Dividend Investing Basics

I’m considering using dividend investing as a key part of my retirement plan. But I must admit that I don’t know much about it. Today I’ll share what I’ve learned so far on my journey into dividend investing.The ConceptFrom what I understand, proponents of dividend investing tout it as working as follows:Buy stocks of good quality companies that pay decent dividends (which would be 3% to 5% these days.) Earn income generated from the dividend payments. Get some growth on the value of the stocks paying the dividends. So to make this a bit more tangible, let’s take the following example:You buy a portfolio of stocks for $500k. These stocks pay you a 4% dividend of $20,000. The stocks appreciate 4% over …

via Free Money Finance:

I’m considering using dividend investing as a key part of my retirement plan. But I must admit that I don’t know much about it. Today I’ll share what I’ve learned so far on my journey into dividend investing.

The Concept

From what I understand, proponents of dividend investing tout it as working as follows:

• Buy stocks of good quality companies that pay decent dividends (which would be 3% to 5% these days.)


• Earn income generated from the dividend payments.


• Get some growth on the value of the stocks paying the dividends.

So to make this a bit more tangible, let’s take the following example:

• You buy a portfolio of stocks for $500k.


• These stocks pay you a 4% dividend of $20,000.


• The stocks appreciate 4% over the course of the year and are worth $520,000 at the end of year one.

In this example, your stocks have had a total return of 8% (which is completely reasonable) through the combination of dividends and growth.

Most dividend investors would look for their investments to beat the major market indices. I don’t need to go that far. All I need is some income and enough growth to make up for rising inflation (I’m figuring on 3% income and 3% growth). If I get extra return, that’s great, but I don’t need it.

Five Reasons Why Dividend Investing Works

But that’s my take on why dividend investing works (and how it works). What do the “experts” say? In All About Dividend Investing, Second Edition (All About Series), they offer the five reasons why dividend investing works:

1. Dividends provide a steady stream of income.

2. Dividend stock prices increase over time.

3. Dividend reinvestment allows investment to grow at a compounded rate.

4. Dividend reinvestment promotes dollar cost averaging.

5. Dividend-paying stocks generally have lower price volitility.

I especially like the first two since they will be the main reasons I pursue this strategy (if I ultimately decide it does work for me).

Success of Dividend Investing

There are a seemingly myriad number of ways that dividend stocks can be picked (and even if you use stocks at all — some people suggest mutual funds). But no matter what you use, the advocates for dividend investing seem pretty confident of its success.

Consider this quote from The Motley Fool Million Dollar Portfolio LP: How to Build and Grow a Panic-Proof Investment Portfolio:

And so here’s one key takeaway: Dividend-paying companies are surer bets as investments since, on average, they operate in mature industries and enjoy steady flows of earnings. There is a reason why we have launched our book’s examination of investment strategies by focusing first on dividends — this is the safest way to invest in equities.

And later they say:

A truckload of academic studies has shown that investing in companies that pay dividends is just about the best way to earn huge returns over time.

Again, they are looking at dividend investing compared to all the other investing strategies and saying it’s one of the best. I don’t need it to be one of the best — I have a much lower hurdle to jump. This gives me a margin of safety which I like.

Similar sentiments are given in Beating the S&P with Dividends: How to Build a Superior Portfolio of Dividend Yielding Stocks. They sing the praises of dividend investing as follows:

It is a common misconception that most of the returns to investors who invest in stocks have come from capital growth. However, since 1926 nearly half of the 10.3% annual stock market return has come from dividends and dividend reinvestment. As an example, over the past 70 years, ending December 31, 2002, dividends contributed almost 40% of the average annual return of stocks on the S&P 500 Composite Index.

There are a number of formal studies that have found dividend stocks provide higher returns. For example, one study of monthly returns by S&P 500 companies over 31 years found that dividend-paying companies significantly outperformed non-dividend-paying firms by 0.37% per month.

Of course these books have a certain point of view they are trying to sell, so such statements aren’t surprising. That said, the fact that there are studies showing that dividend stocks do well is at least a partial boost for the strategy.

That’s about as far as I’ve gotten into my investigation of the topic. Obviously I still have a long way to go and there’s still a HUGE question out there (how do I find the right stocks that deliver the results I want?) If you have any thoughts on what I should consider as I proceed, I’d love to hear them. Or if you’re a dividend investor yourself, perhaps there are some words of wisdom you can share.

