Disclaimer: I am not a certified financial planner or financial adviser.The information provided should not be used as financial advise, it is used to promote financial literacy and discussion. The views and opinions on this site are my own. Any suggestions or investment advice should be reviewed by a financial professional before acting on them.
I participate in short term swinging trading for income and long term investing for retirement. There are three kinds of stocks that interest me for long term investing: dividend stocks, preferred shares and growth stocks.
Dividend Stock: A company that issues is a distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.
Preferred Stock: A preferred stock is a class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights.Preferred stock combines features of debt, in that it pays fixed dividends, and equity, in that it has the potential to appreciate in price. The details of each preferred stock depend on the issue.
Growth Stock: A growth stock is a share in a company whose earnings are expected to grow at an above-average rate relative to the market.
Some people would throw in Bonds for long term investing. I have never had an interest in them so I have not researched them. Therefore. I have no idea how to assess them. My first rule in investing is, If I do not understand it, I do not invest in it.
My favorite long term investment strategy involves almost exclusively Dividend and Preferred stocks not Growth Stocks. I do not understand the concept of buying common stock in companies that does not pay shareholders a portion of the company’s profits. If you buy into a company I would expect as a part owner to be entitled to its profits instead of depending on the greater fool theory to make money on my stock holding.
I invest in growth stocks but very few because they are a different beast. It requires you (I believe) to really know the goods and services the company sells and understand the market they are in. You will then able to determine the likelihood of a the company being able to rapidly growth its revenues. For Example, GoPro makes great action video cameras but I stayed away from the IPO and the stock because I have no interest or understanding of the market that GoPro serves.
With growth stocks you are reliant on the company growing revenues above the market average year after year thereby increasing its perceived value in the market with the hopes that someone in the future will buy the stock from you at a higher price that you bought it. That is how you make you money with growth stock. Now eventually some companies become value stocks that pay dividends but I really do not have the acumen to analyze companies that closely.
I prefer stable slow and steady companies that are value stocks that pay me a dividend. I like to see a dividends at least 3-10% per year with a stable stock price. Barring no major events that would cause the market to swoon dividend stocks I have invested in tend have their stock prices to stay +/-3% per year and over time steadily rise.
I look for low debt companies with sustainable payout ratios below 70% with a history of paying dividends over a decade with slow and steady dividend increases over the years. It is not sexy but with compounding via the dividend growth and stock price appreciation I can average 3-10% appreciation per year. Not bad especially when compounded over decades.
I prefer companies that sell products that even if their is a zombie apocalypse people would still need them…Food..Clothes… Shelter.. Entertainment..Communication,… Transformation and Energy.. I found found energy to be my favorite since we are not going to go back to horse and buggy any time soon. So whether it is a gasoline powered car or electric vehicle you will need energy to power them.
When investing in energy I have been using preferred stocks of energy producing and transportation companies. Preferred Stocks tend to be very stable in stock price unless the company is in dire straits. I go for cumulative preferred as it has to be paid. So even if the company misses a month or a quarter of payments, when they do get back to paying I am owe the missed payments as well.
Preferred stocks have high dividend payouts. The several I have invested in have payout between 7-10% per year. You will have to do some research on Preferred because while lucrative they are more complicated than common stock people are used to. I would check out Investopedia. It is the great site for financial newbies.
I do have my eye on several growth stocks that I am waiting to pounce on once I do more research on their business and markets. I like Lithium and Graphene as two materials of the future. So I have been doing alot of reading on companies involved in both. I am also tempted on Facebook even thought I do not use it much and Google which I use a lot. Do your research and invest only in companies and products you understand: Happy Investing.