financial goals for dividend investing strategies

Financial Goals of Dividend Investing

When you decide that you want to become an investor, one of the first things you must do is map out your goals.  Figuring out what goals you want to achieve with your investments will help you determine what type of investing you should do and what strategy you may want to use.

Your Goals are your Investing Guide Map

Your goal in investing is going to be your mission statement.  The goals you set will help be a guideline for your investment decisions that you make in the future.  When setting your goals, make sure not to be vague.  Most people that are investing are obviously out to make money.  The question is why are you trying to make money through investing.  Maybe you want to invest in order to gain a higher return on your money so that you may be able to afford something in the future.  Possibly you are investing so that you can build up a passive income from rents, interest and dividends to spend now or/and in the future.  Whatever you decide, be sure to write out a clear goal statement and focus on it frequently as you advance through your investing career.  Modify your goal if and when things change.  Remember that it is OK if what was once your goal has now changed and you find yourself trying to achieve something different.  Just make sure to formulate your investing plan with your goals in mind.

Dividend Growth Stock Investing Goals

There are a few different goals you may be interested in pursuing where a dividend growth stock investing strategy is a suitable approach.

Building a passive income from dividends for current needs

Rather then spend all your money from your paycheck, you may be interested in investing some money each month in dividend paying stocks.  This will allow you to build up an investment portfolio over time and provide some supplemental income if you decide to take the dividends in cash to spend as the companies pay out.

Building a passive income from dividends for future needs

You may decide that you don’t need more of a current income to meet your current needs and wants.  However, you don’t plan on working forever and someday that paycheck will quit coming in if you quit working.  Building a portfolio of dividend growth stocks is a good way to build an income for the future.  You can grow your portfolio quicker by reinvesting your current dividends and eventually the annual dividend income may be enough to cover your living expenses.  At this time you can afford to not have to work for a paycheck and just live off of your dividend income.  This is a good strategy for retirement.

Preserve investment capital

When you are looking for a safe investment to keep your money safe most people will thing of bonds.  While bonds will help keep your principal safe, they don’t offer much in the way of investment returns.  Another option if you are willing to take on a little more risk is dividend paying stocks.  Stocks are definitely a riskier asset class then bonds.  However, dividend paying stocks have typically been less volatile compared to other stocks.  Dividend paying stocks offer a decent income component and if you select your investments wisely will give you better preservation of your capital then non dividend paying stocks.  Compared to bonds, dividend paying stocks may be a little more risky in that you can lose some or all of your investment.  However they also typically offer greater returns then you would receive by investing in bonds.

Good returns

Financial Risk Tolerance vs. Emotional Risk Tolerance

There have been studies that have shown that dividend paying stocks tend to outperform over time non dividend paying stocks.  Also companies that annually increase their dividend payments tend to outperform companies that do not increase their dividend payments.  So over the long run, we can hope that we will be getting the best return in the market from our dividend paying stocks of solid well known companies.  You will probably be less likely to lose your money and earn a decent return from a Coca Cola type company compared to a company that you have never heard of and don’t understand how they make money.  Dividend growth investors pick solid stable companies that have a history of increasing earnings and paying out increasing dividends.  These companies perform well over the long run.

My Dividend Growth Stock Investing Goals

Personally, I am investing in dividend growth stocks for all the reasons I’ve listed above.  I believe that dividend growth stocks will over time give me a great return with less risk to my investing portfolio.  I understand that dividend growth stocks will pay me out an income this year that I can use for expenses if needed.  My main goal when investing in dividend growth stocks is to build up a portfolio that will provide me with a sizable income later in life.  I am 30 years old and have at least another 30 years of working for a paycheck.  However, I’d like to build up a portfolio of dividend stocks that eventually will pay me enough income that I can retire if I want.  I will be able to use the income from my portfolio to pay my expenses without ever having to sell any of my stock assets and decrease my portfolio.

So for my goal I have a long journey ahead of me.  Short term I measure my success by tracking my dividend income on a monthly and annual basis.  I expect to see these income numbers rising as time passes and if this is happening I will know I am on the right track towards achieving my investing goals.

In Conclusion

Before you get started investing, make sure to take a moment and think about what you are really trying to achieve.  Figure out your goals and use them as a guide map for your investing decisions in the future.

Companies To Invest In – 3 Principles To Follow

Investing means giving up some of your money now with the expectation of getting even more money in return in the future.  Did you catch that?  Money.  Investing is about money. The bottom line when it comes to investing in stock (or anything else for that matter) is that you want a company that can profitably convert its goods and/or services into cash, lots and lots of cash.  Well, isn’t that incredibly obvious?  You would think so, but when it comes to identifying companies to invest in, it can be oh so easy to take your eye off the ball.  Following are 3 principles that can help you to avoid getting distracted and maintain an investment-oriented focus for deciding which companies to invest in.