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How to find the bubble stocks

From time to time some stocks catch investors fancy and in a very short period of time double or triple. In most cases there is some “hope” story behind these stocks. These stocks can make breath taking moves before collapsing.Bubbles are more common when breadth becomes excessively bullish. These kind of periods are characterized by such irrational moves. To find these kind of periods look at the Market Monitor readings on Number of stocks up 50% in a month. When the readings climb over 20 you will notice big moves in many speculative stocks on marginal catalyst.These readings seldom climb above 20. For months you will see readings below 20, but once they climb above 20 you will notice the big speculative bubbles on handful of stocks, especially on…

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From time to time some stocks catch investors fancy and in a very short period of time double or triple. In most cases there is some “hope” story behind these stocks. These stocks can make breath taking moves before collapsing.

Bubbles are more common when breadth becomes excessively bullish. These kind of periods are characterized by such irrational moves. To find these kind of periods look at the Market Monitor readings on Number of stocks up 50% in a month. When the readings climb over 20 you will notice big moves in many speculative stocks on marginal catalyst.

These readings seldom climb above 20. For months you will see readings below 20, but once they climb above 20 you will notice the big speculative bubbles on handful of stocks, especially on low priced stocks and stocks with questionable fundamentals. They will make bigger moves during this period as speculative juices are in full flow during such periods.

As a momentum trader looking for such speculative excess period can offer you some good lottery ticket opportunities on low priced stocks. All such stocks rise up in momentum ranking during this period.

www.stockbee.biz If you are serious about your trading and want to build an enduring edge the Stockbee Member site might be for you. One of the most recommended site for learning to trade. 2200 plus members and growing everyday… www.stockbee.biz

For more info: How to find the bubble stocks

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Top Losers in After-hours Today, February 13 – Stock Market Watch

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Top Losers in After-hours Today, February 13. Thursday, February 13, 2014 6:03 PM. These are the stocks dropping the most in after-hours trading on, Thursday, February 13, 2014. Be sure to check out our After Hours section of …

For more info: Top Losers in After-hours Today, February 13 – Stock Market Watch

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How to detect trends early

Stocks trend from time to time. In order to catch a larger swing move early detection of trend helps. As a swing trader also detecting trend is useful. I primarily look for a confirmed uptrend and then buy a second or third leg of that trend after a consolidation or pullback. There are many ways to detect trends and some can lead to lot of false moves and whipsaw while some are better at detecting trends.Besides trend detection as a trader you are also interested in identifying explosive trend and not just a slow moving trend. Explosive trends is where big opportunity to make money in short amount of time is.Let us look at SSRI a silver stock that has recently established a trend.Using …

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Stocks trend from time to time. In order to catch a larger swing move early detection of trend helps. As a swing trader also detecting trend is useful. I primarily look for a confirmed uptrend and then buy a second or third leg of that trend after a consolidation or pullback.


There are many ways to detect trends and some can lead to lot of false moves and whipsaw while some are better at detecting trends.


Besides trend detection as a trader you are also interested in identifying explosive trend and not just a slow moving trend. Explosive trends is where big opportunity to make money in short amount of time is.


Let us look at SSRI a silver stock that has recently established a trend.

Using Stockbee Double Trouble Indicator

The stock showed up on scan this week. The longer term trend detector sacrifices part of the move to avoid whipsaw. But once a trend is detected it tends to be explosive trend.

Using Sockbee Trend Intensity 65 days

The Stockbee Trend Intensity scan detected this trend much earlier. Early detection can be more useful for position traders as it allows you to get in to position early. It also allows you to hold positions longer due to accumulated profit.

Using Guppy MMA

Guppy Multiple Moving Averages are 12 exponential averages used to detect trends. The 12 averages are 3, 5, 8, 10, 12, 18, 30, 35, 40, 45, 50, and 60. The 3, 5, 8, 10, 12, and 18 period exponentially moving averages are used to show the short-term trend and the 30, 35, 40, 45, 50, and 60 show the longer-term trend.

A longer term trend is established when all the 12 averages confirm the trend. As you can see the Guppy MMA detected the trend early.

There are many ways to determine trend start and trend end. If you use a very sensitive indicator to detect trend you will find trends early , but you will also find many false starts.

