Sunday, February 13, 2011

How to eliminate bad companies.

Income investors need income that is reliable.  We cannot afford to invest in a company that pays income but is not a solid company.  Income investors are wise to to do a little well defined research.  Income investors can  eliminate 90% of  bad companies. How to do that?   Know what you want to know. Keep it simple. Spend a minimum of time with this very simple first screen.

  1. EPS – Earnings per share has to be a positive number because this is how to measure if a company makes money.
  2. Dividend – The amount paid out has to be less than the EPS or earnings per share.
  3. Dividend growth – The most recent dividend should be greater than it was a year ago.
  4. D/E ratio - Debt to equity ratio is one measure of financial stability. The less the debt, the less the risk and the D/E ratio should be low.
Income investors need to find dividend machines.  For a company to be considered a dividend machine we require they pay at least a three percent dividend yield as income to us and have increased that investment income every year for at least five years.

Use this simple screen to help you become a better income investor.

Very Truly Yours,

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