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  • First, before anything else,

  • well done to you if you're watching this video.

  • That tells me you have an interest in dividend investing

  • and in dividend stock strategy which is great.

  • It is a fantastic strategy.

  • I personally use it.

  • And if you're watching this, like I said,

  • that tells me that not only are you looking

  • to maybe get into it

  • but you're also concerned about well,

  • I saw you need to avoid some things

  • so I want to be smart about dividend investing

  • so what do I need to avoid?

  • And that's what I want to talk about here

  • is again, yes there is certainly something

  • that on the surface it makes you think

  • especially when you're new, oh wow, wow really?

  • Awesome.

  • But when you peel back the layers,

  • which is what I want to do here,

  • it's not a good situation

  • and it certainly needs to be avoided

  • if you're gonna doing a dividend investing strategy

  • to grow your wealth

  • and invest in the stock market.

  • And it all has to do with dividend yield.

  • Depending on where you are in your journey,

  • maybe you have seen some dividend yield

  • and you're thinking, "Whoa, that's gonna pay me

  • "that amount of a dividend?

  • "I'm gonna make 10-15% return?

  • "Wow, I'm getting that stock,

  • "that's a high yielding dividend."

  • And that's a term that gets thrown out.

  • Hey, high yielding dividends, high yielding dividends.

  • And I see lots of videos out there

  • and sometimes it's like, please don't be talking about...

  • That's not where you should be directing people to

  • because those are high dividends for a reason

  • and as I'm gonna show here,

  • the reason is not good.

  • So, why does this need to be avoided?

  • Well, because these are very risky companies.

  • These are companies that

  • it's not like they're sitting there,

  • "Yeah, we're so good, so we're gonna pay you 15%."

  • That's not how they arrive at a high yield.

  • The way they arrive is well, basically becoming

  • worse and worse as a company.

  • And the best way to explain this

  • is just to show you through the math

  • of how it all works out.

  • So the equation for the dividend yield

  • is dividend per share over the stock price.

  • I should note that I you have no idea

  • what a dividend even is, I'll put a link down below

  • to a video where I talk about just what is a dividend.

  • But, I am assuming that you know, at least,

  • the general principal of how a dividend works.

  • But that is the equation there for yield.

  • So, just for an example's sake,

  • let's say there's a company out there

  • and they are doing $3.00 per share.

  • So, every share you own in that company

  • you're gonna get $3.00.

  • And let's just say that the stock price

  • is currently $100.

  • So, over here, we're gonna track the stock price here.

  • And stock price $100.

  • So, at $100, what is that giving?

  • Well, not to insult your intelligence

  • but three divided by 100 is gonna be .03

  • and then, of course, remember back to elementary,

  • bottom multiplied by 100 to turn into a percentage.

  • So, 3% is what the yield is gonna be at that point in time.

  • 3%, yeah, I mean a good solid dividend.

  • But time goes on and I don't know why,

  • but business happens, life happens, the market shifts.

  • You know, whatever is going on

  • and all of a sudden, this thing is down...

  • Maybe I'll just stick with green

  • or I'll stand here all day picking up different markers.

  • But this thing is down here at $80.

  • So, now all of a sudden, what's going on?

  • Well, if this number now becomes $80,

  • what does that math do?

  • Now, I have a cheat sheet up there

  • because I'm not that good with math

  • but at that point in time,

  • the yield would now be 3.75%.

  • So, from a yield perspective, that's great.

  • They're paying even more.

  • True, but how did they get to paying more?

  • Well, their stock price went down.

  • Let's keep going.

  • So, again, life, business happens all that.

  • And now, all of a sudden,

  • their stock price is at $50.

  • So over here we need to get things updated

  • and well, their stock price is no longer at $80,

  • it's at $50.

  • So, let's do the math on that

  • and I gotta cheat, look up there.

  • Now, all of a sudden, we're at a 6% dividend deal.

  • Wow, 6%?

  • Man, this company must be doing great,

  • they're paying 6% dividend?

  • Wait a second, do you get where I'm...

  • Well, how did it get to 6%?

  • Well, the stock price just dropped even more.

  • Let's do this a couple of more times.

