It’s a new year, and I’m feeling hopeful about new opportunities. With that in mind, I’m thinking about adding a few more individual stocks to my portfolio.
I usually invest in mutual funds to keep my investments diversified, reduce costs, and avoid market volatility. However, after seeing Apple (AAPL) rise 26% since my initial purchase last year, I’m optimistic that I can use the same approach to pick another successful stock.
Going After Dividends
As part of my effort to create passive income streams, I’ve decided to focus on dividend stocks next. Here’s why dividend stocks appeal to me:
– They pay dividends! While dividends aren’t guaranteed, there’s a chance to earn some extra income just by holding the stock, potentially adding another 2 to 4% on top of capital gains.
– A company that pays dividends demonstrates financial strength, which is crucial in picking a healthy investment.
– Over time, dividend stocks generally outperform non-dividend stocks. This is a promising trend for long-term investors like me.
– Dividend income is usually taxed at a lower rate than regular income, making it an attractive part of a tax-advantaged investment strategy.
My Picking Strategy
1. Check BigSafeDividends.
I start by using BigSafeDividends.com, a site run by Charles B. Carlson, who wrote “The Little Book of Big Dividends.” The website ranks and scores dividend stocks based on various factors, serving as a useful tool to pre-screen potential candidates.
After reviewing the top performers, here’s my list of potential stocks:
– Mattel
– Chevron
– AT&T
– Applied Materials
– Aflac
– Olin Corp
– Apple (Just comparing metrics, there are rumors they might start paying dividends this year).
2. Pulling Metrics from CNN Money.
CNN Money is my go-to for screening stocks and gathering detailed information. They provide stats, financial statements, and analyst forecasts. I look at metrics like dividend yield, PE ratio, and growth forecasts to make informed decisions.
3. Using the “Big Secret” Strategy.
Joel Greenblatt’s book, “The Big Secret for the Small Investor,” proposes using the Value Weighted Index, which compares a company’s earnings to its assets (Return on Assets or ROA). This metric shows how efficiently a company generates income. I used this method to pick Apple.
You can find the necessary info on CNN Money to calculate this index.
Analysis
Here’s how the companies stack up:
– ROA: Apple leads, followed by Mattel, Chevron, and Applied Materials. Aflac and Olin Corp lag behind.
– Dividend Yield: Apple doesn’t have a dividend, making it the least attractive here. AT&T looks good, but large dividends can sometimes be a red flag.
– PE Ratio: All companies fall within a reasonable range (20 or less). Chevron seems particularly affordable.
– Growth: Apple, Mattel, Chevron, Aflac, and Olin Corp have positive short-term and long-term growth prospects. Applied Materials and AT&T may face short-term challenges.
Conclusions
My top picks are Mattel, Chevron, and Apple. Mattel and Chevron offer around 3% dividends and meet my other criteria. Although Apple hasn’t started paying dividends yet, it has the potential to do so and continues to be a strong performer.
Are you planning to buy new stocks this year? What criteria do you use to decide? Feel free to share your thoughts.
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2) Which is Better – Paying Off Your Mortgage or Investing the Money? – Part 1
3) Trying Out “The Big Secret” Stock Picking Strategy
