Hey there, I’m quite happy to be back after 2 weeks of vacation! During that time, I gathered a lot of dividend info and topics to write about. But first, let’s continue this dividend beginner investing series with part 4: When to start trading dividend stocks?

Some say right after you open your brokerage account, but I think different. If you have just started to invest and have little basic knowledge about trading, I really think that buying the first dividend stocks that seem “logical” to you could be a mistake. In fact, if pros can’t beat the market regularly, why do you think you can be better than the bulls of Wall Street?

On the other hand, building your dividend portfolio has several advantages:

#1 You can customize your portfolio according to your needs.

#2 You take the dividend cash or reinvest it.

#3 You won’t be bothered by ETF and mutual fund MERs.

#4 Finally, there is a great feeling attached to the trading of stocks .

Then again, the fatal question is; When are you ready to trade on your own? This is where I draw a few interesting guidelines;

#1 Investment knowledge

Opening a brokerage account doesn’t make you an investor. There is fundamental investment knowledge you should possess before touching any stocks. Among the basic knowledge I recommend;

-         Being able to read financial statements

-         Being familiar with financial language (P/E ratio, payout ratio, ex-dividend date, etc.)

-         Calculate/Understand different ratios (you can find financial ratios on most finance website, but understand how they are calculated is the first step to understand their meaning).

-         Understanding the basics of the economy (how interest rates will affect bond and preferred share values for example)

In order to build your investment knowledge toolbox, you can use different methods:

-         Read blogs (that will open your mind to different topics but keep in mind that bloggers are not professional advisors nor investment teachers)

-         Read financial statements and financial analyst comments (most brokerage accounts offer their firm’s financial analyst comments on stocks for free. This will help you to become familiar with financial language and the impact of different events on a company’s stock).

-         Go back to school (While getting a CFP or a CFA title seems a bit extreme, taking a few finance classes as a student may be interesting. Getting your license to become a broker could be interesting too).

-         Become a member of an investment club (this is where you will find tricks and ideas of where and how to invest. But keep in mind that as is the case with bloggers, being a investment club member doesn’t make you a profitable trader ).

While opening the brokerage account doesn’t make you an investor, having $1,000 to invest only makes you a potential market victim . Personally, I don’t like the strategy of buying 2 or 3 stocks with your $1,000 and wait to gather $300 to $500 to buy another one.

While it is true that you can build a dividend portfolio like this, trading fees (considering rebalancing your portfolio) will become very heavy.

I would consider building the core of a small portfolio with funds or ETFs and then, start looking for individual dividend stocks when you have $10,000 or more. With a $10,000 core in ETFs, you can take your next $500 or $1,000 to buy a dividend stock and it won’t affect your asset allocation enough so you have to rebalance after a year (unless your stock under or overperforms greatly!).

#3 Consider a virtual dividend portfolio

If you think you can handle the market right away, why not build your real dividend portfolio with ETFs and build a virtual portfolio on the side with stocks. After a year, you will be in a better position to understand your good and bad moves and will also be able to compare both strategies with “real” data.

Several financial websites such as Google Finance or Yahoo Finance offer to follow your virtual stock portfolio for free.

So, are you ready to trade stocks?

The bottom line of this post is that I consider that you need 3 key elements before trading individual dividend stocks;

#1 Financial knowledge

#2 The Size of your portfolio

#3 Experience in trading

Some people will take a few months before gathering the first two but we all learn something each time we make a trade . While those indicators will help you to make proper investing decisions, they are definitely not a gage of your success. However, you should be able to avoid major trading mistakes that cause you to lose most of your portfolio in a bad decision!

Image credit

ShareThis

I know that it is always interesting to get a full throughout analysis on a high dividend paying stock but I thought of searching through the highest paying dividend stocks of the S&P 500.

I have used the following filters to produce this dividend stock list:

- Dividend yield over 3%

- Stock price over $10.00

- Payout Ratio under 60%

While you could do this kind of filter with financial websites, it’s always handy to have the list done for you . Please note that price, dividend yield and dividend payout ratio are as of August 11th 2010.

