Dividend Stocks

Are Penny Stocks Right For Me?

Are Penny Stocks Right For Me?

In order to determine whether investing in penny stocks is right for you, you’ll need to take a careful and honest look at various criteria, always being mindful of your risk profile and of course, of your available disposable capital possibilities. Some of these criteria have to do with your own abilities—that is, with things that you can control—while others have to do with things that lie far outside of your own control and thus, must simply be accepted for what they are. Let’s get you started by discussing what you should be considering, so that you can make the most informed choice.

Of primary concern to any investor should be careful consideration of their appetite for risk, and every investor should be able to state whether their risk appetite is low or high. Typically, investors with the lowest risk appetite are also the most conservative, and thus, such investors usually do not invest for growth; instead, they’re more prone to invest for long-term value, and may fill their portfolio with blue-chip stocks, dividend-paying stocks, municipal bonds and similar traditionally low-risk investment vehicles. Often, such investors represent an older demographic, and are switching their investment strategy from high-yield, growth-oriented products to such conservative investments specifically to protect the profits which they had generated earlier in their investment career, which is a well-known and highly worthwhile strategy.


Investors with a higher risk profile are typically younger and not necessarily yet concerned with building a portfolio that can assist them in maintaining their accustomed standard of living after having reached retirement age. They’re professional, and have a certain degree of disposable income which they’d like to use to maximize their investment earnings potential through more aggressive, and correspondingly risky, equity purchases. It’s often the case that investors with a higher risk appetite are those who have already achieved a measure of investment success and thus, being confident in their ability to research and identify solid growth picks on their own, want to continue to ride their momentum for as long as they can. Either way, such investors are perfect penny stock investment candidates.

The risks associated with penny stock trading are paradoxically both low and high at the same time, and your interpretation of these risks is simply a function of your attitude. Those who profess that the risks are unwarranted are those who focus on the less regulated climate of the penny stock market, equating regulation with safety, and who are put off by the high volatility of penny stocks. In general, those who view the risk of trading in penny stocks as being low are those who recognize that because the buy-in, that is, the amount of capital needed to purchase penny stocks, is so low, there’s only upside: the risk of loss is deemed to be minimal, yet the corresponding possibility of riding a small-cap equity  to its breakthrough to genuine shareholder value is high, particularly if the small-cap investor has done thorough research;  further, the opportunity to get in on the proverbial ground floor and realize exponential gains only exists in the penny stock markets.

While penny stocks may indeed be less regulated, they are by no means the equity version of the Wild West. The OTC markets are more regulated than the novice investor may realize, and a wealth of information is indeed available on penny stock issuers.  Although you may not be able to control the amount of official filings issued by small-cap companies, you can supplement whatever public information is available by undertaking your own research. Check industry and trade websites, check out investor boards and forums, and check in with the company’s own investor relations department o gain further insight into the larger picture and provide yourself with the material you need to make informed investment decisions. If you are skilled in the usage of analytical tools and charting, spend some time going over the stock’s history, in terms of share price and volume, to get a feel for momentum and trends, if any. It’s simply not as hard as people think to gain a complete picture of a small-cap company, and it’s obvious that if you cannot find the necessary information regarding a penny stock issuer, and if your research—and your gut instinct—tell you not to invest, then move on: there’s over 10,000 companies listed on the OTC Markets, and you should not reject them all out of hand. Keep looking, and you’ll be certain to find a few penny stock picks that fit both your risk profile and your research skill level. Start with a small investment to minimize your risk of loss, and gain confidence through your experience. With very few exceptions, penny stocks indeed are right for almost everyone.

