The Advantages of Buying this Kind of Stock
Trading penny stocks can make some traders a fortune, but it requires full attention.
When you do it right, it can pay a lot better than flipping burgers or occupying a cubicle, but you’re still swapping time for money. You have to be there, in front of your computer -— thinking and strategizing. Buying and selling.
When you invest in dividend-paying stocks, you just leave them alone, and let the checks arrive automatically. It’s like taking money off the table from your trading account.
You worked hard for those trading profits. Now make that money work for you.
Dividends are great because they can keep hitting your bank account even if you’re traveling the world, sick with the flu, retired or just plain tired.
What are Dividend Stocks?
Dividend stocks are the opposite of penny stocks.
You don’t trade them — you own them for life. Unless, that is, they stop paying you dividends. Dump any dividend stock if the checks stop arriving.
Dividends are cash a company sends out to its common stock shareholders. The board of directors decides how much money the company can spare, and declares it will send shareholders so much per share.
For American companies, that’s usually once every quarter.
Sometimes companies declare special one-time dividend payouts.
Usually, companies that pay dividends are older and more mature. They make more in profits than they can reinvest in their core businesses.
Therefore, they’re no longer growth stocks that attract traders eager for big, fast gains.
To make their stock attractive to investors who buy stocks for the long run, they pay dividends. So you begin getting an immediate return on your investment, and continue to collect checks … hopefully for the rest of your life. That’s the idea.
Dividends are also a form of protection against accounting fraud. Way back in the early 2000s, a lot of companies got caught cooking their books.
Enron was the biggest and most famous, but many people also lost the money they invested in Worldcom and Tyco.
None of those accounting fraud cases declared regular dividends.
Those companies were fooling people with smoke and mirrors. Paying dividends requires real, cold hard cash in the bank to back up the checks.
Also, sending cash out to shareholders helps prevent management from using it for risky mergers and acquisitions.
Dividends are the ultimate make-money-while-you-sleep, residual income.
What is Dividend Investing?
Some people choose to stash some of their trading profits into buying the stock of companies that pay dividends.
As they receive dividend checks every quarter or month, they reinvest that into more dividend paying shares of stock.
Sooner or later, the dividend income can grow high enough to live on.
Here’s a gruesome example: If you went into a coma the next day, that money would keep hitting your bank account every quarter.
The ability to pay all your living expenses with the dividends you receive? That, my friends, can be called “F-U” money.
Some say that If everybody in this country invested every dime they could in dividend stocks, we wouldn’t need Social Security … what do you think?
When It Happens
When you begin trading penny stocks, you want to scale up your trading account.
You also need to pay taxes on your capital gains and live a comfortable lifestyle.
Yet, there’s a limit to how much money you can use to trade penny stocks. And that’s good.
Because if there were profitable opportunities to trade penny stocks with billions of dollars, the hedge funds and Wall Street suits would be all over them. We’d be a rotting carcass by the side of the road.
Therefore, after you’ve grown your trading account as high as you can take it — perhaps you’ll choose to put the rest into dividend stocks. It’s your choice.
You could choose a side business. You could buy a restaurant franchise or a rental house or an ecommerce store selling trinkets.
But then you’d have to think about that other business, so it would distract you. It’d take your mind off trading penny stocks — and, in my opinion, that sucks.
With dividend stocks, you just buy them once, then (hopefully) collect checks for the rest of your life.
Advantages of Buying Dividend Stocks
You don’t have to worry about their market price going up and down — you’re investing for the perpetual income.
Do they keep sending you dividends? If so, why not stick with them?
You’re an owner of the business, but you don’t have to lift a finger. You have a CEO, other C-Suite executives, a board of directors, and thousands of employees working for you.
You just collect your share of the profits every three months.
Because successful businesses grow with the economy, dividend income can be a great way to keep up with inflation. Some companies have raised their dividends every year for over 25 years.
It’s much more effective than relying on a government check or union contract that uses the official cost-of-living figures.
Some people buy bonds because bond interest is often higher than stock dividends. That’s comparing current bond yields to the current yield of the stock.
But interest from bonds doesn’t go up. Twenty years later, a bond is still paying you the same amount — while your stock dividend has doubled or tripled.
I know I just threw a lot of information at you. So let’s pause it here for now. But just keep in mind, there are three ideal ways to invest in dividend stocks.
I’ll cover these in the next issue. It’s time to put all this information into actionable strategies!
— Tim Sykes
Editor, Penny Stock Millionaires