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Well good day subscribers hope you guys are having a great day as always out there today i want to go ahead and hopefully save you guys a lot of money alright i want to explain how to avoid this huge dividend mistake that so many people make when they start getting involved in the stock market and they start kind of get paying attention to dividends and like mmm
Not want to buy this dividend stock and this one’s better than this one right and i want to explain what this mistake is i want to explain how you can avoid this and what you should really be looking at when it comes to dividend stocks guys so i hope you get a lot of value out of this video i hope it saves you a lot of money down the road now first off i read some
Comments sometimes that people just don’t understand like the psychology of why somebody would only invest in dividend stocks me personally i hold some dividend stocks but i am not solely a dividend investor but i want to explain the psychology behind a dividend investor because you might be a dividend investor at heart and that might be the best way for you to
Personally invest not everybody’s the same not everybody wants to value invest now that everybody wants to growth invest not everybody wants to dividend invest everybody’s different out there you watching this right now you might be an actual dividend investor and that should maybe be the way you go personally it depends on your situation i want to explain here
Right now and get this out like why somebody would be a dividend investor okay the first thing is they want to make money while they wait for share price games okay you buy into a stock there there are basically two ways you can make money from a stock right one is you get paid out dividends if it’s not getting paid out dividend money then it’s basically waiting
For those shares to hopefully appreciate over time and the next person being willing to pay more money than what you paid for those shares right and those are really the only two ways you can really make money for the stock market i mean there are options and complicated things like that right but for the most part ever almost everybody participate in the market
They’re making money two ways either from dividends or from basically where they bought their shares at they bought these shares at $10 somebody buys them a few years from now for $15 okay that’s the bottom line with that but with dividends hey you can you basically you’re waiting for your share price gains you’re making that dividend money in the short term okay
Which is nice and you can plow that into buying more shares up there under price or you can go ahead and use that money on yourself or whatever you want to do okay number – it is somewhat like buying a house and renting that house out rather than just buying a house in holding it let’s say you were a real estate investor right you could buy a house right you’re
Like this house is gonna appreciate over time it’s way undervalued right now that’s a deal and a half i’m gonna go ahead and buy this house you could buy that house and you could just hold that house right and over time hopefully appreciates and you’ll get to sell out for a big profit but on the flip side you could also hold that house and rent it out and make some
Income in the mean time right might not be all the money in the world but it will be some form of income in the meantime while you wait for that house to go ahead and appreciate same thing with dividend investing you’re holding this these you know you just stop basically you’re hoping it goes up over time you believe you’re gonna be right here at bullish thesis
The stocks gonna appreciate over time but you’re getting in this dividend money in the short term which is nice certainly right so that’s kind of a mentality there number 3 let’s say the market return is 0% a year let’s say let’s say 2019 the 0% year markets don’t go up markets don’t go down it is what it is ok if you held dividend stocks you are still up on the
Market if all your stocks didn’t move at all this year they’re all win 0% right as long as you still have all that dividend money you’re technically doing good ok if you held all your stocks and they paid an average of 3% dividend yield you just made 3% in your money this year while the market was at 0% so that is something to take into account there ok number 4
Dividend stocks tend to attract longer-term shareholders and the reason be is sometimes with these growth stocks sometimes you’re gonna get very short-term in nature take people people that are really trying to play things in the short term trying to think about oh they’re gonna have a next big quarter all they’re gonna have a big year this year and i need to be
In the stock this year because this year is gonna be huge for this stock and things like that and you get a lot of people playing very short-term events and some of these growth stocks more of the dividend related stocks and these ones that are big dividend payers you’re not really going to get that many people playing short term moves because it’s just not worth
It to them why would a short-term trader try to jump in pepsico shares like most of time there are way better opportunities like from a risk reward standpoint to go ahead if you’re trying to do short-term activities where you try to play company for the next quarter the next month or the next burning period next week or something like that right so these dividend
Stocks they tend to attract longer-term shareholders and some folks absolutely love that okay so that’s the psychology around a dividend investor okay i want to explain that now let’s get into this huge mistake that dividend investors especially new ones in the market are making are you guys let’s go ahead and get into this dividend investing mistake now first