Ticker	Name	Price	Dividend Yield	Payout Ratio
CINF	Cincinnati Financial Corp	27.41	5.76	59.03
AEE	Ameren Corp	27.25	5.65	55.23
LLY	Eli Lilly & Co	37.36	5.25	49.74
EXC	Exelon Corp	42.24	4.97	51.29
HCBK	Hudson City Bancorp Inc	12.07	4.97	54.7
CMS	CMS Energy Corp	17.02	4.94	57.58
AEP	American Electric Power Co Inc	35.89	4.68	55.65
FII	Federated Investors Inc	21.49	4.46	49.79
PFE	Pfizer Inc	16.32	4.41	57.06
MRK	Merck & Co Inc	35.28	4.31	27.89
PEG	Public Service Enterprise Group Inc	32.31	4.24	42.27
ETR	Entergy Corp	78.72	4.22	46.86
HRB	H&R Block Inc	14.65	4.09	41.09
KMB	Kimberly-Clark Corp	65.87	4.01	52.87
OKE	Oneok Inc	46.34	3.97	56.56
PCG	PG&E Corp	45.82	3.97	41.64
HNZ	HJ Heinz Co	45.54	3.95	58.04
COP	ConocoPhillips	56.74	3.88	58.3
KFT	Kraft Foods Inc	30.23	3.84	56.77
NEE	NextEra Energy Inc	53.3	3.75	47.33
EIX	Edison International	33.83	3.72	47.41
WM	Waste Management Inc	34.23	3.68	57.24
CVX	Chevron Corp	78.76	3.66	50.55
JNJ	Johnson & Johnson	59.02	3.66	43.42
CAG	ConAgra Foods Inc	22.35	3.58	46.82
NU	Northeast Utilities	29	3.54	49.33
ABT	Abbott Laboratories	50.98	3.45	43.09
LMT	Lockheed Martin Corp	74.07	3.4	30.03
MAT	Mattel Inc	22.31	3.37	51.32
HD	Home Depot Inc	28.2	3.35	58.21
CLX	Clorox Co	66.09	3.33	47.69
GIS	General Mills Inc	33.76	3.32	42.06
ADP	Automatic Data Processing Inc	41.29	3.3	55.97
RTN	Raytheon Co	46.05	3.26	24.74
SYY	Sysco Corp	31.02	3.22	52.79
NOC	Northrop Grumman Corp	58.7	3.2	34.27
CEG	Constellation Energy Group Inc	30.11	3.19	4.33
KLAC	KLA-Tencor Corp	31.49	3.18	48.24
K	Kellogg Co	51.14	3.17	45.05
PG	Procter & Gamble Co/The	60.87	3.17	48.48
KO	Coca-Cola Co/The	56.89	3.09	55.69
MHP	McGraw-Hill Cos Inc/The	30.73	3.06	39.4
CPB	Campbell Soup Co	36.28	3.03	48.77
MCD	McDonald's Corp	72.5	3.03	49.2
VFC	VF Corp	79.35	3.03	56.72
DRI	Darden Restaurants Inc	42.38	3.02	34.4
SRE	Sempra Energy	52.02	3	34.23

Is there any other filters you would like me to apply and post a new chart later on?

image credit

ShareThis

This guest post was written by Go Banking Rates, bringing you informative personal finance content and helpful tools, as well as the best interest rates on financial services nationwide.

After a scorching run from the March 2009 low, there was a lot of uncertainty about the United States stock market heading into 2010. Could it sustain the remarkable recovery or would the myriad of economic maladies finally catch up with stock prices? The fact of the matter is, it’s impossible to tell with 100 percent accuracy and conviction where today’s stocks will end up tomorrow, much less weeks, months or even years from now. The best thing you can do is separate objective information from opinion. Develop a sound investment strategy and stick to it. One of the worst things beginning investors–and even seasoned ones–can do is to be capricious with their portfolio.

