Interview: Gold & Gold Stocks Tracking 2009 Analog

Jordan Roy-Byrne joins me to share some of his recent research on how the corrections during the last bull market in gold, over a decade ago, compare to the price action in gold over the past 4 days. We do the same for gold stocks broadly early on in the bull market.

Click Here for Info on TheDailyGold Premium

The post Interview: Gold & Gold Stocks Tracking 2009 Analog appeared first on The Daily Gold.

…read more

Is Cash About to Be Banned?

There is a big discussion happening on social media right now regarding cash and how it’s become a relic of the past. It might even be confiscated and replaced with crypto or computerized currency that can be tracked.

If this ends up being the case, that means no more bags sealed in plastic buried in the back yard…

No more paying the babysitter under the table…

It’s all going to be tracked.

But until that happens, there is still a place for companies like Diebold Nixdorf (NYSE: DBD). It’s a multinational financial and retail technology company that specializes in the manufacturing of ATMs, along with a host of other self-service transaction systems. And War Room members just closed out gains of more than 100% on it!

As you can see from the chart below, people thought that Diebold Nixdorf only made ATMs – which are important for sure. While some believe cash to be a relic, it’s actually the dominant form of payment in a big chunk of the world, especially for transactions of less than $50.

Investors were betting that Diebold Nixdorf would see its business dry up as people stopped going out and touching those dirty ATMs.

What they didn’t count on was how much extra cash was going to be pumped into the system.

Just counting extended unemployment benefits between March and the end of July, an extra $250 billion was injected into the economy.

Even though that cash made it to some ATMs, that was not where Diebold Nixdorf made its mark. You see, the company turned out to be a coronavirus play too. Diebold makes a lot of self-service checkout machines that you see at grocery stores and places like Home Depot.

One thing people don’t want to do right now is have contact with another human.

Diebold has a bright future, which definitely showed in its better-than-expected earnings and outlook.

In The War Room, we had LEAPS options on Diebold, and members really rang the register.

Like Michael and Roy…

“In 2.34, out 4.84, sold half position for 105% gain, letting remainder ride, thanks KR!!” – Michael E. 8/11/2020 at 11:07 a.m.

“ This was a sweet win Karim, 100% winner!!! Thank you.” – Roy 8/11/2020 at 12:01 p.m.

Action Plan: The War Room is all about taking big gains when we see them… even from the most unlikely source.

Isn’t it time you joined me at the profit party?!

The post Is Cash About to Be Banned? appeared first on Investment U.

…read more

Oil Sands Extraction May Be Coming to an End

The current oil sands extraction method is a slow-motion, climate-destroying train wreck.

Fortunately, it looks like this process may be coming to an end.

Over the last five years, the oil sands industry has reduced its production costs by one-third. This took the break-even price for its crude down to $50 per barrel.

Then the COVID-19 pandemic struck. As a result, crude demand fell. And this big drop in demand briefly took all crude prices negative.

Today, West Texas Intermediate (WTI) crude has recovered to trade around $40 per barrel.

But as of this writing, Western Canadian Select (WCS) – oil sands crude – is trading at only $30 per barrel.

At that price, oil sands crude mining and production are losing propositions.

The question is, will they ever make money again?

A Complicated Extraction and Production Process

Conventional crude extraction starts with drilling a well. Most wells have natural pressure that brings oil to the surface.

As that pressure drops, pumps are installed. Once oil reaches the surface, it flows into gathering pipelines and moves on to refineries.

Oil sands crude extraction is far more complicated.

The crude in oil sands deposits is a sticky, tarlike substance called bitumen.

For shallow deposits, companies dig it out of massive, open pits.

To mine deeper bitumen deposits, companies sink a matrix of deep well shafts. They then inject steam into the shafts to heat the bitumen.

The heated bitumen can then be pumped out of the ground.

This process is anything but energy efficient.

It takes three to five units of natural gas energy to produce one unit of oil energy from Alberta’s oil sands. That makes oil sands crude one of the planet’s most carbon-intensive fuels.

