can be done by reading annual and quarterly reports and studying the history of the company’s current management in an attempt to understand what the management is currently doing and what they may do in the future. You can look at the following:

  • The management’s history of decision-making. Do they have a track record of someone who we would actually hire if given a choice?
  • Understanding how management is compensated. Is their compensation based upon the success of the firm?
  • Ensuring that management is shareholder friendly. Do they do things that have the best interest of shareholders in mind?

These questions will help you to answer the question as to whether or not we trust the management enough to purchase the stock.

4. Buy When the stock is at a Good Price. Discounted to Intrinsic Value —Find stocks that are currently trading below the market price. If you can be able to find stocks that are trading below their intrinsic value and have the other three core principles then we would have the formula for a sound stock investment.  If you find a stock with the first 3 principles but is not trading below the market price, then it is better you wait. Any investor should know that the price at which he/she pays at, is a critical piece of investing. If you get it wrong then the investment will have a hard time making money.  ACCESS ONLINE OFFERS

Bottom Line

When all the four principles align then the possibilities of making money increase, though this does not guarantee that you will make money but rather increases the probability of making money.

 

 

RISKS THAT EVERY STOCK FACES

We have sector & company specific risks in investing. Here we look at some universal risks that every stock faces irrespective of its business.

  • Rating Risk – This occurs whenever a business is given a number to either achieve or maintain.  Every business has a very important number as far as its credit rating is concerned. The credit rating directly affects the price a business will pay for financing. For public traded companies they have analysts rating which is even more significant value than the credit rating. Any changes to the analysts rating on a stock seem to have much bigger psychological impact on the market. The shifts in ratings, whether negative or positive often cause swings far larger than justified by the events that led the analysts to adjust the ratings.   
  • Commodity Price Risk – This is simply the risk of a swing in commodity prices affecting the business. Companies that sell commodities benefit when prices go up, but suffer when they drop. Companies that use commodities as inputs will get affected when we have swings in prices, in addition this may  affect the whole economy especially when commodity prices go up as people restrain from spending.
  • Headline Risk – This is the risk associated with stories in the media that will hurt a company’s business. One bit of bad news can lead to a market backlash against a specific company or an entire sector.
  • Obsolescence Risk – This is a risk that a company’s business may become obsolete. The biggest obsolescence risk is that another person may find a way to make a similar product at a cheaper price.
  • Detection Risk – This is the risk associated with the auditor, Regulator or any other authority that checks your business compliance to the set requirements or standards. If the companies earnings or any other financial malpractices are happening, the market reckoning will come when the news surfaces. With the detection risk, the damage to the company’s reputation may be difficulty to repair and in some cases, the company may never recover.
  • Legislative Risk – This risk refers to the tentative relationship between government and business. Specifically it is the risk that government actions will constrain a corporation or industry, thereby adversely affecting an investor’s holdings in that company or industry. This risk can be realized in several ways: new regulations or standards, specific taxes etc.
  • Model Risk – This is the risk that the assumptions underlying economic and business models within the economy are wrong.  The mortgage crisis or 2008-2009 is a perfect example of what happens when models don’t give a true representation, in this case risk exposure model doesn’t give a true representation of what they are supposed to be measuring.
  • Inflation Risk and Interest Rate Risk – Interest rate risk, refers to the problems that a rising interest rate causes to businesses that need financing. As their costs go up due to interest rates, it is harder for them to stay in business. If this rise in rates is occurring in a time of inflation, and usually rising rates are used to fight inflation then a company could potentially see its financing costs climb as the value of the dollars its bringing in decreases. A rise in interest rates and inflation combined with  a weak consumer can lead to a weaker economy.  Access online offers

Bottom Line

Every investor should know that there isn’t  a risk-free stock or business. The rewards of investing can still outweigh the risks that every stock faces be it universal risks or risks specific to the business. The best thing to do as an investor is to know the risks before you buy in.