The Case for the Bulls

We’re probably not going to enter a new bull market any time soon, but that doesn’t mean that stock prices still can’t close out the year on a high note. While optimists may not have too many indicators on their side to make their case, behind the scenes there’s actually a lot more business activity going on than in recent past. Consumers might not be doing any buying, but companies are definitely in the mood to shop. For example, look at the string of multi-billion-dollar deals in August alone:

• Software-giant Intel Corp. buys security software-maker McAfee for $7.7 billion.
• BHP Billiton, one of the largest companies in the world, is attempting a hostile takeover of Canadian fertilizer giant Potash for $40 billion.
• CenturyLink, the fifth-largest telephone company in the nation, buys Qwest Communications Intl. for $10.6 billion.
• IPO news from popular video site Hulu at about $2 billion, and General Motors Co. at roughly $15 billion to $20 billion.

According to the DealBook.com, the business blog of The New York Times, there have been nearly $200 billion worth of deals done around the world year-to-date. How that translates to the market is another matter. Ironically, another positive for the bulls is the growing fear in the market. Like Warren Buffett, widely considered the greatest investor alive, is known to have said, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” Of course, that only works if you know what you’re doing.

The Case for the Bear

Speaking of fear… If you’ve been paying attention to the news, you’d know that the stock market isn’t doing too hot right now. Stock prices have been on quite a rocky slide downward. What’s worse, it doesn’t look to be getting better any time soon. September has historically been the worst month for stocks, and after the pounding the market has taken since May, that’s downright scary. Then there are these goodies:

• Threat of a “double-dip” recession
• Continued weakness in the housing market
• Unemployment is still hovering around 10 percent
• Alternative investments like gold, treasuries and even stocks in foreign markets like China and Brazil are seen as more attractive

These are just some of the contributing factors that are scaring investors out of the stock market. The uncertainty of where the U.S. economy is heading makes it hard for many investors to develop their strategy. So instead, many put their money to work elsewhere, or even just keep it in cash while they wait it out for better opportunities. There’s absolutely nothing wrong with that.

What To Do Now

If you don’t know what to do with your stock portfolio, fear not because you’re not alone. You shouldn’t feel pressured to buy or own anything that you aren’t sure about, or worse, don’t even want. Being in the market for the sake of being in the market is a huge mistake. You’re better off taking that money and putting it in a safe certificate of deposit or high-yield savings account. Although, if you aren’t quite sure where the market is heading but still want to be in the game, you could always hold on to stocks that pay you to wait–dividend stocks. Don’t just look at the ones that pay the highest rate, though. Do your due diligence and look for the right ones for you. Whatever you do, remember it’s your money, so make it work for you and make sure you’re always aware of how it’s performing.

image credit

ShareThis

Last Wednesday (August 11^th), I was taking a day off with my family and while we were having fun in the sun, the market took another hit on Fed’s concern over the American economy. The US indices dropped by 2-3% while the Bloomberg app on my BlackBerry was beet red on the international markets too. We are in the midst of very “interesting” times for investors.

After the huge crash in 2008 followed by an important surge in 2009, we are now dancing on a thin wire between 2 buildings. Government debts are at their highest in history, the unemployment rate is becoming the curse of the decade and investors’ worries are heightened.

So what do you do when the market is off?

I see 2 possibilities; one for the long term and determined investors and another for the soft hearted. Mind you, there is nothing wrong being soft hearted; actually, the best investing strategy is the one that lets you sleep at night .

#1 Search for growth dividend stocks

As the stock market goes down, it creates several opportunities. The best of both worlds is certainly picking undervalued stocks that pay high dividends. The most interesting example I saw back in December 2008 were Canadian banks that lost more than 50% of their stock value and were offering double digit dividends. Only 6 months after their lowest level in years, they went almost back to pre-crisis levels.

This means that you could have bought a stock paying a 10% dividend yield and also be sitting on a potential capital gain of 100%. Not bad for taking the risk, huh? I really wish I had more nerve back then to buy those stocks!

If you are using this strategy, you must be willing to take the ride and see your portfolio move up and down. Stocks that are losing value don’t necessarily stop going down the day you buy them. In the meantime, you can always appreciate a good dividend yield and wait until it is fit to sell the stock.