Meanwhile, the rapid drop in crude oil prices has forced refiners to slow production. Canadian oil sands crude production is down by 644,000 barrels per day.

Producers have closed wells and other facilities. This could become a problem, as removing heat and pressure from producing reservoirs to close them can cause permanent damage.

Restarting them can take months. Production might never reach previous levels again.

Getting oil from the sands to refineries is also a problem. There’s limited pipeline capacity, and the only other option is train tanker cars.

The Keystone XL pipeline would help solve that problem. But it’s years behind schedule and may never be built.

Additionally, companies in the oil sands business have run up huge levels of debt.

All of these negatives are making the oil sands industry a less attractive investment. Large investors, such as BlackRock and HSBC, are already moving away from it. The same goes for sovereign wealth funds like those of Norway and Sweden.

The industry is in crisis mode. Research firm Rystad Energy says oil sands businesses will have to scale back capital spending by at least 40%.

Oil in Review

To recap: We have companies with high levels of debt, an item that’s expensive to produce and limited ways to get that product to global markets. Sounds like a recipe for disaster.

It’s certainly not a place I would look …read more

The GEO Group’s Dividend Safety: A 12% Yield From Prisons?

Loan Loss Previsions for the GEO Group's dividend safety

Below, Investment U’s Income Expert, Marc Lichtenfeld, takes a look at The GEO Group’s dividend safety.

Private prisons are a hotly debated topic. Many people believe that prisons should not be a for-profit industry. But at the moment, privately run prisons are legal… and big business.

As of 2018, there were nearly 130,000 Americans incarcerated in private prisons.

It’s a multibillion-dollar industry.

There are two publicly traded private prison companies: The GEO Group (NYSE: GEO) and CoreCivic (NYSE: CXW).

The GEO Group’s Dividend Safety Overview

The GEO Group’s quarterly dividend had been $0.48 per share, but the company recently announced it was lowering the payout to $0.34. The cut is being used to pay down debt.

Even with the cut, The GEO Group sports a sky-high 12% yield. Can the company sustain that high of a yield, or is another cut coming?

The GEO Group is set up as a real estate investment trust (REIT), so we will look at adjusted funds from operations (AFFO) as the measure of cash flow when rating its safety in SafetyNet Pro.

In the first six months of the year, The GEO Group generated $1.21 per share in AFFO, which easily covers the dividend.

For the full year, management expects AFFO to be between $2.29 and $2.33 per share, which (again) more than covers the $1.36 per share in annual dividends expected going forward.

That AFFO number comes out to $274 million, which is a decline from last year’s $328 million and the lowest figure in several years.

That’s not surprising given the extra measures and costs incurred from trying to prevent and treat COVID-19 in prisons.

Looking purely at the numbers, there is a moderate risk of another cut in the near future.

One last thing to consider is the election. Joe Biden has said that he will end the use of private companies to house prisoners and undocumented immigrants. President Obama had the same policy, which was reversed by President Trump.

Should Biden win, that could impact The GEO Group’s revenues and cash flow going forward.

Dividend Safety Rating: C

The GEO Group’s dividend safety is moderate at the current moment. There is some risk of another cut depending on the outcome of the election. For more information on the latest dividend ratings, sign up for the Wealthy Retirement e-letter below.

The post The GEO Group’s Dividend Safety: A 12% Yield From Prisons? appeared first on Investment U.

…read more

Markets Have Outperformed When a President Seeks Reelection

Market performance has historically predicted presidential election outcomes.
click to enlarge

Since World War II, this trend has had a 72 percent win rate. Put another way, investors have accurately “voted” for the winning candidate roughly three out of every four times. And if we exclude the 2000 election, the win rate increases to 78 percent, or one-in-five.

Why 2000? For one, even though I label the S&P as being up for the three-month period, it was in reality essentially flat at 0.18 percent. And two, the election was highly contentious, as you no doubt remember well, with George W. Bush losing the popular vote and winning the Electoral College vote with one of the slimmest margins in U.S. history (and only after the Supreme Court ruled that Florida must end its recount).

