Build a growing passive income stream
In today’s episode, we will speak to my friend Kanwal Sarai from Simply Investing.
Kanwal has been an active dividend stock investor over the past 21 years and his strategy, or should I say his 12 rules, helped him to retire from his day job.
The approach he takes is very sensible, there are no shortcuts or “investing secrets”. Kanwal, who is very skilled at making things simple, will explain his 12 rules in a very comprehensive manner and will also help us understand some misconceptions on dividends in general. He really makes learning about a complex topic very enjoyable and simple.
…or listen on Apple Podcasts
This episode is for you if you are looking for a simple way to understand how to invest in the wonderful world dividend stocks (and at the same grow a passive income stream!).
- Learn from good role models and do not try to reinvent the wheel. Look at investors with success over the long-run. Philosophy: Invest for yourself by yourself and invest long-term. There are no “investing secrets”
- Dividend value investing: Looking for Quality Dividend-paying companies that are also undervalued. The priority is to generate growing income, not to focus on the stock price. Here are the 12 rules:
- 1. Do you understand the product or service offered by the company?
- 2. Will people still be using this product or service in 20 years?
- 3. Does the company have a low-cost durable (lasting) competitive advantage?
- 4. Is the company recession-proof?
- 5. Has the company had consistent earnings growth? The EPS growth must be at least 8%
- 6. Has the company had consistent dividend growth? The dividend growth must be at least 8%
- 7. Does the company have a low payout ratio? The payout ratio must be 75% or less.
- 8. Does the company have low debt? The debt must be 70% or less.
- 9. Does the company have a good credit rating? The company must have a minimum S&P Credit Rating of “BBB+”.
- 10. Does the company actively buy back its shares?
- 11. Is the stock undervalued?
a. The P/E Ratio must be 25 or below.
b. Is the current dividend yield higher than the average dividend yield?
c. The P/B Ratio should be 3 or less.
- 12. Keep your emotions out of investing. (probably the hardest one)
- It makes sense to invest for the long term, if you invest in a company with a growing dividend, the dividend yield will go up over time.
- The dividend is not paid from the stock price, it is paid from the actual company earnings, regardless of the current stock price.
- Dividend investing is a long road: it will start with very little dividends at first but keep feeding your portfolio and you will see that passive income grow beautifully!
Who is Kanwal?
- Website: Simply Investing
- Twitter: @kanwal_sarai
- Youtube: Simply Investing
- Course: The Simply Investing Course (No time for the course? Check out The Simply Investing Report instead)
- Book recommendation: Rich Dad Poor Dad
- Best purchase under 100 dollars: The Five Minute Journal
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