February 29, 2024 • 19 mins
In this episode, I'll share with you the two most important words in investing.
I also cover the following topics in this episode:
- The inspiration for this episode
- Who is Arnold Bernhard?
- Successful investing in two words
- What is Dividend Yield
- JNJ returns over 318%
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
In this episode, I'll give you the secret to
successful investing in just twowords.
Hi, my name is Kanwal Sarai andwelcome to the Simply Investing
Dividend Podcast.
In this episode, we're going tocover the following four topics
First, the inspiration for thisepisode, next, we'll talk about
(00:24):
who is Arnold Bernhardt, andthen next, I will give you the
two words for successfulinvesting.
And then the last topic is wewill cover dividend yield with a
real life example.
Let's get started with ourfirst topic.
So I want to give a shout outto our friends at Investment
(00:44):
Quality Trends, specifically the2011 December 1st edition on
page 10, for inspiration forthis episode.
Also, a shout out to the Maximsof Wall Street.
This is a book written by MarkSkosin, so thank you to both
Mark Skosin and InvestmentQuality Trends for inspiration
(01:08):
for today's episode.
Let's move on to our next topicwho is Arnold Bernhardt?
So Arnold Bernhardt was born inNew York City on December 2nd
in 1901.
He spent his entire careerworking in Wall Street and in
1931 he founded Value Line,which was best known for
(01:33):
publishing the Value LineInvestment Survey.
And in 1958 he also published abook called the Evaluation of
Common Stocks.
Now let's move on to our thirdtopic in today's episode.
In two words, what is the keyto successful investing?
(01:56):
So in his late 80s, mrBernhardt was asked Mr Bernhardt
, you have lived a long,successful career on Wall Street
.
If you could reduce yourapproach to investing to one
sentence, what would it be?
And Mr Bernhardt responded hesaid the secret to successful
(02:18):
investing can be reduced to twosimple words no value.
He said that everyone on WallStreet knew the prices of stocks
and other assets, but fewunderstood what its assets were
really worth or what they wouldbe worth in the future.
Paraphrasing Oscar Wilde,bernhardt declared brokers,
(02:42):
security analysts and investorsthe whole lot know the price of
everything and the value ofnothing.
Now our friends at InvestmentQuality Trends also write if the
sole purpose of investing is torealize a return on investment,
there is nothing more immediateand fundamentally
(03:02):
representative of value and areturn on investment than the
receipt of dividends.
Of the three fundamentalmeasures of value Priced
earnings, priced a book anddividend yield the dividend
yield, which exists only ifthere is a receipt of dividends,
is the only measure offundamental value that is
(03:23):
tangible.
This is to say that you can'tspend or reinvest a PE ratio or
a PB ratio.
You can only spend or reinvestcash essentially, which is the
dividend.
Now, investment quality trendscontinues to write.
They say fundamentally, then,the underlying value of a stock
(03:45):
lies within its dividend, whichdetermines yield.
In a world of unansweredquestions, what I do know is
this Great, high-qualitycompanies with long track
records of performance over timeincrease their dividends and
reward shareholders with higherstock prices End quote.
(04:07):
So this is really important.
This is coming from KellyWright, who is the editor of
Investment Quality Trends, andwhat he's talking about here is
the importance of dividend yield.
So that is our next and finaltopic in today's episode.
So let's talk about dividendyield.
I'm going to show you areal-life example as well, and
(04:28):
we're going to see why it is soimportant and how it helps you
to understand the value of astock.
Now, as you all know, dividendsare basically profits that a
company shares with you, theshareholder.
So if a company is paying adividend of $1 per share and
this is an annual dividend andyou own a thousand shares, you
(04:52):
will receive $1,000 every yearfor as long as you own those
shares and as long as thecompany continues to pay the
dividend.
Now you can spend the dividendif you wish or reinvest it.
The dividend is depositeddirectly into your trading
account as cash and we're goingto see in a couple of minutes
that, even if stock prices go upand down, the dividend remains
(05:15):
consistent.
So what is dividend yieldBecause that's what Arnold
Bernhardt was referring to andthat is what Investment Quality
Trends was referring to is thedividend yield?
So it's quite simple.
It is the annual dividenddivided by the share price.
So if you look at the currentshare price, you are going to be
(05:37):
then calculating the currentdividend yield.
So let's say the dividend is $1.
This is an annual dividend pershare and the share price today
happens to be $20.
So 1 over 20, we want toexpress that as a percentage is
5%.
So what does the 5% really tellyou?
Well, it's a quick way tofigure out how much dividends
(06:00):
you'll receive.