In above example TI65 and Guppy MMA detected a trend start early , but they also gave false signal in August.

There is no one best way to find trends , but whichever way you select you need to be consistent about it and think a lot about it.

If you understand trends and how they progress you can find opportunities to capture part of the swing moves in a trend.

www.stockbee.biz If you are serious about your trading and want to build an enduring edge the Stockbee Member site might be for you. One of the most recommended site for learning to trade. 2200 members and growing everyday… www.stockbee.biz

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Cenovus Crushes The Fundamental Approach To Valuation

via StockCharts.com – Blogs:

Every now and then a stock comes along that just drives you crazy. Cenovus has to be one of those story stocks. Given the keys to the oil empire in the split from Encana, Cenovus looked promising from every aspect. As a large Canadian company with the ability to produce major growth rates in production from the Christina Lake and Foster Creek projects, the investing community came to expect great things from this company.

I reviewed their January 2014 Presentation to find out the Oilsands technology they are using has a $45/bbl production cost. They have mitigated 85% of the Heavy oil discount. They have grown the oil production by 50% in the last 2 years! This presentation makes you feel like their should be a rocket attached to the stock price. They own two US refineries and would love to put their oil on the Keystone XL pipeline. So that appears to be holding them back.

OK, so this should be a monster stock. Let’s look at the chart. Starting at the top. The RSI has been trapped under 65 for most of 3 years. The relative performance to the SP500 in purple (SPURS) is showing underperformance for 2 years. The SCTR ranking shows Cenovus as being a below 50% stock for the last year. The recent news is it just crashed in relative ranking to every other $TSX stock to become the bottom 15% technically. That sounds like last quartile performance which can only be construed as poor.

For more info: Cenovus Crushes The Fundamental Approach To Valuation

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Trading: Less Fighting, More Fishing

via SMB Capital – Day Trading Blog:

Much of the time when you read about trading, many use metaphors that refer to competition or war. You will often hear phrases like, “the forex arena”, “bulls battling the bears”, “you compete with the best and brightest minds in the world”. This is convenient and filled to the brim with conflict (we love drama just watch the news). What the general perception of market speculation tends to ignore is the passive and perhaps less entertaining side of the trading equation: the waiting game.

As newer traders enter the market and begin to “inform” themselves as to the inner workings of their particular instrument, Read more [...]

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Trading: Less Fighting, More Fishing

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Swing trading using momentum bursts

The basic structural phenomenon behind most ideas discussed on this site is ” Stocks move in short term Momentum Bursts”It has been observed and verified that stocks move in momentum bursts during bullish periods in indexes (bull markets).During “established” downtrend (bear markets) in index they show same phenomenon on the downside. They go down in momentum bursts of 3 to 5 days.In this kind of momentum burst move in a stock , the first day is range expansion which is immediately followed by follow through.The sequence looks like:Range expansion dayUp day (follow through)Up day (follow through)pullbackfollowed by end of momentum That is the bullish sequence. Variation can be 5 day burst. In rare cases you will get a 8 to 10 day burst.Sometime it will be variation of…

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The basic structural phenomenon behind most ideas discussed on this site is ” Stocks move in short term Momentum Bursts”

It has been observed and verified that stocks move in momentum bursts during bullish periods in indexes (bull markets).

During “established” downtrend (bear markets) in index they show same phenomenon on the downside. They go down in momentum bursts of 3 to 5 days.

In this kind of momentum burst move in a stock , the first day is range expansion which is immediately followed by follow through.

The sequence looks like:

Range expansion day

Up day (follow through)

Up day (follow through)

pullback

followed by end of momentum

That is the bullish sequence. Variation can be 5 day burst. In rare cases you will get a 8 to 10 day burst.

Sometime it will be variation of the 3 days with inside day or negative day after first day of range expansion.

There are many possible variations but essentially this is an impulse move of 3 to 5 day duration.

During this 3 to 5 days period stock would go up 8 to 20% ( lower priced stock can even have bursts of up to 40%).

Such bursts may or may not have clear identifiable catalyst. You need to know nothing about the company to trade this kind of burst.

This is a pattern and probability based trade.

It is largely mechanical way to trade for small profit targets.

