Back at the end of November, I was contacted by Motley Fool to do an interview to coincide with the free e-book that I released about the 10 Best Dividend Paying Stocks in the Dow Jones. (Which has now been downloaded nearly 5,000 times – Awesome!)
I was super super excited and spent the night prepping for the interview questions so that I knew what I was going to say.
But unfortunately the interview didn’t eventuate. Sad face. 🙁
But never mind – there is no reason why all my preparation has to go to waste, I’ll just write up all my answers here for all of you.
So here are the questions I was going to get asked and the rough answers I was going to provide.
The Motley Fool Interview Questions That I Would Have Answered …
1. Why should investors consider dividend stocks?
There are a few reasons why I like dividend stocks.
The main reason obviously is that it allows you to get a nice cheque every quarter or every six months depending on how often they pay out. And if they pay a good yield it can actually sometimes be a good choice for people to buy dividend stocks instead of putting their money in a regular savings account.
I’m not saying to forgo the savings account, because obviously shares have risks, but if you are comparing 2% on a savings account to 5% or 6% dividend yield and you want to invest for the income (which more people are starting to do right now) then it’s something to consider.
I also like div stocks because once a company starts paying out those dividends they very rarely stop doing so, so as long as you hold stock in that company you are going to receive income no matter what the market is doing. I like that stability. And historically dividend stocks actually do much better overall than many other stocks making them a better choice in volatile times like now.
2. What’s the biggest misconception about dividend stocks?
I think that the biggest misconception is that you have to invest either for the dividend income OR the capital growth and that if you invest in dividend stocks that the stock price doesn’t move.
That’s actually not true and stocks that pay dividends can rise and fall just as much as those that don’t.
In fact it’s often the case in a falling market that dividend payments can actually increase. You can see that in examples like Verizon who has a good dividend yield of over 5% and the stock price has increased by over 10% over the past twelve months as well. It makes it a win win for investors if they can choose stocks that pay both dividend income and the stock price increases as well.
It doesn’t have to be either/or.
3. When evaluating a dividend stock, what should investors consider?
I’m quite a conservative investor so I actually look for good fundamentals of the company first before I even consider the dividend yield.
The main things I look for are is a healthy return on equity, positive earnings growth and low debt. If they satisfy those criteria then I’ll have a look at their dividend yield. If it’s over 3% then great and if it’s over 5% then I do a happy dance because I’ve found a winner.
Generally I only look at those stocks within the Dow or sometimes I’ll look at the S&P500 as well, but most of the time I stick with the Dow stocks – that’s probably also because I’m in Australia and can invest much more easily in those stocks than I can others outside these indexes.
4. What are 3-4 dividend stocks that you think are attractive?
My top favourite right now is Verizon (VZ) because it’s got strong fundamentals as well as an excellent dividend yield. I also like Intel (INTC) & Chevron (CVX).
In Australia I like Commonwealth Bank (CBA) which has a dividend yield of 6.9% and really strong fundamentals.
5. What’s 1 dividend stock that you would avoid? Why?
If you are buying JUST on dividend yield you are making a big mistake because the idea of investing for income is that you hopefully want to keep the capital intact. So
So a stock like Resource Capital Group (RSO) has a 17.5% dividend yield which sounds fantastic BUT it’s currently down over 22% – so that high dividend isn’t going to help you at all.
6. Should Apple pay a dividend?
Apple (AAPL) is a strong company making excellent earnings so they could actually afford to pay dividends to investors quite easily but I actually DON’T think they should.
And here’s why.
They’ve got something like, what is it, $70 billion in cash? Their management team has been excellent at growing the company with that cash and that’s what’s resulted in their phenomenal earnings growth and awesome stock price increases. If the company is doing that great a job then I want them to keep all of the cash and just keep doing what they are doing.
Paying a dividend isn’t a right and while I like investing for the dividend income, if the has a strong smart management team that are really great at growing the company then I say let them keep the cash.
Let them do what they do best. Let me take advantage of the stock price.
7. What’s one Australians stock that should be on investors’ radar?
If you haven’t already invested in these stocks then Commonwealth Bank (CBA) and Woolworths (WOW) are both great stocks with strong fundamentals that I like.
CBA is particular one to hold since it pays a really strong dividend – 6.9% yield and it has strong fundamentals including Return on Equity of 18.5%, high stability (consistent earnings) and it’s one of the few Australian stocks that has increased in price over the past twelve months (trust me – not many have).
Hope you enjoyed my answers and a happy and prosperous 2012 to all my readers!
P.S. Working on a new book on the best stocks for 2012 – just doing my research on the S&P500 now. Stay Tuned.