Taming the Money Sharks: 8 Super-Easy Stock Investment Maxims

Appendix D

Strategy for Investing in High-Dividend (HD) Stocks

Many books have been written about the pros and cons of investing in high-dividend (HD) stocks. To cover this entire area would be beyond the scope of this book. However, I would highlight certain key concepts that may be helpful in incorporating these stocks in your portfolio.

A. Who Should Consider This Strategy?

For certain classes of passive investors (e.g., retirees, some housewives, or busy workers who put in many hours of overtime), HD stocks should be considered.

B. Inclusion as HD Stocks

First of all, the definition of HD stocks varies, depending on which gurus you follow. In this Appendix, let us set a range of 2.5% to 10% yield return, thus covering many categories of high-dividend stocks. Obviously, risk and reward generally go together, and I caution my readers accordingly.

C. Basic Indicators for Choosing HD Stocks

Without going into fancy mathematics and difficult terminology, I would suggest looking at four indicators in selecting these companies. At minimum they should have

1. A relatively strong financial condition

2. Earnings stability and growth

3. A reasonable dividend payout ratio

4. A consistent history of dividends and dividend growth

D. Strategy Goal

The goal should be to generate a consistent stream of cash from aggregating dividends from a portfolio of stocks of relatively low-risk companies that have a track record of distributing reliable and growing dividends. This strategy is especially ...