So how is Trump’s reelection bid looking so far, according to Mr. Market? As of August 12, the market was up more than 3 percent since July 31, close to its all-time high. It will be interesting to see if the trend remains intact.

Government Policy Is a Precursor to Change

During election years, the market has historically done well, returning an average 6.23 percent, using data going back to 1928. I discussed this trend more in-depth

By now you’ve all heard the news. Joe Biden, the Democrats’ presumptive nominee for president, has selected as his running mate Kamala Harris, junior senator from California and the state’s former attorney general.

If elected, she would be not only the first woman vice president in U.S. history but also the first Black American and first Indian American.

Biden’s announcement is as good an occasion as any for investors to start thinking about the upcoming election, less than three months away. Although Biden’s proposals aren’t nearly as radical as, say, Bernie Sanders’ or Elizabeth Warren’s, his administration could very well bring about significant policy changes that may impact your investments—especially if the Democrats maintain the House and take control of the Senate.

But first, what are markets telling us about the election? As legendary value investor Benjamin Graham once said, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”

Pay Attention to the Three Months Before the Election

The three months preceding the election are a crucial time. According to the presidential election cycle theory, when the market rose from July 31 to October 31, the incumbent party has tended to win the presidency. And when the market slumped, it’s the challenging party that’s been victorious.

Look at the 2016 election as an example. Polls strongly favored Hillary Clinton, the incumbent party’s nominee, but Mr. Market had other ideas. The S&P 500 fell 1.7 percent in the three months leading up to Election Day, and the challenging party’s nominee, Donald Trump, won the White House.

click to enlarge

Since World War II, this trend has had a 72 percent win rate. Put another way, investors have accurately “voted” for the winning candidate roughly three out of every four times. And if we exclude the 2000 election, the win rate increases to 78 percent, or one-in-five.

Why 2000? For one, even though I label the S&P as being up for the three-month period, it was in reality essentially flat at 0.18 percent. And two, the election was highly contentious, as you no doubt remember well, with George W. Bush losing the popular vote and winning the Electoral College vote with one of the slimmest margins in U.S. history (and only after the Supreme Court ruled that Florida must end its recount).

So how is Trump’s reelection bid looking so far, according to Mr. Market? As of August 12, the market was up more than 3 percent since July 31, close to its all-time high. It will be interesting to see if the trend remains intact.

Government Policy Is a Precursor to Change

During election years, the market has historically done well, returning an average 6.23 percent, using data going back to 1928. I discussed this trend more in-depth in a Frank Talk from five years ago.

I’d like to break it down even further and look at how well the market performed depending on whether the incumbent president was running for a …read more

6 Small Cap Tech Stocks to Buy in 2020

Looking up small cap tech stocks on computer and smartphone

Technology stocks are leading the market. Investors in Amazon (Nasdaq: AMZN), Facebook (Nasdaq: FB) and other tech giants have seen huge gains. They’ve benefited from the pandemic. Although, their valuations are a bit lofty and when looking for value, you might want to buy small cap tech stocks instead.

Below, I’m going to show you why both small cap stocks and tech stocks can be a great investment. Then combining the two can result in even higher returns. Or if you want to skip learning about the strategy, you can jump straight down to the list of stocks.

Also, if you want to see how your investments can grow, check out our investment calculator. It’s a free tool that can help you plan how much you need to save to hit your financial goals.

Why Invest in Small Cap Tech Stocks?

Small cap stocks outperform larger stocks over the long-run. One reason for this is their growth potential. They often command a smaller piece of total market share. And in some cases, they’re early to new, rapidly growing markets.

Small cap stocks also don’t get as much publicity. And with less coverage comes a higher chance of mispricing. This can lead to finding better investing opportunities.

Tech Stocks have claimed a bigger portion of the total market. The first few U.S. publicly traded companies to reach the $1 trillion mark were all tech stocks. And this trend doesn’t seem to be slowing down.