Posted by Judy Romero in Dividend Stocks, Investing, Stock, Stock Market
My Dividend Portfolio Sector Allocation

My Dividend Portfolio Sector Allocation

A while back now, I looked at US stock sectors and the number of dividend champions they produced to see if there were any dividend-champion friendly sectors. I’ve used this train of thought to overhaul how I am weighting my stock portfolio. Are you sitting comfortably? Then I’ll begin…


What’s gone before

Previously in Dividend Life, I weighted my portfolio fairly equally across all 10 market sectors, as opposed to how the S&P Index is weighted. My thinking here was that if one sector in my portfolio lagged behind the others, then it must contain relatively cheaper stocks so I should add to that sector and get some relative bargains. In reality, because the new capital was significantly larger than market variation, the new purchase disturbed the results so I would end up cycling through each sector with little variation between the sequence. This effect would be less pronounced the larger the portfolio when the market price is more of a factor than new capital added.

Going forward

I already have one self-weighting rule in my Charter that I really like:

Never let any single stock contribute more than 5% of my annually projected dividend income.

This is simple risk management – if one of the stocks in my portfolio melts down and cancels its dividend then I lose no more than 5% income. This rule can’t be achieved if you own only a few stocks, so it inherently forces diversification which is a good thing – the 5% number itself is entirely arbitrary.

I’ve decided to take a step further and weight my portfolio based on dividend income percentages rather than market capitalization dollars. This has several impacts which I’ll eventually get to further below.


New dividend portfolio sector allocation

The sectors I use are those defined at Morningstar and they match those used in the US Dividend Champions List (although with slightly different names). Category is a higher level grouping also from Morningstar which groups stocks into one of three ‘super-sectors’: Defensive, Sensitive and Cyclical.

I started out with an base allocation for each sector based on their category, added a relative weight within that category and total the amounts to get the following.

SectorCategoryBase % AdjustmentFinal %
UtilitiesDefensive12+1 13
Consumer DefensiveDefensive120 12
HealthcareDefensive12-1 11
Communication ServicesSensitive10+1 11
EnergySensitive10+1 11
IndustrialsSensitive10-1 9
TechnologySensitive10-1 9
Consumer CyclicalCyclical8+1 9
Basic MaterialsCyclical80 8
Financial ServicesCyclical8-1 7

Comparison to dividend champions per sector

These weightings match reasonably well to the percentage of dividend champions per market sector that I reviewed previously. I didn’t try to match the exact percentages but I did use the order of the previous ranking to help guide my decision. The table below compares them.

New%Ratio of Champions per sector%
1. Utilities131. Utilities17
2. Consumer Defensive122. Consumer Defensive14
3. Healthcare113. Communication Services12
4. Communication Services114. Energy12
5. Energy115. Healthcare9
6. Industrials96. Consumer Cyclical8
7. Technology97. Basic Materials8
8. Consumer Cyclical98. Industrials8
9. Basic Materials89. Financial Services7
10. Financial Services710. Technology6

I favor the Healthcare and Technology sectors more and have reduced Basic Materials allocation compared the dividend champions percentage values.

Using the weightings

Using these values is quite simple – I’ll use the percentages here to stop purchases stocks in a sector if the annualized dividends from that sector exceed the target percentage plus one percent. Here’s my current portfolio allocation comparing the actual and target values.

Current dividend portfolio sector allocation

My current dividend portfolio sector allocation as of 07-March-15

So I won’t be buying Communication stocks for a while, but as I add stocks from other sectors the over-allocated sectors will decrease and eventually balance out in one big happy portfolio.

And just for fun…

Here’s the comparison between my dividend portfolio sector allocation based on dividend percentages and the allocation based on market capitalization.

Comparison to dividend percentage allocation vs market value allocation

Dividend portfolio sector allocation two ways: Dividend percentage allocation vs. market value allocation

The main factor here is dividend yield which links market capitalization (share price) and dividend income (dividend per share). High yield stocks such as those in the Communications sector do not need as much market value to contribute a higher percentage of dividend income. And conversely, a larger amount of lower yielding stocks are needed to contribute the same overall income percentage than higher yielding stocks.