(To find stocks likely to go up multi month or year I use other methods. They are also discussed in detail on this site. Just see the sidebar for some of the popular posts)

Move starts with range expansion

All such momentum bursts start with a range expansion. The first day of the move is range expansion day. Often there is also volume expansion along with range expansion.

The price moves in the direction of range expansion.

When there is range expansion it attracts breakout traders, it attracts other momentum players, day traders, quants and so on. That results in continuation of move for few days.

Range expansion basically means a day which is up bigger than last 5 to 10 days bars. A range expansion preceded by series of range contraction days is good candidate in this setup. Moves preceded by orderly range contraction can be explosive.

A successful momentum burst will lead to immediate follow through. Say a stock breaks out in the morning, it will continue to go up through the day and will have immediate follow through in next 2 to 3 days. And the follow through should also be of big 4 to 5% plus magnitude on second or third day.

In most cases the momentum dies down in 3 to 5 days.

If you keep holding after the 3 to 5 days period, you would often see the stock ends up giving up all the burst gains and may not have another momentum burst for several weeks or months. Sometime the burst gains vanish intraday itself.

Depending on price of the stock such momentum bursts can be of 8 to 40% magnitude. Lower price stocks tend to make bigger moves.

For a stock trading below 5 dollars a breakout day move itself might be of 10 to 20% magnitude. For traders with small accounts that offers good opportunity.

As a practical matter if you have large amount of capital to trade with it is difficult to grow your account by just focusing on these low priced stocks. You might have to buy lots of 50000 to 100000 shares for meaningful difference to your account.

Lower float stocks make bigger moves. Low float and high demand creates explosive moves.

If you see in any year the most short term explosive moves will be on extremely low float stocks. For those with smaller account size there is distinct edge in trading low float stocks.

No specific catalyst is needed for these momentum bursts.



Why do these moves happen?

In some case there might be a specific news catalyst on day of first range expansion day , but in vast majority of these kind of momentum moves, there is no clearly identifiable catalyst.

However tracking news on daily basis might help you enter some of these momentum bursts very early and magnify your profit.

During bull moves in overall market such momentum bursts have been observed for over 100 years.

This is structural nature of market.

You should be independently able to verify this.

@mhp a member on Stockbee.biz site also posted a backtest with 3 day hold period after range expansion on timeline to show how this works historically.

Here is a profit line from taking up to 6 momentum burst longs per day for the past 10 years, 1000 shares per trade, using simple mechanical rules. As per his backtest.

Stocks seldom run up or down smoothly.

A 30% move in stock over 3 months in a stock might be completed in 2 momentum bursts of 10 to 15% in just 5 to 6 days. Rest of the time the stock might retract or go in range.

In a year you will probably find 5000 to 10000 such 3 to 5 day setups when both bullish and bearish setups are combined.

Momentum burst kind of swing trading allows you to grow your account with very low risk.

For a mere 3 to 5 day exposure to market you capture the most explosive part of the move and you are not seating in dead periods holding stock waiting or anticipating a breakout which may or may not come.

Trading this kind of setup requires extremely good ability to ruthlessly cut losses if a trade does not work immediately .

It also requires skill to exit when things are still in explosive phase and not wait for reversal.

Per trade profit on these kind of trades will be on an average just 5 to 8% as you are only going to get part of the 8 to 20% move. By the time you enter on breakout day the stock might be up 4 to 10% , so you will not be able to capture that part of the range expansion move.

To trade this kind of setup you need to be willing to do 200 to 1000 or more trades in a year.

You make money by compounding these small gains.

So this is high frequency and low per trade profitability method.

There are periods in market where these kind of setups are prone to failure.

This happens near market turns where in short period lot of breakouts fail.

The bullish breakout trade needs to be avoided during fast selling phases in market.

The bearish breakdown trade works best after a downtrend is clearly established on 10 plus day time frame.

In a bull market trading 3 day bearish setups will lead to lot of failed breakdowns.

Because of the nature of the overall markets (they have significant positive bias), there are in number terms more bullish momentum bursts than bearish momentum bursts.

Once you understand this momentum burst based short term phenomenon, the next task becomes how to trade it by setting up proper procedure for it.

There are many ways to do this. Traders like @mhp trade it completely mechanically and have shown long years of profits.

His system is completely mechanical and based on custom developed software and execution tools.

Traders like me trade the method using discretion. I do not take every setup. I use some well defined criteria to only try and buy good quality setups.

