These are the times that fortunes are made in the stock market. While confusion and fear reign supreme, professional investors are quietly snapping up bargains of the decade. These bargain priced, yet high quality companies are what will build wealth for the next generation.
Buy low and sell high is the mantra of the professional investor. The current market conditions have created many opportunities to buy quality companies very cheap relatively.
The question is how do you know what companies will bounce back from the low levels and which ones will just languish for years at the depressed prices.
Worst yet, how do you avoid stocks that just continue to move lower. Anyone who lived through the dot com crash understands full well that stocks don’t always bounce back.
The secret is to go back to the basics of stock picking when deciding what stocks to buy at the newly discounted prices.
Basics like increasing dividends and expectations are the keys to placing the odds firmly in your favor of creating future profits.
We have identified 3 stocks that have strong odds of being profitable.
Let’s first look at why increasing dividends and expectations are so critical to differentiate winning stocks from the run of the mill losers.
Dividends are an incredibly crucial part of the stock market. Companies use dividends to redistribute cash back to their shareholders. When dividends are increasing it is usually a clear sign that all is well within the firm.
A Brief Primer on Dividend Investing
Dividends are the key to building wealth in the stock market. Many investors forget this fact in their search for profits in the stock market. Buying income stocks fall in and out of popularity. However, the truth remains that investing in long term dividend stocks is the key for serious stock market wealth.
Once you understand that over 40% of all advances in the stock market over the last half century are due to dividends, the power of dividends become evident.
The trick is not just finding stocks that pay dividends. The secret to success in long-term dividend investing is to find stocks that have been steadily increasing their dividends over time.
You see, a high dividend alone doesn’t guarantee they will continue. For sure, steadily increasing dividends offer no such guarantee either. However, it does dramatically increase the odds that the dividend increases will continue over time.
Now that you have built a portfolio of dividend paying stocks, what’s next?
The key to wealth building is dividend reinvestment. Dividend reinvestment means using the proceeds from the dividends to purchase new shares.
This technique is effective due to the incredible power of compounding. Put simply compounding is interest earning interest on interest. This means the faster and more often you earn and reinvest your dividends.
Three Must Know Facts To Building Wealth Via DIvidends
- Start Early
The sooner you start your investment plan, the sooner you will reach your goals. Time is your friend when it comes to dividends.
- Don’t Waiver
Sticking to the plan is crucial. Resist the temptation to buy that sports car or go on vacation with the money earned. Let the money grow undisturbed
- Be Patient
. Patience is the key for success. It will seem like a long drawn out process at times, but if you stick it out, it will be well worth it.
These basic rules are even more critical when buying dividend producing stocks at a discount.
Now let’s take a look at why rising expectations is so important in locating winning stocks and avoiding those that will underperform.
Professional investors understand that stock prices are an anticipatory mechanism. This means that prices react to what is anticipated to happen in the future. Once the anticipated action happens, share prices usually don’t react as much as they do prior to the action occurring.
The old “buy the rumor, sell the news” mantra of professional investors is built upon this fact. In other words, stocks will climb ( or fall) on the rumor or expectation then once the news hits prices will go flat or do the opposite.
This is why it is so critical that the company itself has increased its future expectations, that there are changes or happenings within the company that should improve things, or that the Wall Street establishment has upped its ratings. All 3 of these things act to increase overall expectations of share prices.
Here are 3 stocks that are increasing dividends and expectations:
- Bell Canada.(NYSE:BCE),
BCE is a Canadian telecommunications and media company providing wireless, wireline, Internet, and television services to residential, business, and wholesale customers to our neighbor’s north of the border.
In early February, the company lifted its quarterly dividend 5% to C$0.6825 per share. The dividend is payable April 15, 2016 to stockholders of record on March 15, 2016, with an ex-dividend date of March 11, 2016. The yield based on the new payout is 4.7%.
Expectations were increased with the release of Q4 and full year 2015 results.
Bullishly, all 2015 financial guidance targets were achieved
In addition, net earnings attributable to common shareholders of $496 million, or $0.58 per common share; adjusted net earnings per share (EPS) of $0.72 in line with plan
Cash flow from operating activities of $1,510 million; positive contributions from all Bell operating segments delivered free cash flow growth of 10.0%
Adjusted EBITDA up 2.5% on 1.4% higher total revenue and cost control
Strong wireless financials with 5.9% increase in revenue and 6.8% adjusted EBITDA growth
Wireline adjusted EBITDA up 1.5% on 3.4% lower operating costs, yielding a 1.2 percentage-point margin increase to 39.5%
Canada’s Internet and TV market leader with more than 3.4 million and 2.7 million subscribers, up 3.5% and 3.6% respectively over 2014
Bell Media secures exclusive long-term rights to distribute all HBO content in Canada, following similar exclusive agreement signed with SHOWTIME earlier in 2015.
The CFO commented, “Having achieved all financial targets in 2015, with substantial growth in adjusted net earnings and free cash flow driven by healthy year-over-year increases in revenue and adjusted EBITDA, Bell’s operating momentum and financial foundation going into 2016 are very strong.” He continued, “Our 2016 financial targets reflect continued projected wireless profitability, a second consecutive year of positive wireline adjusted EBITDA growth, an improving financial profile for Bell Media, and an attractive balance sheet supported by good liquidity and an investment-grade credit profile.”
2. PPL Corporation(NYSE:PPL)
This utility company delivers electricity and natural gas in the United States and the United Kingdom.
PPL recently ramped up its quarterly dividend 0.7% to $0.38 per share. The dividend is payable April 1, 2016 to stockholders of record on March 10, 2016, with an ex-dividend date of March 8, 2016. The yield is currently 4.1%.
The catalyst that is increasing expectations is a massive infrastructure investment of $10 billion and higher expected earnings from the UK.
CEO William Spence explained it this way, “Before I jump into the earnings details, however, let me tell you briefly where we stand with three quarters of the year behind us. Based on the solid year-to-date results, our plans for about $10 billion in infrastructure investments through 2017 and higher expected earnings from our U.K. operations, we’re now confident we can achieve 6% compound annual earnings growth through 2017.
We continue to execute well and we are confident in our growth plans. The company had previously projected 4% to 6% earnings growth. Our business plan is low risk and we are confident in our ability to execute the plan and deliver on our commitments.”
3. Spectra Energy Partners LP (NYSE:SEP)
A natural gas and crude oil transmission, storage and gathering company which just ramped up its dividend. The partnership improved its quarterly distribution 2% to $0.63875 per unit.
The distribution is payable February 26, 2016 to unitholders of record on February 15, 2016, with an ex-dividend date of February 10, 2016. The yield clocks in at 6.3%.
Increasing earnings from expansion projects are driving the expectations higher for this company.