Based on the market capitalization above, I shouldn’t expect my portfolio to beat the S&P 500 in terms of total return since it’s oriented towards defensive, lower growth stocks. I should expect higher dividend income however which is what this is all about. Because I’m planning to use only dividend income from this portfolio in retirement and not sell the stocks I’m not particularly worried about total return or capital gains.

The goal of this allocation is to try to mitigate risk of reduction in dividend income by favoring market sectors that are more reliable for long term dividend growth and to limit the dividend income from each sector. Only time will tell if this allocation is successful or not!

Posted by Judy Romero in Dividend Stocks, Investing, Investment, Stock Market
Stock Market Games Free

Stock Market Games Free

Stock market games are a relatively new and exciting concept, and in my view provide a great way for you to learn how to trade, removing all the normal risks and allowing you to learn in a completely safe ( and risk free environment ) – all for free. To make it even better, you can even win daily weekly and monthly prizes, so there is really no excuse not to sign up. Please don’t  worry , it is completely FREE (like you, I don’t like paying for things either!) as I always advocate new traders keep their money for when they start their trading for real! The game offers you the chance to practice your trading strategies, using actual stocks and live prices, and with daily weekly and monthly prizes it really is great fun ( they even give away $100 every day at random, so you never know!)

As a new or novice trader, taking your first steps into the world of stock market trading can be a daunting experience, particularly in the current economic climate with stock prices falling one day, and rising the next. Many new traders and investors often enter the stock market with no experience and with very little understanding of what is involved, as there are few places that you can learn for free – well not any more! I am delighted to say that you can now trade in the real markets, with real news and real stocks, completely free, and have the opportunity to win cash prizes as the same time.  Having played myself for some months, I am constantly amazed at how real it all is, and if anyone were looking over my shoulder, it would be impossible for them to tell whether I were trading in the real markets or the virtual stock market game.


I shouldn’t really tell you this, but the site is so good that I actually use it for all my trading news and data, as it has a streaming news feed, live prices on markets including currency, stocks making major market moves, and a host of world news and information which is better than most paid for services I have ever used. I am not suggesting you do the same but….  With real ticker symbols, live prices, live data charts, streaming news feeds, and real stocks to trade, it really is all you need, so why pay when you have it all here for free in your stock market games trading window? You also get the chance to compete against other traders and in addition there is an active members forum so you can chat with other traders about the latest market news, whilst testing your market strategies for trading stocks.

In order to start all you will need is an email address, decide what your trading name is going to be, and then sign up here to your stock market game – it literally takes 1 minute. Traders are welcome from around the world, so it doesn’t matter where you live. At the moment there are two competitions running, one with a $50,000 dollar portfolio and the other with $100,000. There are new games starting all the time, so you can join in at any time, and in addition there are the daily competitions for the best return in a day. All good fun! All the stocks available for trading are those listed on the New York Stock Exchange, American Stock Exchange and NASDAQ and include stock, preferred stock, and even Exchange Traded Funds, so there is plenty of choice. In order to help you identify those stocks for you portfolio, the game offers a wide range of stock screening and analysis tools, both for technical and fundamental traders. Unusually, the game also allows traders to open both long and short positions, allowing you to make money when the market is going up or down.

It is a fantastic game, and the best part of all is that it is free and cost nothing to join. So good luck and good trading in your stock market game portfolio, and even if you don’t ever play, you get all the other benefits of live charts, steaming news and technical data FREE, so what have you got to lose – the answer is absolutely nothing!

Posted by Judy Romero in Dividend Stocks, Investing, Investment, Stock, Stock Market
What are Dividend Raise and Dividend Cut?

What are Dividend Raise and Dividend Cut?

There is a very delicate balance between the dividends that a company pays to the investors, the shares price of that company, dividend raise and dividend cuts.

Companies that regularly increase their dividends (such as dividend champions) attract a lot of investors. When shopping around for dividend paying companies, the dividend raise chart is very important. You need to find companies that do increase their dividends each year, or your investments will be eroded by inflation. However, it’s not realistic and sustainable, for a company, to increase dividends at unusually high rates.