3 Principles For Finding Companies To Invest In

Principle #1 – Don’t Confuse Investing With Donating to a Cause

When considering investing in a company’s stock it’s vitally important to distinguish between evaluating the company vs. considering the companies valuation.  To evaluate a company means to consider its overall suitability as an investment and to otherwise determine whether you’re comfortable with it.  In other words, I don’t ever recommend investing in a company if you have a problem with the kind of business they’re in, or the goods and services they produce.  For example, if you think smoking is bad for society then by all means don’t invest in a cigarette company, no matter how well you might think the stock will perform.  Having said that, once you’ve evaluated a company and determined that you don’t have any ethical or moral problems with its business, it’s then time to consider the valuation of the company, or how much it’s stock is actually worth in dollars.

“Find Companies To Invest In That You Don’t Have Any Ethical or Moral Problems With It’s Business”

This is an important concept, because people sometimes confuse investing with donating to a worthwhile cause.  For example, if a company is pursuing green initiatives such as clean energy, there are certain people who will almost blindly pour money into it.  Is that a wise or unwise use of money?  It depends.  If your intention is to “invest” in a clean energy company without a thorough analysis of its business prospects then you’re acting unwisely because remember, when investing, the question you’re asking is not whether a company can save the world, but whether they can bring their products to market and generate a pile of cash in the process.  On the other hand, funding a clean energy company can be a good use of your money even though it may be years away from producing a commercially viable prototype if your primary intention is to help the environment and profit is an afterthought (or not a consideration at all).

In summary, when looking for companies to invest in I think we would all like to invest in companies that both benefit society and would make us a lot of money in the process, but the reality is that such investment opportunities are few and far between.  In other words, most companies aren’t out there saving the world, but they’re not destroying it either.  Instead, they’re usually somewhere in between, trying to make as much money as they reasonably can by selling their products and services within the confines of the law and their business practices.  For that reason, my recommendation is that if you intend to use your money to donate to a cause that will help society then by all means do so, but temper your expectations of getting anything (or even nothing) in return.  On the other hand, if your intention is to invest in a company’s stock with the expectation of a solid financial return, make sure to keep your focus on the profit generating aspects of the company.

Principle #2 – Investing is About More Than Products, Services and Technology

Again, investing is about making money; it’s not about products, services, or technological advances in and of themselves, no matter how groundbreaking, novel, beneficial or noteworthy they may be.[1]  To illustrate, I was once doing onsite professional work at a company.  During one visit I noticed that an employee had a yellow sticky affixed to their computer on which they had written the most popular, trendy dot.com companies of the day – companies whose stock had skyrocketed even though they had no proven profit-making business models.  We talked for a minute and I said, “I noticed you’re a big fan of dot.com companies.”  The person said yes, and that they were an enthusiastic investor in them, to which I said, “Aren’t you concerned about the high valuations of these companies, even though they’re not making money?”  To that the person said, “It’s not about valuation, it’s about revolution.”  Upon hearing that my immediate thought was, “SELL!  Everybody sell your dot.com stocks now!”

Why my reaction?  Because it became clear to me that the whole dot.com-induced investment mentality had become so enamored with the life-changing technologies bringing on the Information Age that it had become unhinged from financial reality.  But like any other law, financial reality cannot be defied forever, and not that long afterwards the vast majority of the dot.com’s burned through the remainder of their cash and crashed in spectacular fashion, leaving only those companies that had focused on realistic, workable, and sustainable profit-generating activities (Amazon and eBay, for example).  The lesson?  Remember that investing is not-about the products, technology, or services of a company, but whether a company can covert its products, services, or technology into more money (profit) than it costs to generate those products, services or technology!

Principle #3 – Don’t Buy into the Hype (or sell due to a lack of it)

Companies To Invest In BubbleWhen deciding which companies to invest in you may begin to notice that companies can be hip one day with a high-flying stock price and fall out of favor the next leaving their stock in the tank.  Does that make sense?  Does the financial outlook of companies really rise and fall so quickly?  While it is possible, in the short-term a company’s stock (and the market itself) can frequently be driven by a herd mentality.  Warren Buffet has a great quote that summarizes this concept: “In the short run, the market’s a voting machine, and sometimes people vote very non-intelligently.  In the long run, it’s a weighing machine, and the weight of business and how it does is what affects values over time.”

In other words, over the long haul investing isn’t a popularity contest.  No, in the end investing is about substance (or “weight”), or how much profit a company can churn out over time.  So don’t get caught up in the hype and buy into a company just because it’s the latest market darling (you’ll likely buy too high), and don’t abandon ship just because a company is getting beat up in the media for making an understandable mistake (you’ll likely sell too low).  Instead, step back, get some perspective, consider the big picture, and base your investment decisions on a company’s medium and long-term profit potential.

