This is my first post on how I qualify as a good stock pick. I know people tend to have different strategies when it comes to stock picking or trading stocks. Most popular of them all are fundamental analysis and technical analysis. There seems to be quite a lot of people in the technical analysis field that are traders. But the goal of this blog is not to trade. But to invest. Hence, Stock Investing Philippines.
The goal of this blog is to pick stocks that are income producing. Looking for stocks that provide dividends and payout shareholders consistently over the course of many years. Since we are investing for the long haul, we want to make sure that our shares will outlast us.
#1 - It Must Be Boring
The book "One Up Wall Street" came up with the idea that boring businesses are great long term investments. Businesses that any idiots can run. The reason behind this is that, a long term company will experience many CEO and changing of its board, but anyone who runs a simple business will make it successful no matter what happens. Simple businesses are boring and thus a good investment.
Example of these are funeral parlors, cement, mining, bottle factories, paper, toilet materials and utilities ugh!
#2 - No Debt or Manageable Debt
Every successful businesses needs debt to expand, for research and for production. But an even better business is a business with no debt. Learn to spot those businesses.
#3 - People Consistently Need to Buy Its Products
This criteria is very important if you want to consistently make recurring income with dividends. Companies that produce products that people consistently buy for their daily lives. Examples are food, electricity, communication, vices like beers, gin, cigarettes, or daily toiletries like napkins, mouthwash, razor blades. These products may be boring but we can not live without it. So, investing in these companies only makes sense.
#4 - Consistent Dividend Payouts
The most important part in this investing strategy is the dividend. We earn money each quarter depending on the amount of shares we have in the company. This is the strategy that employs compound interest. We reinvest the money to buy more shares of that same company to increase its dividend the next quarter.
This is not a get rich scheme. Its fool proof, time tested strategy of the wealthy.
Long before, the way to measure wealth is not about one's net worth. It makes sense because net worth fluctuate depending on market sentiment. Especially if you hold different markets that are hot. To measure their wealth, they compare each other's passive cash flow. And this is what we are after, well at least on this blog.
Look for companies that never fail to give out dividends for over the course of many years. Especially during bear markets and recession.
#5 - Dividend Yield
Dividend yield is the percentage of how much dividend we are getting for the amount of money invested. The higher the dividend, the greater the rewards. Which is great. But also, be careful as some companies will try to make their yield higher so investors give them money only to find out that the company is collapsing.
In order to find out if the high dividend yield is justifiable, we need another criteria.
#6 - Dividend Payout Ratio
This is the ratio of how much money is paid out to investors with the amount of earnings the company made. To make it simple, if the company has 30 dividend payout ratio, it means that 30% of the company's earnings are paid out to the shareholders, and the remaining 70% are used to reinvest or expand the business. The lower the payout ratio, the better, because you know that the company is expanding and using its money to make more money. There's room for more growth with low payout ratio. If the company has high payout ratio, it means that they have saturated the market and may not have any more room to grow, that's why most of its earnings are paid to share holders.
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