Profiting from Dividends

I know I know investing in dividend companies aren't the sexiest investments, but trust me those dividends add up over time. Plus there are actually quite a few benefits when investing in quality dividend paying companies.

1. They're usually stable (i.e. utilities or telecommunications)
2. Dividends are taxed less than capital gains.
3. A DRIP (dividend reinvestment plan) will have a compounding effect.

It's also easier to manage because your objective is to collect the dividend stream and not worry too much about share price fluctuations. If the business is thriving, the company will raise their dividends. One of the best dividend stocks out there is McDonald, since the year 2000, they have raise their dividends by 28.2% annually, which means the payout doubles every two and a half years!

One more thing, invest in quality stocks (google dividend aristocrats for some examples). I learned my lesson when I invested in RBS pre-recession, at that time the dividend yield was 17%, however the dividend collapsed along with the dividend. So here a few tips to keep in mind when doing your DD.

1. don't chase high dividend yields - 5% should be the maximum, any higher is too risky
2. look at the dividend payout ratio (div./ net income) - make sure it's less than 55% or else the company can't grow
3. make sure the div. are consistent, preferably with increases at regular intervals

- The Hawk

Payout Ratio Checker:  http://dividendinvestor.ca/?symbol=t&submit=GO

Dividend Aristocrats:  http://www.thepassiveincomeearner.com/2011/01/dividend-aristocrats-canadian-tsx.html

Profiting from Operating Cash Flow

This may come as a surprise, but not all companies make money. There are tons of small cap stocks out there that look like the next Microsoft, but chances are they're bankrupt within 5 years. So what the hell happens?!?! Well companies need cash to survive, and if they're not getting it from operating activities they'll have to sell more shares or issue corporate debt to fund operations. Eventually, the business will collapse under the weight of the debt, as operating activities aren't making enough money.

First what is operating cash flow (OCF)? In simple terms, it is the cash flow that comes from operating activities, i.e. the main business, minus the costs of running the business i.e. paying the suppliers. In my opinion, OCF is a more accurate measure of a company's profitable and subsequently its growth. A successful company will have a strong profitable business model that generates money.

For a manufacturer or any company for that matter, the first thing to check should be always be operating cash flows. IF it's negative, do a little more digging, and chances are you'll something fundamentally wrong. For example, customers are leaving. Remember, just looking at the net income won''t be enough, because it is possible to use sneaky accounting techniques to fudge the depreciation, interest expenses, and taxes to alter a company's net profit.

-The Hawk

Profiting from Supports and Resistances Part 2 (Breakouts)

So here's the second part, I'm pretty sure I alluded to this in one of my previous posts, but here it is again. When a stock busts through its resistance on higher than average volume, the former resistance becomes the new support. Vice versa. This is also known as a breakout.

In my experience it's best to wait for a confirmation, as I've been suckered more than once, thinking it's a real breakout, and it falls flat in my face. Please check my post on profiting from pullbacks. An option would be to fade in to your position, but I'll leave it for another posts.

-The Hawk

Breakout:  http://www.investopedia.com/terms/b/breakout.asp#axzz1Za23weZb