Summary of Companies to Invest In

When you boil it all down, all well-run companies have at least one thing in common: they’re trying convert their goods, services, and/or technology into as much cash profit as they can in accordance with the law and their overall business principles.  In other words, at their core, companies (or any other kind of investment) are capitalistic, profit-centered money-making machines.  If you don’t remember that then I don’t think you can ever properly judge the actual monetary value of a company’s stock.  So, to maintain that investor-oriented focus, keep the following 3 things in mind:

  1. While reviewing companies to invest in don’t invest in companies that you have moral or ethical problems with, but don’t confuse investing (making money) with donating to a cause (benefiting society).
  2. Investing is about more than products, services or technology; it’s about efficiently converting products, services and technology into cash.
  3. Investing isn’t a popularity contest; it’s about substance in the form of profits.

[1] Also, don’t automatically dismiss as an investment opportunity what may on the surface appear to be mundane or “boring” company.  Fortunes have been made in the garbage collection business, and Gillette has made billions by cranking out massive quantities of sharp little strips of steel called razor blades!

What Do Investment Bankers Do

What Do Investment Bankers Do?

So, what do investment bankers do exactly?  The simplest explanation is that investment bankers are the world’s deal makers, usually acting as a type of broker. Basically, they match projects with money. Investment Bankers find projects, analyze them, cherry-pick the best, then structure them as investments and, lastly, find the investors (or in the case of an in-house investment banker present the project to the firm’s investment committee.) Most investment bankers will review over one hundred projects per year and eventually reject 99% of them. It’s a really difficult job. A great investment banker is literally worth more than his or her weight in gold. There are few great investment bankers… and even fewer after the 2008 financial crisis.

My Background In Investment Banking

To better understand what do investment bankers do I’m going to provide my background.  I have been an investment banker for the past thirty-eight years. I started at the ripe old age of eighteen with the purchase and syndication of two apartment buildings in Northern California, then went on to start one of the first video store chains in the United States. On my first group of syndications, I tripled my investors’ money within three years. Honestly, it was luck and timing.

Somewhere along the line, I developed a reputation and I managed to pick up hundreds of clients that I helped raise money for and manage their investor relations. Some of those clients you

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might recognize: IBM, AT&T, Chevron, ADP, FMC, Motorola, Lockheed Martin, Intel, State Farm, Allstate, and 19 other Fortune 500 companies. I have personally syndicated over 100 investments in my career and helped raise billions of dollars in equity for my clients.

I also worked in the entertainment industry writing, directing and executive producing motion pictures. There are 7 motion pictures based on my screenplays, two of which I also directed. I personally invested in or helped finance over 100 independent movies and I founded several successful media services companies in Southern California. Those are my credentials.

I have had my ups and downs–2008 was particularly tough–but I have survived and even prospered. Over the years, I have learned a few secrets about investing that I would like to share with you. If you are not already wealthy, I hope this information makes you become wealthy… like REALLY WEALTHY!

And if you are lucky enough to already be in the top 1%, then I hope this information helps you stay there and sleep better at night knowing your nest egg is safe.

They Usually Specialize

Investment bankers usually specialize in industry sectors such as energy, real estate, technology, consumer goods, minerals, communications, transportation, media, etc. They also specialize in the types of deals that they put together. Some work in mergers and acquisitions (M&A), while other develop IPOs. Many work in equity placement or financing. Some investment bankers specialize in financing startups and growing companies, while others only handle mature companies. Still others stay away from corporate finance and instead specialize in project financing (my personal favorite) like commercial real estate development or acquisition financing.

Their Education

To answer What do investment bankers do?  We need to understand more about their education. Most investment bankers start off graduating from a prestigious university, then working for a number of years at one of the big investment banks; Goldman Sachs, , Morgan Stanley, JP Morgan, Deutsche Bank, Credit Suisse, etc. Once they gain their confidence and develop their contacts many leave to launch their own firms and develop their own projects. Some end up running investment funds, while others remain independent putting deals together for sponsors in need of capital.

Those Rolodexes

Investment bankers keep massive Rolodexes or databases of investor contacts. My personal database has over 8,000 investor contacts all of which have over $100 million in assets. Investment bankers are similar to sports or entertainment agent in that their power comes from who they know and who will take their call on short notice.

Keen Eyes

An investment banker must always understand current capital market conditions, so they know which projects will get funded and which are a waste of time. They must have a keen eye and are always on the lookout for quality projects and sponsors. An investment banker must know how to structure an investment deal so that it is marketable to investors, while still leaving enough meat on the bone to incentivize the performance of the investment sponsor.

Now you should be able to answer what do investment bankers do!  Most successful investments over $10 million have an investment banker behind them. The new arena for investment bankers is crowdfunding. It is the ultimate free market system for raising capital and very well could change the way American business are financed. But more about that in posts to follow….