New technologies and software are disrupting every sector. Both the rate of tech adoption and profits are picking up steam. It’s a huge investing opportunity and to learn more, check out our recent articles on tech stocks.

List of Small Cap Tech Stocks

Now for the good stuff! I’ve tracked down some top small cap tech stocks for 2020 and beyond. These companies are addressing different markets and have huge growth potential. Here’s the list and then after, I’ll highlight some of the reasons they made the cut.

Cerence (Nasdaq: CRNC)
Unisys (NYSE: UIS)
XBiotech (Nasdaq: XBIT)
Digi International (Nasdaq: DGII)
Vaxart (Nasdaq: VXRT)
Allied Motion Technologies (Nasdaq: AMOT)

Tech Company Highlights

Cerence develops a wide range of car technologies. The company has innovated for over 20 years and lists over 1,420 patents. With this war chest of intellectual property, you can find Cerence technology in 325 million cars around the world.

This company is focusing on voice and AI systems. With this innovation, they can connect drivers not just to their cars but to their entire digital universe. As cars become more connected, Cerence should be able to drive revenues higher.

Unisys is an information tech company, as well as a promising small cap tech stock. It’s based out of Pennsylvania but it has global reach. And the company operates with two business segments, Services and Technology.

Through its offerings, security is a focus. Unisys even offers dedicated security software and services. As more companies are pushing into the digital world, this should present plenty of growth opportunities for Unisys.

XBiotech is finding ways to …read more

Warren Buffett’s About to Get a Lot Richer… and You Can Join Him

Warren Buffett has come to the dark side.

If there were ever a way to cheat in stocks, the Oracle has found it… and tapped into it in a way like never before.

He just dumped a record $5.1 billion into this “trick.”

We predict it’s going to make him a very rich man.

Here’s the best part… By tracking just one simple metric, you can join him.

The Only Thing Worth Buying?

We’ve written about share buybacks a fair amount in these essays. As we told Manward Letter readers when we recommended a buyback stalwart in a recent issue, they’re the supercharger that makes a good stock great.

The result of loose monetary policy and a go-nowhere economy, they’ve become a leading catalyst for rising share prices.

Buffett knows it.

After all, the famed value investor sold more of his positions during the second quarter of this year than at any time over the last decade.

Add it all up and his Berkshire Hathaway (BRK-B) unloaded some $13 billion worth of its holdings.

But there was one stock Buffett was quite interested in… his own.

He directed his firm to buy a record $5.1 billion worth of its own stock.

It’s a simple move based on good math. When a company buys its own stock, each share that remains on the market is worth a bigger cut of the profits.

By pulling $5 billion off the market, Buffett put $5 billion into the hands of his shareholders.

The move says a lot about the state of things these days.

It shows Buffett isn’t hopeful for any big deals.

It shows the value strategy that made him rich… has lost its mojo.

And it shows that the best way to get share price moving these days is to use a bit of financial magic.
[mw-adbox]

The Market’s Best Friend

Like it or not, the strategy works.

Buybacks were a leading – if not the leading – force during the 11-year bull run that started in 2009. In recent years, in fact, corporations have bought far more shares than individual investors.

But like all things these days, math has gotten political.

The rationale for buybacks has stirred some ire. After all, they make folks rich… and some people, for some dumb reason, don’t like that.

During the height of the market’s crash this year, headline after headline touted the death of buybacks.

Good riddance, they said.

They won’t be back for years, one well-touted report said.

It’s ethics over economics, the feel-gooders chanted.

Ha.

Tell that to Mr. Market… and Mr. Buffett.

Buybacks are back…

Kimberly-Clark (KMB) just announced a deal to buy back as much as $900 million worth of its stock… this year.

Google’s parent company, Alphabet (GOOG) – the gatekeeper of all things ethical – just deemed buybacks okay when it quietly announced it had bought $6.9 billion of its shares during the second quarter. That’s nearly double the amount from the same time last year.