RULES TO SUCCESSFUL STOCK TRADING

To be successful in trading, one needs to understand the importance of and adhere to a set of rules that have guided all types of traders, with a variety of trading account sizes.  Each rule alone is important but when they work together the effects are strong. Trading with these rules can greatly increase the odds of succeeding in the Markets. We are going to look at each of the rules in details as follows:

  1. Risk only what you can afford to lose – One must be prepared to lose all the money allocated to a trading account. Therefore it is important not to allocate money meant for other obligations like Children’s college or paying mortgage to a trading account.
  2. Always use a Trading Plan – A trading plan is a written set of rules that specifies a trader’s entry, exit and money management criteria. Using a trading plan allows traders to do this even though it is time-consuming. You can test a trading idea before you risk real money. Backtesting applies trading ideas to historical data allowing traders to determine if a trading plan is viable, and also shows the expectancy of the plan’s logic. Once a plan has been developed and backtesting shows good results, the plan can be used in real trading. The key is to stick to the plan. Taking trades outside of the trading plan, even if they turn out to be winners, is considered poor trading and destroys any expectancy the plan may have had.
  3. Treat Trading like a Business – To be successful, one must approach trading as a full or part-time business not as hobby or as a job. As a hobby where there is no real commitment to learning, trading can be expensive. As a job it can be frustrating since there is no regular paycheck. Trading is a business and incurs expenses, losses, taxes, uncertainty, stress and risk. As a trader, you are essentially a small business owner and must do your research and strategize to maximize your business’s potential.
  4. Protect your Trading capital – This means that you should not take any unnecessary risks and doing everything you can to preserve your trading business but note that losing trades is part of business.
  5. Become a student of the Markets – Learning should be a continuous process. Traders need to remain focused on learning more each day. Understanding the markets and all of their intricacies is an ongoing, lifelong process.
  6. Use Technology to your advantage – Charting platforms allow traders an infinite variety of methods for viewing and analyzing the markets. Backtesting an idea on historical data prior to risking any cash can save a trading account, not to mention the stress & frustration. Getting market updates with smartphones allows us to monitor trades virtually anywhere. High speed internet connections can also increase trading performance.
  7. Develop a Trading Methodology based on Facts – Take time to develop a sound trading methodology. Develop your trading plan based on Facts, not emotions or hope.  Check for a Stock Trading Book
  8. Always use a Stop Loss –A stop-loss is a predetermined amount of risk that a trader is willing to accept with each trade. The stop-loss can be either a dollar amount or percentage, but either way it limits the trader’s exposure during a trade. Using a stop-loss can take some of the emotion out of trading, since we know that we will only lose Y amount on any given trade. Ignoring a Stop-loss, even if it leads to winning trade, is bad practice. Exiting with a stop-loss and thereby having a losing trade, is still good trading if it falls within the trading plan’s rules. Although the preference is to exit all trades with a profit, it is not realistic. Using a Protective stop-loss helps ensure that our losses and our risk are limited.
  9. Keep Trading in perspective – It is paramount to stay focused on the big picture when trading. A losing trade should not surprise us if it is part of trading plan likewise a winning trade is just one step a long the path to profitable trading. It is the cumulative profits that make a difference. Once a trader accept wins and losses as part of the business, emotions will have less of an effect on trading performance. Setting realistic goals is an essential part of keeping trading in perspective. If a trader has a small trading account, he/she shouldn’t expect to pull big returns.
  10. Lastly know when to Stop Trading – There are two reasons to stop trading: an ineffective trading plan and ineffective trader. An ineffective trading plan shows much greater losses than anticipated in historical testing. Markets may have changed, Volatility within a certain trading instrument or the trading plan simply is not performing as well expected. You should remain unemotional, and take time to re-evaluate the trading plan and make a few changes or to start over with a new trading plan. An unsuccessful trading plan is a problem that needs to be solved. It is not necessarily the end of the trading business. An ineffective trader is one who is unable to follow his or her trading plan. External stress causes, poor habits and lack of physical activity can all contribute to this problem. A trader who is not in peak condition for trading should consider a break to deal with any personal problems be it health or stress that prevents the trader from being effective. After dealing with the difficulties the trader can resume trading.  ACCESS ONLINE OFFERS

Bottom Line

It is important for any trader to understand each of these trading rules and how they work together. A good understanding of these rules, can go along way in helping traders establish a viable trading business. Remember that having a successful trading is all about hard work, discipline and patience to follow these rules.

PARAMETERS TO CHECK WHEN SELECTING STOCKS TO BUY

For you to best invest your money in stocks, there are parameters that you must check when analyzing the stocks.

Here we take a look at factors that you should check, when doing financial analysis, valuation analysis, business & industry analysis & management analysis.

