London, Dec 28 :
With dividend tax hikes looming, special dividends being announced, and
government security yields at all time lows, it's easy to forget the basics.
Specifically, how can you create a portfolio of dividend paying stocks that
separates Blue Chip yield from the value traps.
In this edition of
Investing 101, Barbara Marcin, portfolio manager of the four-star rated Gabelli
Dividend Growth Fund (GABBX) walks us through the basics of building a portfolio
of stocks that spins off some income to patient investors.
Tip #1: Be
Patient and "Layer" into Positions
Dividend stocks aren't about catching
every rally. The idea is to take the long-view and create a portfolio built to
last. Marcin suggests investors with a 3-year horizon slowly build positions
rather than dive in all at once. "Put in a third now, a third in three months,
and a third after that," she suggests in the attached video.
In a
volatile environment, having a set schedule like this keeps investors from
getting unnerved and making impulsive decisions.
Tip #2: Look at the
Company Then the Dividend
Marcin says investors should buy stocks of
companies they believe in first and foremost, with the yield coming second.
Paradoxically, stocks with high yields can be the least safe on the market. When
you see a name kicking off 5 or 6% while the rest of the blue chips are yielding
half that, it's a sign that institutional investors are skeptical of both the
company and its ability to pay the listed dividend.
If 2 or 3% seems low
to you, Marcin begs to differ. Dividends are "the highest current return
available compared to anything 'safe'... Treasuires, CDs, anything."
Tip
#3: Take a Balanced Approach
Marcin takes a straight forward approach to
accumulating positions in dividend stocks. Stick with quality names and relative
safety. "I would feel most comfortable with a whole portfolio of dividend paying
stocks paying between 3 and 4%."
Not too hot or too cold, but just right
for investors looking for relative safety with a little income thrown into the
mix.
Ends
SA/EN
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