Microsoft (MSFT) stuffed $5.8 billion into shareholder pockets.

Biogen (BIIB) bought $2.8 billion worth of its shares.

And Apple (AAPL) takes the top prize… buying back $16 billion …read more

The 2020 Inflation Monster

Loan Loss Previsions

There is a quote that has been attributed loosely to Ernest Hemingway that I find very useful in teaching my two daughters.

My preferred version of it is this:

When asked how he went bankrupt, the man replied, “Slowly, and then all at once.”

The point is that you can get away with something for a really, really long time.

And then, all of a sudden, you find yourself paying a price so dear you can’t believe how stupid you were.

I’m thinking of this quote today for a specific reason.

Because generally speaking, if you print a lot of money, you get inflation.

Well, let me tell you, folks…

The United States has been printing A LOT of money – more than ever before.

Take a look at the chart below from the Federal Reserve, which depicts the total money supply in the United States.

From the 1950s through 2008, money supply in the United States increased at a steady, measured pace.

Then the financial crisis hit, and the rate of increase in money supply accelerated sharply.

We all expected that once we were through the worst of that crisis, the money printing would stop.

It didn’t.

With the emergence of COVID-19, the money supply graph has gone completely parabolic!

The increase in the last few months is equal to the entire increase over the 50 years from 1950 to 2000.

No wonder the price of gold has ripped through $2,000 per ounce and hit all-time highs recently!

The market smells inflation, and the gold price is our canary in the coal mine.

My generation has never had to deal with the wealth-consuming impact of the inflation monster.

We soon might.

You Don’t Have to Be a Gold Bug

Gold has had a tremendous run since the start of 2019.

The precious metal has gone from $1,250 per ounce 18 months ago to $2,050 per ounce recently.

That is a 65% increase in a year and a half – most of which has come since the coronavirus-induced money-printing acceleration.

Could gold go higher? Definitely.

There is every reason for people to be concerned about the value of money given the Fed’s surge in printing. That is good for gold prices.

Though, gold isn’t my preferred way to protect the value of my portfolio and net worth against the wealth-destroying bite of inflation.

I like my investments to generate income and grow. Gold doesn’t generate anything, and gold doesn’t grow. It just exists.

Instead, I think a better way to protect wealth against inflation is to own a diversified group of investments that benefit from rising prices.

I like the approach laid out by hedge fund legend David Einhorn in his second quarter letter that he just sent to his Greenlight Capital investors.

Einhorn believes that a big uptick in inflation is a real risk.

The securities that he has purchased for Greenlight Capital are meant to not just protect against inflation, but also profit from it.

In his letter, he named several of them and explained why:

Green Brick Partners (Nasdaq: GRBK) to profit from rising house prices
CNX Resources (NYSE: …read more

Sports Card Investing: This $38,000 Card Might Be Sitting in Your House – Right Now

This just might be the greatest Trade Talk Tuesdays I’ve ever recorded…

It’s a special “alternative investments” episode…

Which reveals a “secret” sports card that just sold on eBay for more than $38,000!

And guess what?

If you’ve ever set foot inside a grocery store, you just might have this card in your house – right now.

Do you have it?

There’s only one way to find out…

Watch my newest Trade Talk Tuesdays alternative investments episode right now!

Just click the link below!

For more insight on investment opportunities, trading strategies and more… join me in The War Room!

The post Sports Card Investing: This $38,000 Card Might Be Sitting in Your House – Right Now appeared first on Investment U.

…read more

Internet of Things Companies Present an Overlooked Opportunity

Number of Internet Connected Devices by 2030

Trends Expert Matthew Carr examines the global internet of things security market and its future growth potential.

There’s a special class of companies I like to target called “20/20 small caps.”

And I can’t imagine a more apt year to talk about them than 2020.

These are companies that are seeing at least 20% revenue growth and 20% earnings growth. Over the years, I’ve found that these are some of the most profitable stocks to invest in.