FINANCIAL ANALYSIS

  • Sales growth – Growth should be consistent year on year. A growth of >15% for say last 7-10 years. Ignore companies where sudden spurt in sales in one year is compounding the 10 years performance. Very high growth rates of >50% are unsuitable.
  • Profitability – Look for companies with sustained operating & net profit margins over the years. A Net profit margin >8%
  • Tax Payout – Tax rate should be near general corporate tax rate unless some specific tax incentives are applicable to the company.  Tax payout of >30%
  • Debt to Equity Ratio – Look for companies with D/E ratio of as low as possible. Preferably zero debt.  D/E ratio should be <0.5
  • Interest Coverage should be >3
  • Current ratio >1.25
  • Cash Flow – Positive CFO is necessary, CFO >0
  • Cumulative PAT vs. CFO – Cumulative PAT & CFO should be similar for last 10 years i.e. cPAT∼cCFO

VALUATION ANALYSIS

  • Ensure P/E ratio <10, companies with such a P/E ratio provide a good margin of safety.
  • P/E to Growth ratio <1
  • Earnings Yield (EY) >10 year G-sec yield – EY should be greater than long-term government bond yields or bank fixed deposit interest rates.
  • P/B ratio <1 especially for financial services sector
  • Price to sales ratio (P/S ratio) <1.5 – For example you can buy when the P/S ratio is <1.5 and sell if >3
  • Dividend Yield (DY) >0% The higher the better. DY of > 5% is very attractive. But do not put much focus on DY for companies that are in a fast growth phase.

BUSINESS & INDUSTRY ANALYSIS

  • Comparison with industry peers – The company should show sales growth higher than peers. If its sales growth is similar to peers, then there is no competitive advantage.
  • Increase in production capacity and sales volume – Company mush have shown increased market penetration by selling higher volumes of its product/service.
  • Conversion of sales growth into profits – A more competitive firm would show increased profits with increasing sales. Otherwise, sales growth would  only be a result of unnecessary expansion or aggressive marketing push, which can erode value in the long-term.
  • Conversions of profits into cash – if cPAT>>cCFO then either the profits could be fictitious or the company isn’t collecting money from its sales.
  • Creation of value of shareholders from the profits retained – The company should show increase in Market Capitalization in the last 10 years. Increase in retained profits in the last 10 years. Otherwise the company is destroying the wealth of its shareholders.

MANAGEMENT ANALYSIS

Subjective parameters

  • Background check of promoters & directors – You can do a web search on this. There shouldn’t be any information questioning the integrity of promoters & directors.
  • Management succession plans – Good succession plan should be in place. Salaries being paid to potential successors should be in line with their experience.

Objective parameters

  • Salary of promoters vs. net profits – No salary increase with declining profits/losses. The promoters should not have a history of seeking increase in remuneration when the profits of the company declined in the past.
  • Consistent increase in dividend payments – Dividends should be increasing with increasing profits of the company.
  • Project execution skills – The company should have shown good project execution skills with cost and time overruns. Exclude capacity increase by mergers & acquisitions.
  • Promoter shareholding should be >51% the higher the better.
  • Promoter buying the shares – if the promoter of the company buys its shares, investors should buy too.
  • FII shareholding ∼0% the lower the better.

OTHER PARAMETERS

  • Product diversification – Company should be either a pure play ( only one business segment) or related products. Pure play model ensures that the management is specialized in what they are doing.  Refrain from buying into companies offering entirely different unrelated products/services. An investor should rather buy stocks of different companies, if he/she wants diversification.
  • Government Influence – There should be no government interference in profit-making. No cap on profit returns or pricing of product. No compulsion to supply to certain clients.  ACCESS ONLINE OFFERS

Bottom line

If you diligently follow these parameters by investing in stocks that promise good fundamentals, and doesn’t spend so much on them then you can be assured of good returns from your investments over time. However, the above parameters aren’t the complete list of what should look for when picking stocks. You should read further about investment analysis and you can add or even remove some of the above parameters per your understanding.

BEST WAYS IN WHICH YOU CAN INVEST YOUR MONEY

Here are tips on how to best invest your money.