What is a sustainable rate when it comes to dividend raise?

A dividend raise around 10% yearly covers the inflation and manages to bring you good profits, without endangering the future of the company. A dividend payments growth rate around 5-10 % per year can be considered as standard procedure. But, if a company announces an important increase in dividends payments, this information should raise a little red flag. Sudden increase in dividend payment is not always a good sign: it could be a strategy used by that company to increase the price of shares.

When Dividend raises occur

Dividend increase is a mechanism that companies sometimes use to keep the price of their shares up. Since investors are looking to make more money with their investments, they will look after stocks that are able to increase their dividend years after years.

Therefore, solid companies will be able to raise the dividend payout without busting their dividend payout ratio. If a company sees its cash flow and net profit increasing, it will vote a dividend payout increase in order to share the wealth with their shareholders. When this occur, the dividend payout ratio remains about the same and investors receive more money in their pocket. This is when dividend raises should always occur. However…


Beware of Dividend raises – look behind the numbers

During a recession, there are periods when a company’s stock start going down. A lot of investors will feel the urge to get rid of their shares in this situation and the price will continue to go down. To stop this chain reaction, companies might increase their dividends, to attract new investors and to raise the price of the shares.

There are serious risks associated with this strategy. When a company pays more dividends then it can actually afford, the company may remain vulnerable, without financial resources for growth and development.

There are also companies that finance dividends raise from borrowed money. That’s a huge vulnerability of a company, and you should avoid companies with high debt levels.

Dividend Achievers, Dividend Champions and Dividend Aristocrats

For safe, profitable long-term investments pick companies that have constant, average raises of dividend payments. The companies that, during the last 25 years, maintained a steady raise of dividends are known as dividend aristocrats. Investing a part of your money in companies from this exclusivist group is a good way to make sure you build a strong, safe portfolio.

For example, Colgate-Palmolive maintained a steady dividend raise over the last 48 years. The most recent increase was in February 2011, when the company approved a 9,8% dividend raise. The annual dividend payment increased by 13% per year, since 2001.

Depending on the number of years of consecutive dividend increase, there are 3 categories of solid dividend payers. Here are the complete lists:

Dividend Aristocrats List

Dividend Achievers List

Dividend Champion List

Dividend cuts – when they occur and what they tell you about a company?

Dividend cut is a collocation that all investors fear and want to avoid. However, sometimes companies have to cut the dividend payments to the shareholders, in order to improve the company’s operations or even to save the company from bankruptcy.

If the earnings of a company were far lower then estimated, the only realistic solution for that company to remain competitive on the long term is a dividend cut.

Companies try to avoid it, because it generates a lot of mistrust among shareholders, determining them to start selling stocks, which can cause important financial losses to a company. In most cases, the company stock will drop significantly upon the dividend cut announcement.

But economic turmoil can determinate any company, even those formerly in dividend aristocrats group, to make use of dividend cuts. For example, in 2009, a lot of banks from United States were forced to cut drastically their dividends. US Bancorp cut dividends by 88%, while Citigroup and Bank of America slashed their dividends to just one cent.

A Dividend cut is not a solution preferred by a company’s executives or shareholders, but it’s a decision that sometimes needs to me made. If a company cut dividends, it’s never a good sign as it is usually one of the company’s last resorts. By cutting the dividend, the company knows that it will lost a lot of capital market and interest from investors. Maybe it’s time for you to leave to boat too…

On the other side, a dividend cut means cheaper shares, so if you consider that the company has long term potential; it’s the right time to invest. However, there is a combination of factors that you should really avoid, when it comes to investing your money: dividend cuts, high debt level and low cash flow. This combination is hard to overcome by any company, so place your money elsewhere.

In the end, if you are looking to build a long term growth dividend portfolio, you are better off avoiding companies with low dividend raise and sell companies that cut their dividends.

You can find financial information about a company on the company’s website or use our dividend resources to look over more companies.

Posted by Judy Romero in Dividend Stocks, Investing