We’ve all experienced investing in a single company’s stock and the day after we buy them, the price tanks! Not only have we experienced it ourselves, but we hear about it happening to new investors on a regular basis. If you experience this, from my own experience, I would say to just stop what you’re doing. Don’t sell in a panic move. Remember why you purchased the stock. Are you investing or gambling? Are you wanting to be a penny stock gambler or an investor?
If you’re attempting to build wealth for the long term, you are a long-term investor. You would set your portfolio (stock/fund holdings) in a way that it could weather the ups and downs of the markets. Buying single company stocks, need to be weighed out properly. Think about what the share price is on the market and find out what it value truly is. Personally, I only look at stocks that offer a dividend as well, as these are more stable companies.
Companies with a dividend, that never miss a dividend payment, you can pretty much bank on them not crashing and you should invest in them properly. Invest, not gamble remember. Don’t sell, just buy and hold. Let’s look at it in a different way. If the company has a dividend price of 0.06 every quarter and the share price is $10 per share and you have 1000 shares. When it pays a dividend of $0.06 and the stock price is $10, you will receive $60 or if you chose the option to reinvest (that’s what I do) that dividend payment will be moved towards an additional share(s) of the company. That would come out to 6 additional shares that on the next quarter you will receive dividends on 1006 shares. This compounds and compounds. Lets say for instance, the share price dropped to $5 a share, the company is still paying out at the same rate of $0.06 and your payment would still be $60 for a dividend payment, or if reinvested would come up to 12 new shares, giving you 1012 shares that you would receive dividends on the next quarter. Does this make sense to you?
A reduction in the price of a dividend paying company means when the next dividend payment comes, I’m getting more shares for the same money I would have gotten less on if the stock price was higher. It’s like a sale! Remember, your investing for the long term, not gambling. Take the above example and compound that for four quarters a year, times ten years, assuming no price changes- that would give me 12 new shares every quarter, or 48 shares a year, times 10 years. That equates to 480 new shares, all the time growing and growing.
The point is, don’t panic. If you’ve purchased a quality company that is paying our a dividend, chances are the stock price itself will recover, just enjoy the additional shares you’ll get come dividend payment time.
Some good quality stocks I think, that pay dividend are:
Pick strong companies. The above are just my choices. Also, note that dividend payments can increase and decrease depending upon the cash flow of the company, this is why I said to look at those companies with a track record for paying out and or increasing dividends such as the above notes stocks. You can research them out yourself here.
If you want to be more diversified, which I do believe in, and still get dividends as described above, think about investing in an index fund such as VFINX – S&P 500 Index Fund where you are much more diversified. If you remember our Couch Potato Investor mini article you will remember this is exactly the fund suggested. Our Lazy Portfolio.
As always, do your own research. I am sharing what I do and I am simply advising on my own experience. Complete your own due diligence. Research the companies you wish to invest in or better yet, buy a piece of them all with a good low-cost index fund.
I would like to hear your thoughts and ideas.