Today, I want to highlight a company that’s a 20/20 small cap. But it’s also involved in an opportunity that often gets overlooked by investors.

Internet of Things: The Smart Revolution

Most of us likely remember when we first got “the internet” in our homes.

It was a magical time chock-full of excruciatingly slow dial-up speeds, constantly interrupted by some inconsiderate person picking up the phone.

The glory days of dual-purpose landlines!

Now the internet is all around us.

I can’t wave my hand anywhere in my home without hitting an internet-connected device.

This is where the numbers become overwhelming…

Because our homes – and our lives – are increasingly melding with the internet.

It’s not just smartphones, tablets, PCs and consoles.

It’s digital assistants, refrigerators, security cameras, smart speakers, thermostats, TVs, toothbrushes and a growing laundry list of devices.

125 Billion Eyes and Ears

In 1999, British tech pioneer Kevin Ashton coined the phrase “the Internet of Things,” or IoT.

At that time, only computers were connected to the web.

But even in those dark ages of the late 1900s, the future of a connected world was inevitable.

It’s been two decades since Ashton conceived the IoT. Slowly but surely, it’s become a reality, arriving one device at a time.

And over the next decade, the numbers will become truly staggering.

Projections show that there will be more than 125 billion devices connected to the internet by 2030…
That’s a 368% increase from 2019, let alone the astronomical rise from 2018!

And by many accounts, that 125 billion projection seems to err on the side of being somewhat conservative.

It’s estimated that 127 new IoT devices connect to the web every second.

And it’s forecast that each home will eventually have more than 50 connected devices.

So we could easily see more than 125 billion connected IoT devices by the end of the decade.

Keep in mind that 20 years ago, we had only one clunky desktop in our homes connected to the internet.

And it moved at kilobyte-per-second speeds. A rate that would drive us insane today, let alone render our devices useless.

Plus, it’s been only a little more than a decade since Apple‘s (Nasdaq: AAPL) iPhone changed the world.

We’ve seen a meteoric rise since then. To me, that means the next decade of adoption could be even more rapid than we imagined.

A $36 Billion Opportunity

IoT is igniting a spending boom across a wide variety of industries, not just among consumers.

In fact, by next year, the global industrial IoT market is expected to top $124 billion. And by 2026, the global total …read more

Here’s What the “Stimulus Plan” Stimulated

Brian Maher

This post Here’s What the “Stimulus Plan” Stimulated appeared first on Daily Reckoning.

What did the “stimulus plan” stimulate?

This is the pressing question of economist Alan Reynolds.

The stimulus has not stimulated the economy… as demonstrated by second-quarter GDP.

The answer is obvious, says Mr. Reynolds, answering his own question. The stimulus stimulated government:

The answer is obvious. Federal nondefense spending rose at a 39.7% annual rate. Big government spending can and does grow big government.

The fellow rings dead center. Big government spending can and does grow big government.

Meantime, loads more spending is on tap — depend on it. That is, loads more government is on tap.

The U.S. Government’s “Exorbitant Privilege”

Governments incline naturally to spending, as governments incline naturally to roguery, crookery and rascality.

The United States government tilts so steeply in spending’s direction… it risks going over.

The entire creaking edifice rests upon a quicksand foundation of debt.

Most governments are limited in the amount of de‌bt they can pile up. Thus, they are limited in the swinishness they can get up to.

But the United States government is unlike most governments. For it enjoys the “exorbitant privilege.”

That is, the United States fields the world’s premier reserve currency. And the world runs a bottomless appetite for its dollars.

The United States can therefore run the presses at a clip truly astonishing.

And despite America’s heroic go at the print press, its debt has never cost less…

A Moth to the Flame

Present yields on its 10-year Treasury bond scrape along at a vanishing 0.64%. Yields on its 30-year Treasury — at 1.33% — run scarcely higher. Given these rates…

The United States government can no more resist de‌bt’s seductions than a cat can resist catnip, a bee can resist honey… or a moth can resist flame.

