Okay, maybe the title of this post is a little dramatic, but I wanted to grab your attention.
Did I get it?
Wall Street has had an interesting week so far...we're just about par for the course with all 3 major indexes (as of Thursday night) just North of even.
These days, I'll take par for the course. If my holdings are staying put in value, I'm okay with that. But the trouble is I'm not making any money that way.
Or am I?
There are a number of ways to make money in a flat market or an up and down market. Many of them are far beyond my technical ability to understand or explain, and some simply aren't appropriate for the average investor. Options are a great way to make some money if you anticipate the stock price staying within a certain range, but not all investors have the kind of risk tolerance needed for options.
That leaves us with stocks that pay a dividend.
I know I write about dividend stocks a lot, but that's because they can be very nice to own. The company essentially pays you for each share of stock you own - sharing their profits with you!
When looking for a company that pays a dividend, also look to see how long they have paid it, and whether the amount has increased or decreased over time. Your best bet is to find a company with a long history of paying it's shareholders a dividend and a long history of steadily increasing the dividend.
Be careful though - too high of a yield percentage, and you may be looking at a company that can't sustain it's payments. When a company cuts it's dividend entirely or drops the yield, you'd better expect a drop in share price too.
My favorite dividend stock for a while has been Enterprise Products Partners (EPD). They are by no means the be-all and end-all for dividend stocks, but they have paid their dividend since inception and have been steadily increasing the yield.
Right now, for every share you own, you're paid $0.54 per fiscal quarter. Not too shabby. That means that for every 100 shares you own of EPD, you earn $54 a quarter.
Of course that's assuming we aren't going to reinvest our dividends - but we are. The trading company I trade with - ShareBuilder - lets me automate my dividend reinvestment. This means that every quarter, the dividend cash I'm given automatically buys more shares of the company.
Next time I may own 104 shares of the company, and next quarter I'll get an even larger dividend.
Reinvesting your dividends also helps you with dollar-cost averaging. This basically means you spread your investment in a particular stock over a period of time. That way, if the price dips you get in at a sale, and if it rises, you're adding to your position while it's strong.
Some people say this is simply a scheme by the brokerage firms to charge you a fee every time you invest - and there is some truth to that. But I'm not suggesting you do quite that. Reinvesting your dividends should be automatic, and free.
Let's take a look at another well known company with a solid dividend: Johnson & Johnson (JNJ). They have been paying their dividend every quarter since 1987. That seems pretty reliable to me. The current yield stands at over 3.5%, and they have posted very steady gains throughout the years.
While I wouldn't suggest you divert your entire portfolio to a company like Johnson & Johnson, they are a safe, dividend-paying company that isn't going to go out of business anytime soon.
I have three final thoughts regarding the not-so-distant market future.
1.) AT&T and Verizon's plan to get into netbooks is not going to end well. I'm young. I know what I like and what I don't. I feel as though I have a fairly good grasp on what people my age like and are willing to buy (or have their parents buy).
Netbooks are not one of those things.
Why? Because I would rather have a laptop. They aren't that much larger in size, and once you factor in the cost of the monthly payments on a netbook, the price is similar.
But netbooks are limited machines. They are essentially designed to use the internet - not to compute. We like our iTunes. We like our MSN Messenger.
Yes, I'm fully aware of SaaS...that's software as a service (Think: Akamai [AKAM]). We may reach the day when iTunes and our virtual music libraries are entirely online. We may reach the day when all of the programs that we run are simply run in cyberspace, without the need for mega-computing power. But when we reach that day, we'll be beyond netbooks.
2.) I still very much like gold plays. You can read about my ideas concerning inflation in my other blog post, and I still believe they are a solid play. The stock I'm watching - Yamaha Gold (AUY). Not only do they seem to be a very solid gold producer, but they also pay a dividend!
*gasp* My favorite!
The yield right now isn't extraordinary - .38% - but it's better than nothing while you watch the stock price increase while the market falls.
What's that? Oh yes - today as the market dropped 1.54%, 1.68% and 1.89% respectively, Yamaha added on nearly 5 percent. They have a beta of .75, meaning they will move in the opposite direction of the market. If you feel like we're heading downward, this might be a move to look into.
3.) I'm very short on OpenTable (OPEN). It's an IPO right now, and you probably can't get your hands on it yet, but I'd bet my bottom dollar we'll see that share price come back out of orbit.
Why?
Because it shot up some 60 percent right out of the gate. And because the market share in the U.S. is limited in their industry - in fact you could say the recession is causing restaurant closures and cutting into potential market opportunities.
And I'm short on it because they had some trouble establishing themselves in Europe. I believe they opened in France, Spain in 2006-7 ish, and they closed their business their the next year. That's not what I want to see from a company I'm thinking about putting money into.
And lastly, I'm short on OpenTable because of the current economic environment. We're in a recession. People aren't eating out as much. Restaurants are dying off, with just the strong ones and the value-oriented ones surviving. Business isn't exactly booming at the places still standing - although I wouldn't be surprised if companies like Shari's and Denny's are doing well.
It's not that I don't like OpenTable itself. I just don't like it's share price at $31.89.
As always, any suggestions made regarding the stock market and individual stocks are my own ideas and personal opinion. Always do your own due diligence before investing any amount of money. And good luck out there!
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2 comments:
Very nice to read about my stock EPD! Your opinion on netbooks also struck my attention because as you know, I have been looking into purchasing one. I didn't think that you had to go through a phone company though? Either way you did a good job proving your point about them not being successful. Keep up the good work!
Alicia - you don't have to go through a phone company for a netbook. However, both AT&T and Verizon are entering the netbook business in an effort to continue to grow their revenues.
Cell phone saturation is at 90 percent in the U.S., and the major cell phone companies are looking for ways to keep growing and not let their sales flatline.
I don't happen to think this is the right way for them to do it - but I've been wrong before ;-)
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