Stock Research

The markets appeared to like the early news from retail sales data out this morning, but stocks did pull back from earlier highs.

Some of the bigger movers in todays market included deal names as well as earnings plays. In the deal space, both shares of Comcast (CMCSA) and General Electric (GE) finished higher as we see the rare move where both buyer and seller are higher. Comcast announced they will be buying the remaining 49% stake in NBC Universal from General Electric they don’t already own. On top of that news, Comcast management announced it was raising the company’s dividend.

Elsewhere we had shares of tobacco play Lorillard (LO) move higher on their earnings beat and dividend raise. The news wasn’t as good for Cliffs Natural Resources (CLF), which announced an earnings miss as well as a big dividend cut. We have always been wary when it comes to commodity names and their dividend payouts. Back in late 2008, early 2009, we saw a slew of payout cuts hit the sector, bringing share prices down significantly. Finally, earnings results also had names like Deere & Co. (DE) and Dr. Pepper Snapple Group (DPS) lower, although DPS did announce a dividend hike.

When it comes to investing and financial success, people often let numbers (specifically price) influence their investments, whether it’s from a personal or business standpoint. Here are the most common errors that often lead to subpar results.

• “I only buy stocks that cost less than $20 per share”
  There is an overwhelming feeling of confidence for some reason when someone can own more shares of a cheaper, lower-quality stock, rather than owning less shares of a stock that has great ability to move consistently higher.
• “I only buy stocks that yield 7% or more”
  The rule any dividend investor should realize is that the higher the yield, the bigger the risk the stock may be an underperformer. There are some special cases where that doesn’t apply, but for the most part, stocks with high dividend yields are probably too risky for a conservative investment portfolio.
• “If I sell the stock now, I will get hit with higher capital gains taxes”
  This sentiment rang true back in the early 2000′s as traders would often watch big profits in tech names slip away. Why? Out of fear of paying capital gains. Most watched gains evaporate, eventually turning into years of taking losses against any capital gains they were still able to get from other stocks in their portfolio.
• “The market has gone up too much for me to buy, I’ll wait for a 10% correction”
  Now I’m the last guy to preach about anyone needing to chase the markets higher, but most healthy markets don’t factor on having huge swings up and down. A healthy market (which has been the case for the last few years) will rally, pull back some, and then proceed to move higher. What really happens with rules that investors claim they will abide by is that they don’t stick to them. The market may drop 10%, but then an investor could expand the zone to thinking the markets may even fall further. Then when it rallies, they sit there frozen. Anyone who has been consistently been putting money to work in quality dividend payers over the years has seen great results. While the markets can easily correct, the idea is to get away fro timing the markets and instead look to put money to work in the best ideas possible each and every month.
• “I don’t like buying stocks hitting new highs, they’ve already made their move”
  This one could be one of the biggest mistakes investors make, because this rationale will often lead them to diving in the so-called “value bin,” where price and not fundamentals is often the lure. Just from a technical standpoint, you are making the job of investing harder for yourself. As stocks that have been beaten up try and regain their mojo, there tends to be sellers waiting to exit on every uptick. This makes for a long road back for most stocks that get beat up badly. There are exceptions, but mostly these particular plays are not worth drawing lines in the sand about, whether or not the dividend yield may seem attractive. We all know it doesn’t take much for a company to reduce or even suspend dividend payouts.

The same mindsets will apply to other aspects as well. You may have some property buyers look at lower priced home bargains as no-brainer investment ideas, but when it comes time to sell or rent these particular properties, your pool of buyers/renters may not be as deep or as financially solid as you’d like. Business owners can sometimes be no different in substituting better quality for less of what they really should be using, all in the name of possibly getting a better deal from a supplier.

In the end, price can often get investors in a bind. Of course, there is the flipside of buying something that may be too pricey and not being able to see the return you were expecting for a while. One should never be blind to what a potential investment could cost, but if you remain married to only buying in the bargain bin, your long term results — or lack thereof — will illustrate this point very well.

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We want to make sure everyone understands that the stocks on our Best Dividend Stocks List are the names we currently like for new investor capital, regardless of what date the stock was first recommended on. If and when a stock is removed from the list, we will clearly state whether the stock should be sold (which is rare but occasionally will happen), or simply held in one’s account until we see a better entry point or catalyst.

And here’s one last thing to remember about what we do here at Dividend.com: it’s not just the names that we recommend that can help you build wealth, but also the things we try to steer you away from that are just as important. Forget about speculative or penny stocks, chasing unprofitable IPOs, and listening to the manic talking heads in the business media!

We now offer complete U.S. dividend data for all Dividend.com Premium members, so anyone that focuses on “Dividend Capture” trading strategies should have plenty of good stuff to research each day. Just check our enhanced Ex-Dividend Calendar, which is the best in the business, to search for upcoming payouts.

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Thanks for reading everybody. I’ll see you tomorrow!

Be sure to visit our complete recommended list of the Best Dividend Stocks, as well as a detailed explanation of our ratings system here.