The flame is drawing the United States in, surely, inexorably, relentlessly.

Here is the largest trouble with its government de‌bt:

It is largely unproductive. It is a millstone about the neck…

Keynes’ Warning

During the Great Depression, John Maynard Keynes — later Lord John Maynard Keynes — put his general theory into general circulation.

Deficit spending can revive the animal spirits, said he, set industry’s idle machinery awhir… and put the economy back on the jump.

Yet he wagged a stern finger, and warned:

Deficit spending is not an open-ended warrant for government extravagance.

Keynes insisted each dollar of de‌bt must pack economic oomph. That is, each dollar of de‌bt must yield more than it cost. Else it does not stimulate.

As Mr. Lance Roberts of Real Inves‌tment Advice reminds us:

John Maynard Keynes’ was correct in his theory that in order for government “deficit” spending to be effective, the “payback” from investments being made through de‌bt must yield a higher rate of return than the de‌bt used to fund it.

But the vast majority of United States government spending fails Lord Keynes’ exacting test…

Government Debt Sedates, Not Stimulates

The lion’s take of United States government borrowings go to “social welfare.” And to service existing de‌bt.

That is, it goes largely to non-productive uses. Thus, it sedates and depresses — not stimulates. Roberts:

As …read more

How to Invest in Dividend Stocks

A young woman learning how to invest in dividend stocks on her phone

Dividend stocks are often a great investment since they can provide both capital appreciation as well as income. Yet many people don’t know how to invest in dividend stocks.

In this article, we’re going to tackle that question. We’ll also look deeper into why you might want to consider investing in dividend stocks… and some of the pitfalls to watch out for.

We’ll look at strategies specific to dividend stocks and provide resources on how to buy stocks in general. That way, when you’re ready to buy, you’ll know exactly what to do and how to do it.

So let’s get started.

What Are Dividend Stocks?

Before we dive into how to invest in dividend stocks, we first need to take a look at what exactly these stocks are.

Simply put, dividend stocks are stocks that pay out or distribute a percentage of their earnings to shareholders as dividends on a regular and periodic basis.

Nearly 84% of the companies in the S&P 500 index pay dividends. But why would a company engage in this practice? It’s simple: Companies need to find ways to give shareholders value in exchange for their investments.

There are several ways a company can provide value to shareholders:

Invest capital in projects that generate large returns and increase the price of the stock
Engage in share buybacks that can increase the price of the stock
Distribute dividends.

The good thing about dividends for investors is that the quality companies that issue them tend to distribute them on a regular basis, which creates a steady flow of income from shareholder investments.

Of course, you can invest in great stocks like some blue chip stocks that don’t pay dividends, which is absolutely fine if you’re primarily seeking capital appreciation. But if income is your thing, dividend stocks are a great option. Generally, dividend stocks can earn you much higher yields than government or corporate bonds – especially when you also take capital appreciation into consideration.

How to Invest in Dividend Stocks

The first thing you’ll need to do when learning how to invest in dividend stocks is to identify the stocks that pay dividends. Simple, right? When beginning your research, you may simply want to start with large companies that you’re familiar with.

The following are dividend stocks in the Dow Jones Industrial Average you’ve likely heard of:

Exxon Mobil (NYSE: XOM)
IBM (NYSE: IBM)
Boeing (NYSE: BA)
Verizon (NYSE: VZ)
Coca-Cola (NYSE: KO)

So let’s say that you’re an avid soda drinker and you decide you are interested in purchasing shares of Coca-Cola. Should you just take the plunge and dive right in?

Not so fast.

Once you’ve picked a company you’re interested in, the next thing you’ll want to do is evaluate that stock. But how do you evaluate a dividend stock?

Let’s take a closer look.

Evaluating Dividend Stocks

When learning how to invest in dividends stocks, one of the most important metrics that you will need to look at is the dividend yield. The dividend yield is a measure of how much dividend the company pays compared with the total price of the stock.

As of …read more