Dividends: Awesomate your Portfolio for Stronger Profits and Safety

Blending Dividends with value can fatten your profits. Nothing new there. But how can they strengthen your safety? iDd offers some quick answers.

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Transcript

Hey everyone, and welcome back.
You know how we're always on the hunt
for those investment strategies
that could help boost your returns,
but you know, without keeping you up at night.
Yeah.
Well, today we're diving into a really interesting combo,
value stocks and dividends.
Oh yeah, powerful combination, potentially.
Yeah, and you know, this deep dive is gonna unpack
how these two could potentially work together
to hopefully bring you some,
well, safer and stronger returns.
Absolutely.
All right, so let's break this down a bit.
When we talk about value stocks,
what exactly are we talking about?
So value stocks, it's kind of like,
think of it like going shopping, right?
You're looking for those brand name items,
you know, the good stuff,
but maybe they're on the clearance rack.
I like where you're going with this.
Yeah, you're not going for the flashy overpriced stuff.
You want the hidden gems,
the ones that are maybe overlooked
or underestimated by the market.
Okay, so these are companies
that are actually financially sound, they're doing well,
but their stock price, for whatever reason,
doesn't quite reflect their true worth.
Right, you hit the nail on the head
and that's where the opportunity lies
because if you can identify those companies
and you buy their stock when it's undervalued,
well, you're essentially setting yourself up
for potentially greater returns down the line.
Okay, so that's the value part.
What about the dividends part?
Right, so think of dividends as it's like a bonus, right?
These companies, they share a portion of their profits
with you, the shareholder.
So just for owning a piece of that company,
they're sending you a little thank you payment.
Like a little bonus, just for being a loyal customer.
Exactly, and the best part is those dividend payments,
they keep coming in even if the stock price goes up and down
because the market, it has its ups and downs.
Right, the market can be a bit of a rollercoaster sometimes,
but our source material mentions that dividends
can actually act as a buffer during those market downturns.
How does that work?
Yeah, so you see, when a company's stock price drops,
it might seem a little scary at first,
but if that company has a good history
of paying out consistent dividends,
what happens is the dividend yield
actually becomes more attractive.
Can you explain what you mean by dividend yield
just to make sure everyone's on the same page?
Yeah, absolutely.
So dividend yield, it's basically the percentage return
you're getting on your investment
from those dividend payments.
So let's say, for example, you have a company like Coca-Cola.
A classic example.
So let's say their stock price, for whatever reason,
dips from, say, $70 a share down to $60 a share.
So that could seem a little concerning if you just
look at the stock price alone.
But here's the thing, because Coca-Cola, they
have this long history of paying out consistent dividends.
That dividend yield, it actually becomes more attractive
because you're getting more, essentially,
you're getting more bang for your buck
with that dividend payment relative to the lower stock
price.
So even though the stock price might be down temporarily,
you're still potentially getting a good return
on your investment through those dividend payouts.
Exactly.
I'm starting to see the appeal here.
But it gets even better.
Our source material also suggests
that dividends can actually amplify your gains
when the market is doing well.
Right, right.
Tell me more about how that works, because that sounds
almost too good to be true.
So let's go back to our Coca-Cola example.
Let's say the stock price rebounds back from $60 a share
up to, let's say, $75 a share.
Nice.
So not only have you potentially gained from that price
appreciation.
Right, you're selling it for more than you bought it for.
Exactly.
But you've also been collecting those steady dividend payments
all along the way.
So it was like a double win potential growth
from the stock price A&D, those ongoing dividend payments.
That's really interesting.
Yeah.
And this isn't about some get rich quick seam, right?
This is about looking at the long term,
thinking about building wealth gradually and steadily
over time.
That's a really good point.
It's about playing the long game.
But I imagine there are some things investors
should watch out for, right?
Yeah.
You can't all be sunshine and roses.
Absolutely.
You've got to be careful.
It's like anything else, you don't just jump in blindly.
You've got to do your research.
Due diligence.
We always talk about that.
Exactly.
And that's what's stressed in the source material too, right?
It's not all dividends are created equal.
You know what I mean?
Right.
So what are some red flags that investors should look out
for when they're evaluating a company's dividend history?
So one of the biggest things is if a company comes out
of nowhere and they're suddenly offering a crazy high dividend.
Like suspiciously high.
Yeah.
Too good to be true, that can be a red flag.
Sometimes those companies, they might be trying to lure in investors
because maybe their financials aren't actually that strong.
It's like they're trying to distract you from other problems.
Yeah, exactly.
So always, always do your homework.
Yeah, so true.
Make sure the company has a solid track record.
Look at their history of profitability.
Look at how they've weathered past economic storms.
It's really about looking beyond that dividend
and making sure the company itself is in good shape.
Exactly, yeah.
So as we wrap up our deep dive today,
I want our listeners to walk away with this key takeaway value
investing paired with dividends.
It can be a really potentially powerful combination
for building long-term growth.
Absolutely.
But you've got to do your homework.
Due diligence is absolutely essential.
So I'm going to leave you all with a question
to ponder as you continue your investment journey.
What industries or even specific companies
can you think of that are known for both being a good value,
and having a rock solid history of paying out
consistent dividends?
Think about it and let us know what you come up with.
We'll see you in our next deep dive.
See you next time.