Welcome to the introduction of dividend investing. These are the objectives that we will be covering in this section. We will look into the ideal types of dividend stocks to add into your portfolio and what to avoid. We will touch on the different kinds of returns that you will get from investing in dividend companies as well as understand the dividend paying process and knowing what to do with the dividends you receive. Do note here that whenever I mentioned the word stocks, I also mean equities and companies. These terms are used interchangeably throughout the course.

Alright, so first up the type of dividend stocks and what to look for. buying and holding quality dividend stocks is a fantastic way for investors to juice their annual returns or to generate a predictable stream of extra income each quarter. But before I teach you how to screen for them, we need to know what they look like. You see, stocks can be grouped into various themes, they can be grouped under the size, business life cycle, and grow themes. For example, in the size theme, a company with less than $200 million market cap is classified to be a small cap stock. Similarly, a company with more than $500 million dollars is classified as a medium cap stock, and more than 1 billion is known to be a large cap stock.

They also can be classified under the business lifecycle fee. For example, companies with less than two years track record are grouped as startups companies with less than five years track record as young companies with more than five but less than 10 years of track record and established and companies with more than 10 years as mature. Likewise, companies can be grouped under the growth fee such as companies with volatile earnings including negative earnings or no earnings can be grouped under uncertain growth. Companies with stable earnings deemed as low growth and so forth. Now that you've got a sense of how people classify stocks in a general sense, when it comes to picking the right types of dividend stocks through dividend portfolio, these are the ones to avoid. Number one, all startups number two most young companies with ambitious growth number three, established and mature companies with uncertain growth.

And the ones you want to find and obtain are number four relatively young companies with proven growth. The word relative here means at least three to four years of good track record. Number five established and mature companies with stable growth. Number six established and mature companies with good growth. To elaborate further four point number one and two. Here I'm referring to young companies that promise a lot at the start, but have little to no track record on prove of their business profitability and continuity.

Their growth prospects or forecasts, and their outlook is usually overly optimistic. If such young companies offer attractive dividends at the start avoid them. This is because if a young company were to give out large dividends so early on just to entice investors, where else would they get the funds to grow and capture their market share, perhaps take on more debts? This should be a big red flag to note. The implication for these points is that whether the company is deemed young or relatively young, you shouldn't filter for dividend companies with at least five or more years with track records. For point number three, even though the company has a long track record, it doesn't automatically mean it would be a good dividend paying one.

This might be due to changes in its industry or the emergency of new competitors and alternatives which would adversely affect the company's earnings. If a company's core earnings are affected, this would translate into dividend cuts, lower yields and falling share price, not news you want to hear as a dividend investor. Some such companies that come to mind are those that reside in declining industries or bested by their competitors. The implication for this point, not only do you pay attention to the company's earnings by looking at the past years and see if there is a significant decline. You also have to consider the industry in which the company resides in when we go into the screening application later on. I will show you how this is done.

For Point number four. What I'm referring to are those companies that are deemed relatively young but have proven to have good growth track records. These type of companies do not pay high dividends at first, but when they mature, they tend to reward dividend investors through increase in dividends or special dividend. Unfortunately, it's quite difficult to use financial ratios to screen for these types of company. Many of these promising young companies might not even pay a single cent of dividend at the start, then later on turn out to be great additions to your dividend portfolio. qualitative analysis might be a way to find more of these types of companies and by qualitative analysis, I meant using subjective judgment based on non numerical information like management expertise, industry cycles and strength of research and development.

Company companies in point number five and six are established company With stable or good growth, for example, Amazon Johnson and Johnson and Bank of America in the US, capital land singtel and Capital Corporation in Singapore. They have long track records and most of the time Season Two dividend investors will end up finding and buying into these dividend companies because of their stable growth and strong free cash flows. But do note that since established dividend companies are fairly prominent, which means covered by many analysts and celebrated by many other investors, their yields tend to be low and rather disappointing for the more ambitious dividend investors. seldom do I find established companies with high growth potential unless that established company makes a huge acquisition or succeed in conquering a new industry. Even if you managed to find an established company with high growth potential, the price of that high growth would already be elevated in anticipation of that promise growth.

What I'm trying to say here is to set your expectations correctly. If you desire growing dividends go for companies that are either younger or slightly less established. If you are more concerned with capital preservation and dividend stability despite the lower yield go for mainly established companies with good earnings and cash flow. These companies can be found by using quantities measures, financial ratios and formulas to screen for them. Again, I will touch more on this in the application section of this course.