  • I'm gonna cheat ahead

  • because we're doing this two more times.

  • So, we'll do there and here.

  • So, the next pit stop for the price is now at $25.

  • So, again, well, we gotta redo the math.

  • This is now at $25.

  • So you do the math on that and now, all of a sudden,

  • we're sitting at 12%.

  • 12% dividend!

  • And if you do a search of high yields

  • you will see stocks out there that are at 10% and above.

  • And wow, I get it, it's almost like a tractor beam

  • you want to just walk into it and grab it

  • but remember, avoid it.

  • Why do you need to avoid it?

  • Again, how did the deal get that high?

  • Well, because the price keeps dropping of the shares.

  • Why do share prices drop?

  • Something's wrong with the company.

  • What is wrong with the company?

  • I mean, there's a lot of different reasons

  • and theories out for that.

  • But the point here being,

  • if yields are going up because stock prices are going down,

  • not good.

  • And then finally, just to finish this off

  • but, I probably hammered this home good enough.

  • But we'll just finish it off.

  • You have the stock price now at $15.

  • So you do the math on that and that equates to 20%.

  • Whoa 20%!

  • Yeah, well, remember when the share price used to be at $100

  • and now it's all the way down to $15?

  • Not good.

  • So, again, just to kind of map out the general rule here.

  • If, so the big if,

  • the dividend percentage is going up because,

  • and then stock price going down,

  • this is the exact thing that needs to be avoided.

  • You do not want to be out there chasing yield,

  • as it's called, if you want to sound smart.

  • Oh man, I got caught chasing yield.

  • If you are chasing yield,

  • you're not being smart, you're not considering

  • all the factors of how that yield got to where it was.

  • So, that's one thing you need to avoid.

  • It's very common.

  • I did it before.

  • What was that?

  • STON, I tried it.

  • And they paid me a couple of hug dividends

  • but then the company said fine,

  • we're not paying the dividend any more.

  • Because eventually what happens

  • is that companies can no longer afford

  • to pay the dividend.

  • So, when they announce that the dividend has been slashed,

  • guess that happens?

  • Well, now this price absolutely just plummets

  • that much further down.

  • And I mean it can get really, really nasty

  • in many situations.

  • So, companies, they're gonna pay that dividend

  • for as long as possible.

  • But when the dividend reaches those sorts of percentages,

  • yeah, it may be there temporarily,

  • but not for very long

  • and then, like I said, when the company says...

  • They wave the white flag.

  • "We can't pay for it anymore."

  • See ya later, stock price.

  • That's gonna plummet it that much more.

  • Again, I want to reiterate, I'm not here saying

  • that dividend investing is a stupid strategy.

  • No, it's a great strategy

  • but you gotta make sure you avoid certain pitfalls out there

  • and chasing yield, again,

  • just focusing on strictly the yield itself

  • is something that definitely needs to be avoided.

  • So, if you have any questions,

  • leave those down below.

  • Maybe, let me know this,

  • what are some of your favorite dividend stocks

  • that you're invested in

  • and do you have any horror stories?

  • Do you have any stories where you did chase the yield

  • and then you got burnt by it?

  • Like I said, STON was my kind of high dividend yield thing

  • that I chased and got burned.

  • Luckily, I kind of knew it going in

  • so it's not like I threw my entire life savings into it.

  • It was just a little bit.

  • Let's see if this thing can turn around.

  • But, no, it didn't turn around.

  • So, yeah, leave any horror stories down below

  • or just let me know

  • what some of your favorite dividend stocks are out there.

  • I'd love to hear that from ya.

  • And if you enjoyed the video

  • and would like for me to keep making these sorts,

  • hit that like button and subscribe to the channel,

  • lots of other videos on the channel.

  • So, check it out and if anything though,

  • just hit that like button and leave a comment down below

  • and I'm very curious to hear

  • what stocks you're looking at.

  • And who doesn't like a good horror story?

  • So leave those down below too.

  • And I'll see you back for the next video.

  • First off, thanks so much for watching the entire video.

  • Real quick before you go,

  • I want to invite you to a live webinar,

  • web class, training, workshop, online event,

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  • But it will be me, live revealing to you

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