  • Focus on the fundamentals – Always make sure you understand the fundamentals of any investment vehicle you are looking at, be it stocks, bonds, or mutual funds. Understanding the fundamentals and comparing them to competitors can go a long way in helping you make a sound investment decision.  
  • Understand the risk – Out there, you will find a lot of tips and tricks on how to best invest your money but they all come with their own relative degree of risk. The opportunity for high returns comes with a higher relative degree of risk, so your tolerance for actually losing money is something you need to consider. You need to understand where your risk threshold stands to be a good investor.
  • Investment and Management fees – Make sure you keep a close eye on the terms and conditions of your brokerage account and the management fees of any funds you invest in otherwise you may discover when it is too late that your gains are being eroded by the costs of investing. Make sure the brokerage account you are using has the lowest cost structure available for your needs. Also take a good look at the management expense rate charged by investment funds or mutual funds you put money into. Try to make a comparison with their competitors to avoid those funds with extra unnecessary costs.
  • Look for Tax Treatments  – Tax treatment of your investment is an important aspect to look at since it doesn’t make sense if you are going to pay more in taxes on your investment than the expected return. ACCESS ONLINE OFFERS
  • Diversify Your Portfolio –Don’t put all your eggs in one basket when investing. Having all of your investments in  a single market or a single industry exposes you to downturns in those sectors that can cost you significantly. Diversifying your investments into different sectors like Manufacturing, Oil and Gas, Technology while at the same time investing in different geographical regions i.e. Europe, America, Asia can protect you from poor performance in any individual sector and ensure that you benefit from the sector upturns in a maximum way.

TIPS TO GETTING STARTED IN INVESTING

If you have plans to start investing, the following tips will guide you on the new road of investing.  

  • Start with why you want to invest – People are much more likely to succeed when they remain focused on why they are pursuing a certain goal rather than simply focusing on the action steps to get there, therefore it is important you find out what are your “whys” before getting started with investing. Your ”whys” can be like: Are you planning to retire early from your current job? do you have plans to open your own business? Every investor has one or more ”whys” behind any saving and investment goals. This enable any investor to stay disciplined with his/her investment plans in the years ahead.
  • Lay the foundation – Before going forward and opening that first brokerage account, make sure you have enough cash reserves set aside for any emergency, this can be like 3-6 months living expenses in an emergency fund. knowing you have money set a side to cover the  unexpected expenses, will make it easier for you to remain disciplined with your personal financial goals.
  • Avoid unnecessary fees – Avoid inefficiencies that drain money from your account. Be sure to limit how much you are paying an investment advisor for advice and how much you are paying in fees in investment products. Investing in low-cost exchange traded-funds and working with an advisor who charges you say 1% or less annually to manage your investments will keep more of your money growing toward your personal investment goals.
  • Set a savings target – Setting the amount of money to invest depends on factors like the number and timing of your personal financial goals or  your ”whys” that you have listed, how early you are getting started and how long you plan to work.  ACCESS ONLINE OFFERS
  • Lastly tolerate short-term pain for long-term gain – In a year, you will find that a stock can experience steep gains, steep losses and everything in between. Though we don’t know what will happen in a single year, the market has always historically delivered a positive return over long time periods.  While these historical returns are no guarantee of future returns, having a long-term perspective will enable you to capture the superior returns offered by stocks and bonds and achieve your personal financial goals.

WHAT TO CONSIDER IN MAKING AN INVESTMENT PLAN

To make a solid investment plan, you need to ask yourself the right questions, and patiently work through the answers. To ensure that you make an informed decision with regard to investment planning, build it based on answers to the questions below.

  1. What is the purpose of your investment? Any investment plan needs a main purpose. You should choose investments with a main goal in your mind like Safety, Income, Growth. The first thing you need to decide is which of those 3 characteristics is the most important. Do you need current income, growth so that the investments can provide you with income later or is safety your top priority?  
  2. When will you need to use the money? An investment plan needs to a time frame. Establishing a time frame you can stick with is of the utmost importance. If you need the money to buy a car in a year or two you will create a different investment plan than if you are putting money into a retirement plan on a monthly basis and won’t use the money until after you have retired. In the first case, your primary concern is what the account will be worth in a year. In the second case, it is irrelevant what the account is worth in a year. What matters in the second case is positioning the account for growth so it is worth more when you’ve reached your retirement age.  ACCESS ONLINE OFFERS
  3. How much money do you have to invest? your investment plan needs to specify how much you will invest and how often. Many investment choices have a minimum investment amounts, so before you can lay out a solid investment plan you have to decide how much you can invest. Do you have a lump sum or are you able to make regular monthly contributions? Some index mutual funds allow you to open an account with as little as $ 2900 and then set up an automatic investment plan starting with as little as $ 50 a month which would transfer funds from your checking account to your investment account.
  4. Do you understand investment risk? an investment plan needs to account for the level of risk you are comfortable taking. Some investments have a high risk, meaning that you can lose all your money. One way to reduce investment risk is to diversify. By doing so you may still experience large swings in investment value, but you can eliminate the risk of a complete loss.
  5. Have you made a list of available investment choices? You can’t create a good investment plan until you understand the choices available. It is better to lay out a list of all the choices that meet your stated goal. Then take time to understand the pros and cons of each. Next, narrow your final investment choices down to a few that you feel confident about.

