- Look for high-paying Dividend stocks.
- Buy shares in the 'best' of those companies.
- Sit back and watch the cash roll in.
Yes, it can be that simple!
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Dad's Rules for Building a Dividend-Paying
Portfolio:
- Screen For High Dividend-Paying Stocks:
I chose a threshold of 4% yield
or more.
A few stocks in the 3% range
qualify if they
have a large Dividend Growth
Rate.
- Determine if the Dividend is Justified and
Sustainable:
Some companies have a high yield because
something is wrong. Since yield is based
on current price, the price may have fallen
due to bad news. Your job is to find out
if the stock is a dog, a bargain or average.
- Choose among stocks with a track record of
increasing dividends.
The list of "Dividend Achievers" is your bible. These are the stocks
that have raised dividends for at least 10
years and some for 30 years or more.
- Don't try to time the market:
You need to invest thoughtfully.
Feel free
to look at the charts and wait
for a 'dip',
but don't delay getting with
the program
because you feel prices are
too high. The
dividend they pay is what's
important.
- Be Diversified:
No single investment should dominate your
portfolio. I prefer a 5% share or less per
holding, but up to 10% is still reasonable.
Additionally, invest across a number of sectors,
at least 5. In 2008, investors who had a
big portion of their investments in Financials
lost big time. Remember the Tech bubble?
- If They Drop the Dividend, Drop the Stock:
If a company reduces their dividend, you
need to make sure the new rate fits your
rules. If not, or if they drop the dividend
altogether, sell the stock. You might want
to wait for a reasonable selling price, but
more likely it will be worth less, and sell
for less, going forward.
- Dividends = Distributions:
Broaden your search for safe
income from
sources than other stocks.
Get to know MLP's,
ETF's, and CEF's. MLP is Master
Limited Partnership,
ETF is Exchange Traded Fund,
CEF is Closed-End
Fund. Even a few mutual funds
might qualify.
- Make a Plan and Stick With It:
The plan you choose isn't as important as
just following a plan. There is more risk
in making no choice than making a bad choice.
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- Control What You Can:
Don't waste time trying to outguess the professionals.
They may or may not be better than you, but
they get their money on trading, not investing.
The things the Lazy Investor can truly control
are Taxes, Investment Costs, and Risk. Control
Taxes by making more trades in your non-taxable
accounts, like your 401k, and fewer trades
in your taxable accounts. Control Costs by
investing in funds with the lowest cost or
expense ratio, like Index Funds. Control
Risk by staying diversified. Never put too
many eggs in one basket.
- Save What You Can:
Nothing gets you ahead faster than saving.
Some people are never able to save unless
it comes out of their paycheck before they
can spend it. Live on 90% of your income
and save, save, save the other 10%...or more.
Don't ever get ahead of this.
- Discipline:
Once you have your Lazy plan written down,
put it into action. Set it up once and then
relax. But do it. Then, make your adjustments
exactly as planned. Stay the course. Being
out of the market for just one day can be
a big setback.
- Look at the Big Picture:
Don't look at just one account. Consider
all of your investments, including your house.
If both you and your spouse will enjoy the
fruits of your savings and investments, consider
all accounts as one. Our methods won't work
if the peaks of one account counteract the
valleys of the other.
- Be Honest With Yourself:
Admit your mistakes and don't rationalize
your decisions. Take all emotion out of your
investing. Go ahead and watch the market
go up and down, but don't ignore the rules.
If you're a worry-wart, go ahead wring your
hands, but know that Dividends usually don't
rise and fall with the markets gyrations.
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