The 8 rules of dividend investing strategy is based on investment results and backed by research. It focuses on different perspectives of buying and selling mainly based on the principles of value investing. The strategy consists of 5 buying rules and 3 selling rules.
The 8 rules of dividend investing strategy combines the best of the investing worlds and should therefore provide above average investing results. The 8 rules of dividend investing strategy focus on dividend payments, quality, price, safety, growth, volatility, and diversification.
This means that the investment should have a positive track record of “stability, growth and profitability”. In Warren Buffets words “Moat”. The “Moat” should also cover the ability for the investment to perform during economic downturns A history of growth is beneficial since investments with a history of high growth is more likely to do so in the future.
From a dividend perspective you want to have an investment which pays you de most dividends, so you can re-invest them. However the investment should be able to continue their operations without cutting dividends, therefore the investments profits should be higher than their dividend payments.
You should sell an investment when the dividend is reduced, it’s a sign something is out of order and safety measure. As well you’re being cut on your payment, time to look elsewhere. Make sure you’re investments are diversified. “Buy the highest ranked stock of which you own the least of on the list” and last but not least sell a stock when it’s trading above what it’s worth.
The 8 rules of dividend investing strategy can be applied by following the steps below:
• Filter the list of investments for: Stocks with 25 or more years of dividend payments without a reduction.
• Rank the list of stocks based on:
- Their dividend yield.
- By their payout ratios
- By their long-term revenue growth
- By their long-term volatility.
• Buy the 10 stocks highest ranking stocks.
• Sell the stocks when the normalized P/E ratio is over 40 or when the dividend payment is reduced or eliminated and adjust your portfolio and diversify by buying the highest ranked stock of which you own the least.
The 8 rules of dividend investing strategy is a long term orientated dividend investing strategy based on the best of the investing world. It’s long term focus reduces market specific conditions and economic influences. The 8 rules of dividend investing strategy reduces risk trough it’s principles and applies money management rules and can be considered to be relatively simple in its application.