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RULES TO SUCCESSFUL DIVIDEND INVESTING

Investing in stocks that pay out dividends is one of the strategic ways to establish a reliable income stream and build wealth. While investors are taking on a higher degree of risk, there is also the potential for greater returns.   

Finding success with these investments requires an understanding of some basic principles. We are going to explore some of the tried and true rules every savvy investor should take note of when investing in dividends.

  • Stick with established companies – The stock market usually moves in cycles and has the tendency to repeat itself now and then. When choosing dividend investments, we use the stock’s past performance as the measuring stick.  Investors should target those companies that have earned dividend aristocrat status. These are established companies that have increased their dividend payouts to investors consistently over the previous 25 years. Their brands are easily recognizable and they generate a steady flow of cash with a high likelihood of continuing to do so in the future.
  • Choose quality over quantity – One of the most important considerations for investors is the dividend yield. The higher the yield, the better the return, but the numbers can be deceptive. If the stock’s current payout level is not sustainable over the long-term, those market-beating dividends can quickly dry up. Real estate investment trust -REITs, are a good example of how fluctuations in the market can directly affect dividend payouts.  Find a Dividend Investing Book
  • Look for growth potential – Investors should look at the past and present returns, and even at the company’s future potential to increase its dividend payouts. This is the primary difference between growth investing and value investing. With growth investing, rather than focusing on what the stock is trading for currently, you should look at the long-term outlook for growth to gauge how profitable it would be from a dividend standpoint.
  • Mix it up – Having your stock assets concentrated in a specific sector of the market can be a good thing if the sector has a good track record that bodes well for future dividend earnings although this can be a big problem in case of a market downtown. Spreading assets out over multiple dividend-paying investments adds diversity to your holdings and it allows you to minimize risk. When dividends are reduced in one area, the loss may not be felt as deeply when the rest of your portfolio continues to perform.
  • Be mindful of the payout Ratio – The Payout Ratio tells investors how much is being paid to the shareholders and also how much the company can retain. A company’s dividend payout ratio can reveal how safe the investment is. If you come across a high yield dividend stock, but the company is paying out a substantial percentage of its income to investors, that is a sign that you need to tread cautiously.  If it happens that the income stream is reduced, the amount of dividends you are receiving can reduce or even be eliminated completely.
  • Know when to hold and when to fold – With dividend stocks, there is a fine line between waiting for the investment to pay off and hanging on too long.  Being able to recognize when a stock is sinking is vital, but you also have to know when to act on it and when to sit tight.  ACCESS ONLINE OFFERS

Bottom line

Dividend investing can be a reliable source of income stream that can help you build wealth. With the right approach, dividend investing can add an exponential amount of value to an investor’s portfolio. The key lies in knowing how to evaluate stocks to pinpoint those that offer the strongest returns while minimizing risk and maintaining diversity.  With good use of the guidelines above, you can be able to make an informed decision when it comes to choosing the right stock with good returns and less risks.

WHAT TO CONSIDER TO BE SUCCESSFUL LONG-TERM INVESTOR

Do you plan to be a long-term investor? The following principles can help you succeed in your plans:   

  • Don’t chase a hot tip. Let your own research and analysis guide your stock purchases, not someone else’s.
  • Sell the losers, and let the winners ride. Let losers go before their value completely plummets but note that it is actually difficulty to know which suffering stock will turn around and which ones won’t.
  • Don’t over emphasize the P/E ratio, which compares a company’s share price to its earnings per share. It should be within the proper context, and in conjunction with other analytical processes.
  • Short term movements should not prompt panic because short-term volatility is inevitable. A quality investment will persevere.
  • Resist the lure of penny stocks. A lousy $8 company has just as much risk as a lousy $ 100 company. Remember, companies with lower share prices face fewer regulations.
  • Pick a strategy and stick with it.
  • Focus on the future. Base decisions on potential rather than the past.
  • Be open-minded. Many good investments are not household names. But many of them have the potential to turn to blue chips.
  • Adopt a long-term perspective. Embracing the long-term horizon and diminishing “the get in, get out and make a killing” mentality. Access online offers
  • Lastly keep taxes in mind. Although investors should try to minimize tax impacts, it’s rare to find tax considerations dictating investment decisions.