As for an idea for a stock pick, I like Microsoft (MSFT, 2.14%) which lost about 20% of its value in the last 6 months but is still expected to raise its dividend in the upcoming quarters:

Investing in undervalued stocks is always appealing but you have to remain careful with your stock picks. One thing is for sure, I would stay away from the oil companies for now. With the recent spill disaster, chances are that the cost to follow stricter regulations will definitely affect current and future oil production. It may also stall the exploration of new sites.

#2 Look at the consumer, non-cyclical sector

Why consider the non-cyclical consumer sector? Regardless if the economy goes boom or bust, people have to buy goods. These companies are generally well diversified (in term of products and geography as well), have a steady income flow and several of them pay a good dividend.

The fact that they are well diversified and that they are less likely to lose their customers during a recession makes their stock more stable. You can look at the following charts that show JNJ compared to the Dow Jones and S&P 500 from beginning of 2007 to August 2010:

More importantly, the consumer, non-cyclical sector raised their dividends by a higher amount than normal. JNJ for example raised their dividend by $0.05 (largest increase in over 12 years). Among the other big dividend increases we found:

Dr. Pepper Snapple Group     $0.15 (67%)

Mckesson Corp                    $0.18 (50%)

In this sector, I must admit that I really like JNJ with a dividend yield of 3.57%. And if you don’t mind vice stocks, Lorillard (LO, 5.34%) and Philip Morris International (PM, 4.76%) should increase their dividend yields in the next quarters.

So what do you do when the markets tumble?

Are you going to search for undervalued stocks and take the dividends while you wait for the appreciation or are you going to stick with “sure values”?

Image credit

ShareThis

1. The Financial Blogger discusses Creating a Digital Product For Online Profit. Who would have thought that you can create your own ebook in 5 easy steps?
2. The pros and cons of adding a sovereign debt ETF to your passive income/dividend portfolio is written by Intelligent Speculator. This is helpful for that that have or are interested in single country ETFs.
3. The top 13 cheap stocks that pay well are listed on The Div Guy’s Dividend Stock Screen.
4. The Dividend Growth Investor posts about the Six Notable Dividend Increases for the week. There are few companies that are able to raise their dividends for several years in a row, but here the top 6 notable companies that were able to increase their dividends over the past week.
5. Which Canadian Bank be the first to start raising its dividend again? Any guesses among the Big Five? Money Energy posts what the top contenders, and why.
6. Everyone would want to save on costs and fees, most especially bank fees. Good news posted from the Canadian Capitalist is that there is a new no-fee chequing account from ING Direct.
7. Who says ING Direct is the only one offering no-fee chequing accounts? Check out this post from Million Dollar Journey titled “ING Direct Thrive vs PC Financial — Battle of Free Chequing Accounts” to see a comparison of both.
8. What are the companies on your list of top performers? Well, this list on Dividends Value’s top 6 performing dividend stocks just might surprise you.
9. Familiar with the “skirt length stock market theory”? If you are, you might find this an interesting thought to think about: Fake See-Through Skirts: What Does It Mean For The Stock Market?
10. The Dividend Monk talks about Reliable Dividend Portfolio. I’m sure we all want to know the dividend-paying companies.
11. Investing will not be a smooth ride, and there will always be bumps along the way. The most important thing is not to panic. The Oblivious Investor tells us about Dealing with Investment Confusion when things aren’t going the way you expect them to be.
12. Not sure whether to invest in stocks or bonds? Dividends 4 Life clarifies this through the post Stocks vs Bonds, What’s Better?
13. Some investors may or may not find value investing in banks. Is there a value investing in these financial institutions? Barel Karsan tells us.
14. Finding the best dividend stocks takes a lot of research. For those investors who wants generate income in their retirement years, this may come in pretty handy: Eight Dividend Stocks Yielding More Than Fixed Income by The Dividend Growth Investor.
15. Stock Trading to Go shares with us 8 Great Stocks to Watch. These stocks are basing out and showing strong potential as they hold up in price even as the market sells off.
Carnival of Personal Finance #270 the Elvis is Dead Edition is now up and live!

image credit

ShareThis