Tuesday, January 18, 2011

When to buy dividend machines

When and at what price to buy any investment are important variables. Traders find stock price to be the most important criteria because they want quick gains and selecting when to buy a stock is crucial. Income investors have the opportunity to reinvest dividends during periods of weakness. This provides the opportunity to lower the cost basis and still have a good investment provided they selected stocks that meet all our stock selection criteria (make money, pay a dividend that is greater than earnings, and have a solid balance sheet) and that suggests that timing when to buy is less important.

The dividend machine ideas I provide each week are just that ideas. I want you to learn how to screen stocks for and how to select dividend machines. Use my ideas as guidelines. Follow the stocks I recommend, look at 3 and 5 year price histories and decide what price you want to pay. Think about it; you need only three stocks that pay every quarter to create monthly income so you can be picky. Larger portfolios may want more stocks. I carry about 40 or 50 dividend machines in my portfolio.

When to buy stocks that I call "almost dividend machines" on which I can write covered calls and create more income is more important. Keep your list handy and watch for opportunities to get into solid companies that pay dividends even though they may not quite qualify as dividend machines but have good growth opportunities. A basic measure of this would be a beta of greater than one. These stocks can provide easy 10% returns with a combination of call premium, dividends, and the capital gain you receive if the call buyer takes the stock.

Very Truly Yours,


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