Off i just want to say if you were making this mistake or you have made this mistake in the past past like don’t feel dumb okay because believe me i made the same mistake and almost everybody when they first get involved in the stock market and come across dividend stocks they make this mistake okay so don’t feel like you’re like you’re not smart because you you
Haven’t figured this out or something like that right everybody almost makes this mistake when they get involved with the stock market okay so you have two stocks here you have abc stock and you have xyz stock any newer person to the stock market is going to look at this and they’re gonna say okay abc stock pays a three percent dividend yield this one xyz stock over
Here pays a five percent dividend yield hmm if i’m gonna invest in one of these stocks xyz stock is a way better stock for me to invest in why because well if you got let’s say let’s just use a round number let’s say you got $100,000 in this stock right at a 5% yield you get $5,000 a year paid out to you and dividends versus this one if you had that same hundred
Thousand dollars in the stock you’d get about three thousand dollars in dividends so somebody’s gonna look at this as a newer investor in the stock we’re gonna say this stocks way better it pays me out way more money i’m gonna make an extra two thousand dollars being in this stock than in this stock so xyz stock is a stock for me to go ahead and invest in okay and
That’s just how it is like you know most people have involved in the stock market at first like that’s the way they view it i’m just gonna tell you that’s gonna cost you so much money okay this mistake right here is gonna cost you so much money if you’re thinking like this okay let me explain the things that are more important okay so what if i told you that stock
Abc has a payout ratio okay a payout ratio let’s say 25 percent and what if i said xyz stock has a payout ratio let’s go ahead and say 95 percent okay now this should change your judgment quite a bit of pa ratio basically means how much of their earnings per share are they paying out in dividends per share okay so let’s say this this stock has a you know let’s use
A rough number like $6 per share of eps let’s say abc stock has $6 per share of eps if they have a 25% payout ratio then that essentially means they’re paying out a dollar 50 in dividends per year which is a pretty low payout ratio okay that’s a pretty low payout ratio this stock on the other hand they’re paying out 95% of their eps in the form of dividends they
Almost have no room top that dividend in the future which is a very bad thing right because if you’re buying into a dividend stock you’re planning a hole in this thing long term then you want to stock that hopefully is going to pay out a lot more money in the future right and if they’re already at a 95% payout ratio like like what realistically can they really up
That dip it in the future they can they’re pretty much maxed out so although this one has a bigger dividend yield as of right now and might pay out more dividend money as of right now what’s gonna be the scenario in two years from now three years from now five years from now this stock may be a way bigger dividend hair at that particular time okay what if i told
You this company has net income okay this company has net income which is their bottom line which is rising in this company has net income which is decreasing okay this one is going down which stock is really the better dividend stock out there the one that pays to five percent yield with a three percent you know obviously it’s the one that piece of three percent
Yield in this scenario right their payout ratio is way lower they’re gonna be able to up that dividend a ton over future years and their net income is actually rising that’s a good positive sign right whereas this company’s net income is shrinking they have their net income is shrinking whether payout ratio is really high guess what’s gonna end up happening that
Dividend is gonna get cut over time in that $2 a share they might have paid out to you in the form of dividends before you might also be a dollar fifty might also be a dollar twenty-five might be a dollar never mind that guess where the share price is probably going to go over time share price over time is probably going to go down as well right because the company
Is becoming less profitable they’re paying out all their and dividends when they should really probably focus on on putting that money back into the business and this happens all the time in the stock market people see high yielding stocks and they think oh my gosh it’s such a great dividend stock till they realize that company is paying out all their eps or almost
All their tps in the form of dividends i’ve seen it with stocks before where they pay out more than their eps in the form of dividends okay where i think i’ve literally seen that where the company is paying out more than what they have coming in and profits in the form of dividends okay and you see some of these stocks can absolutely nailed the newer investors in
Those stocks get absolutely destroyed they got that 5% yield for a few years but meanwhile they lost 20% or 30% on the value of their shares they held over those three or five years and so they actually net net lost money in the stock and that’s a painful thing to see there guys so it’s a lot deeper than just you just look at the yield okay it is so much deeper
Than that okay by the way i want to mention something guys if you’ve got to becoming a master the stock market course in the past i just added a dividend investing mastery section i added that just a few weeks ago about probably about a month ago so make sure you go ahead and check that out if you haven’t link is down there in the description if you’ve never got
In past and you want to go ahead and get it we actually have a discount today guys won’t be allowed a lot of value out of this don’t make this dividend investing mistake guys thank you for watching have a great day
Transcribed from video
Don't Make This Dividend Investing Mistake By Financial Education