There is extensive discussion of this on this site and the scans and steps I use are detailed here multiple times. I use Telechart to do this but people have replicated same thing in various other softwares.

www.stockbee.biz If you are serious about your trading and want to build an enduring edge the Stockbee Member site might be for you. One of the most recommended site for learning to trade. 2200 members and growing everyday… www.stockbee.biz

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A complete momentum burst trade example

Stocks move in momentum bursts of 3 to 5 days. These 3 to 5 day momentum bursts can be explosive often producing 8 to 40% moves. Swing trading these moves offer you an opportunity to participate in explosive part of the move.These kinds of moves are frequent and in a year offer you several opportunities. The post: How to identify good momentum bursts and make millions details the essence of the setup. The post lead to some comments and discussion on stops and exits. By its very nature this is 3 to 5 days trade. Om entry day the only reason for entry is that we believe the range expansion will lead to follow through. If that does not happen and stock revisits entry day low, the range expansion signal has failed.Entry …

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Stocks move in momentum bursts of 3 to 5 days. These 3 to 5 day momentum bursts can be explosive often producing 8 to 40% moves. Swing trading these moves offer you an opportunity to participate in explosive part of the move.

These kinds of moves are frequent and in a year offer you several opportunities. The post: How to identify good momentum bursts and make millions details the essence of the setup. The post lead to some comments and discussion on stops and exits.

By its very nature this is 3 to 5 days trade. Om entry day the only reason for entry is that we believe the range expansion will lead to follow through. If that does not happen and stock revisits entry day low, the range expansion signal has failed.

Entry in this kind of trade happens as soon as stock shows up in my scan. That can be anywhere from market open to just before close. The stop is low of the entry day as this is momentum burst trade.

Exit in this kind of trade is based on time exit and profit exit. Because by very nature this kind of trade is 3 to 5 day duration, I am looking at exit on 3rd , 4th or 5th day. Not only that but we also know profits in this kind of trade is going to be 8 to 40%. So if a stock says goes up 20% in one day after entry, I sell part of the position and put a very tight stop on rest of the position to ensure profit does not vanish.

Most of these kind of trades work instantly. For example currently I have YY trade open. The trade already is up 10% plus in 2 days.

I will hold this trade for 4 to 5 days , but at the same time now my focus is to ensure this trade does not end up loss making and I exit it with at least some profits. Accordingly stop is adjusted to protect open profits.

Swing trading momentum bursts is a low risk strategy. You can keep your draw downs very small and compound your money.

If you are serious about your trading and want to build an enduring edge the Stockbee Member site might help you. The most recommended site for learning to trade. www.stockbee.biz 2100 members and growing everyday…

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#PreMarket Primer: Thursday, December 26: Nikkei Climbs To New …

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Stocks moving in the Premarket included: Perrigo Company PLC (NYSE: PRGO) lost 0.16 percent in premarket trade after falling 1.07 percent over the past week. Earnings. No notable earnings releases expected on Thursday …

For more info: #PreMarket Primer: Thursday, December 26: Nikkei Climbs To New …

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#PreMarket Primer: Thursday, December 26: Nikkei Climbs To New …

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Pre-Market: Tesla Keeps 5-Star Safety Rating; Retailers Lose …

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Stocks are oscillating between gains and losses going into a shortened trading session for Christmas Eve as investors await housing data. This season was particularly hard for brick-and-mortar retail, however.

For more info: Pre-Market: Tesla Keeps 5-Star Safety Rating; Retailers Lose …

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Pre-Market: Tesla Keeps 5-Star Safety Rating; Retailers Lose …

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Stocks To Watch For December 24, 2013 | Benzinga

Benzinga is a fast-growing, dynamic and innovative financial media outlet that empowers investors with high-quality, unique content. Top 4 Mid-Cap Stocks In The Gold Industry With The Lowest PEG Ratio Benzinga’s M&A Chatter for Monday December 23, 2013

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CalAmp shares dipped 8.35% to $25.26 in the after-hours trading session. Anworth Mortgage Asset (NYSE: ANH) announced an additional 5 million share repurchase program. Anworth Mortgage shares rose 0.97% to $4.18 …

For more info: Stocks To Watch For December 24, 2013 | Benzinga

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Stocks To Watch For December 24, 2013 | Benzinga

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