In the last two weeks I have had editors ask me a question about investing in R/R (return on investments) stocks. This comes as a surprise to me because I have been promoting cash & dividend shares. If you don't know what a dividend is, it is an income stream divided into payments. Dividends are paid to the shareholder on an annual basis (usually in May) and they are generally reinvested in the company's stock or business.
Dividends can be a good thing. They offer a monthly source of income and there are no yearly fees. However, the main attraction for me has always been the dividends per share. I love to make money by investing in dividends per share and I think there is a lot of money to be made in this market. What I'm going to explain here will help you determine if you should be looking at R/D (renewable income) stocks as an opportunity for investing your money.
There are two types of stocks, blue-chip and red-chip. Blue-chip companies pay out regular cash dividends every year and have a history that investors can trust. The only drawback with blue-chip companies is that they are typically more expensive than the market price. I like to buy some stocks that pay out regularly but are cheaper (i.e. less expensive) so that I can stay in the market longer.
On the other hand, red-chip stocks are usually less expensive than blue-chip companies but they don't pay out their dividends regularly. They tend to have much higher quarterly earnings but pay out very little. These stocks can be great to get in at the low price and hold onto for a while, hopefully earning a nice profit. As I stated though, these stocks can be challenging to buy at low prices, so it is important to keep this in mind when deciding to invest in dividend stocks.
Dividend stocks are great because they usually pay out their dividend automatically each and every month. Investors who buy these types of stocks tend to hold on to them for a while, waiting for the dividend to be paid out. If the company's financial statements indicate that they expect to be making their dividends per quarter, then by all means wait. The longer you hold onto a stock, the better your chance of making a nice profit. It isn't uncommon for companies to double their payout ratio within the first few years of owning the stock.
If you decide to take advantage of having a dividend payment coming your way, then it's important that you do your research. Make sure the company has been around for a while, especially if you are going to be buying from overseas. This will help to ensure that you aren't going to be taken advantage of by the issuing company in the future.
Before purchasing any type of stock, you should always consult with a financial advisor. There is a lot of information that can be confusing or even harmful to your trading strategy. Only an expert can provide sound advice based on his own research.
In addition to the potential risk of losing money, there is also the risk of owning stocks that pay a dividend. This is called an equity release. Usually the company does not make much money off of these types of dividends. However, some companies have made a fortune on them. Dividends are great because they allow you to keep more of your money, and you don't have to pay out as much as you would if you owned a traditional security. Check out some R and D stocks to find out what kinds are currently on the market.
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