Trading high dividend stocks: 3 things to keep in mind
Crucial factors for your success
Nobody can foresee a share‘s performance, not even Warren Buffet or André Kostolany. But what you can do to increase your chances of success on the stock market is to observe and understand the development of a market. This way you‘ll find out which market is interesting and when it's worth getting started. Learn all about the three factors crucial for your success with stocks!
An investment in the future
An investment in shares is an investment in the future, but not only in your own. Because in buying shares, you obviously trust in and hope for better times. As a result, the development on the stock market anticipates reality by six to twelve months. Of course, this has to be confirmed by real facts for the price to remain stable and your investment being a success.
The importance of the economy
Major hopes rest on the economic climate. The economic climate provides information about the economic situation and reflects the upswing or downswing of a country. If things are going well for the economy, they go well on the stock market. However, if the economy is doing too well, a collapse is looming, thus threatening stock prices. On the other hand, some ups and downs are quite natural. After each high performance phase there is often a short-term but pronounced price slump. As a rule, things go even better after such a slump, like after the financial crisis of 2008.
The Gross Domestic Product (GDP)
When it comes to the economic development of a country, what usually comes to mind is the gross domestic product, or GDP for short. But on the stock market nobody really cares about the GDP – since it refers to the past, not to the future.
Much more interesting are certain leading indicators. How do I know if a market economy will continue to develop well during next year so that I can invest with reassurance, and sleep soundly at night?
Worldwide, so-called mood surveys are conducted regularly at companies and consumers alike. That is, company managers are asked if they have a positive or negative outlook into the future. This is a good indication as they have their own situation as well as those of their competitors, suppliers and customers in mind.
Consumers of course need to consume, so they buy. And if they do not do that because they are worried about their job, if their partner has been terminated, or if their salary has not been increased for ages, that‘s bad for the economy as a whole.
An important factor are incoming orders. Rising order numbers historically indicate rising stock market prices. Because what is ordered today must be produced by tomorrow at the latest. This applies especially to long-lived goods, such as wind turbines or cargo ships. For some orders the production may take years to complete!
The unemployment rate
The unemployment rate is actually a laggard among economic indicators, because the number of newly created jobs increases only after an upswing has already gathered pace, and the number of unemployed decreases. The companies have received their orders and now they need enough staff to build the ordered wind turbines or cargo ships.
Currently we have an incredibly low unemployment rate, with the number of unemployed still in decline. As the number of unemployed continues to decline, many stockbrokers fear that companies' capacities are exhausted, meaning ultimately that they cannot accept more orders. With the first interest rate hikes at least there are the first skeptical remarks on the expected further course of the stock market.
If you receive a higher salary, you spend more money. If you have a new and better paid job, you spend more money. Money that you could save and invest in stocks. But actually it's a good thing if at least part of the population lives like this, since consumption improves the profitability of companies and stock prices continue to rise.
Especially during the run up to Christmas one comes across the impression – both on television and in the newspapers – that people spend more readily than the year before.
If the economy is doing well, the unemployment rate continues to fall and share prices continue to rise due to consumer behavior, high-dividend stocks offer a profitable additional return opportunity.
The best way to build a dividend portfolio is to start small. Above all else, diversity is an essential factor in investment, and that goes for dividend stocks as well. Thus, the easiest way to achieve a certain variety is to invest in funds, especially if you do not have a lot of money.
First, find out how much you can invest in your dividend portfolio every month. Then look for a fund that regularly pays out dividends, and invest your capital there. Some online brokers offer you so-called savings plans or other tools to help you come up with a plan to invest in dividend funds.
Personalized selection of individual shares
When investing in individual stocks, diversification is one of the most important aspects, because investing in individual securities carries enormous risks. This means one has to analyze precisely and in advance which stock of which company really suits the individual requirements.
Here, stock screeners can provide valuable assistance. Anyone looking for profitable individual titles can search for these criteria using a stock screener, with a search input like "show all stocks offering a minimum dividend yield of 5%".
Further key figures such as return on sales, company size and earnings per share can be used to make targeted investments.
All things considered this is a form of investment where prudent, well-informed users stand to make reasonable profits, as long as they keep in mind the above mentioned factors.
The role of Trade Ideas Pro
Scanning the market for high dividend stocks can be time consuming, Trade Ideas is one of the stock screeners available, that can help you with that task. As an alternative, you can use tools like Yahoo Finance and Google Finance. In case you decide to go with Trade Ideas Pro, the exclusive Trade Ideas Promo Code might be interesting for you.