So in this example, let's sayyou have $20,000 to invest in
this company.
Well, a 5% yield 5% of $20,000is $1,000.
So you will receive $1,000every year for as long as you
own the shares in this companyand as long as the company
(06:20):
continues to pay you a dividendof $1 per share.
Now another way to look at itis, again, we're going to assume
in this example You've gottwenty thousand dollars to
invest in this company.
The share price happens to betwenty dollars a share.
That means you're going to beable to buy a thousand shares.
So if we take a thousand shares, multiply that by the one
(06:41):
dollar dividend, we end up witha thousand dollars again.
So we end up with the sameresult at the end of the day.
So basically, the dividendyield is the return on your
investment While you hold on toyour shares, again regardless of
the share price.
The share price could drop tofive dollars a share or three
(07:01):
dollars a share, or it could goup to eighty or ninety dollars a
share.
But if your purchase price wastwenty dollars and the company
is paying a dividend of onedollar, your dividend yield will
remain at five percent.
Now the dividend yield can alsohelp you determine Value, and
that's what we're talking aboutin today's episode is how do you
(07:23):
calculate or figure out value?
So this is interesting.
Looking at the dividend yield,we can figure out when a stock
is priced low, when it'sundervalued, and when a stock is
priced high, when it'sovervalued.
So if you're looking at a stockand it's overvalued and it's
priced high, well, you want toskip it for now.
(07:44):
If the stock is undervalued andit's priced low, then you may
want to consider it for purchase.
So if you take the currentdividend yield and you look at
that and you compare to theaverage Dividend yield and we
like to use the 20 year averagedividend yield so if the current
(08:04):
yield is higher than thestock's 20 year average dividend
yield, then the stock isconsidered to be priced low,
which means it's undervalued.
Now the reverse is true if thecurrent dividend yield is less
than the 20 year averagedividend yield, then the stock
is considered to be priced highor overvalued.
(08:25):
Right, it means historically,the stock is now priced high,
it's overvalued, and we don'twant to be investing in
companies when they're pricedhigh.
Now for those of you that areinterested in more details on
how we came up with both ofthese formulas up on the screen
how do we determine when a stockis priced low?
How do we know when it'sovervalued?
(08:46):
I cover all of this in detail.
You got to go back and watchepisode number one and we cover
all that in there.
I'm gonna leave you with onelast quote and then we're gonna
jump into our real-life example.
So this quote comes to us fromGeraldine Wase, who is the
founder of investment qualitytrends, and she says, I quote a
(09:09):
clever accountant Can makeearnings appear good or not so
good, depending on the season orthe objective.
There can be no substituteabout a cash dividend.
It is either paid or it is not.
End quote.
So this is super important,right, you can use clever
(09:29):
accounting to manipulate theearnings, but you cannot do that
with the dividend, because itis paid to the shareholders as
cash and the cash has to comefrom somewhere, right?
So this is so important.
You can't lie about thedividend or the dividend yield.
Now let's take a look at areal-life example with Johnson
(09:52):
and Johnson.
As of this recording, thecurrent dividend yield is 2.96%.
Now we're interested in let'stake a look at the past.
We want to go back and look atthe last 22 years.
So we're gonna go all the wayback to 2002.
You can see the blue line, orthe purple line, is the stock
(10:14):
price and, like I said before,stock prices go up and down all
the time.
The orange line represents thedividend and you can see the
dividend has gone up everysingle year.
Now, if you take a look at thestock price, you'll notice,
there are dips.
There are times when the stockprice drops by five dollars a
(10:37):
share, ten dollars a share, evenmore than twenty dollars a
share.
So how can a company likeJohnson and Johnson Continue to
pay the dividend?
How can they continue toincrease the dividend when its
stock price tanks, in some casesby more than twenty dollars?
And the answer is the dividendis not paid from the share price
(11:01):
.
The dividend is paid from theearnings.
So as long as the company isprofitable and has a long-term
track record of profitabilityand they continue to earn money,
then they can afford to pay thedividend and they can afford to
grow the dividend every year.
So this chart up on the screenis remarkable.
This is the last 22 years andhas the dividend ever gone down?
(11:25):
No, that's the orange line andit keeps going up.
As dividend investors, this isimportant for us because this is
part of it makes up ourdividend income.
We want our dividend income tocome in every single year as
consistently, every single yearconsistently, but also to grow
(11:47):
every single year.
That's what's going to help usto stay ahead of inflation as
well.
In fact, johnson Johnson hasbeen paying a dividend since
1944 and they have had over 61years of consecutive dividend
increases.
This is important, so I'm goingto say it again Johnson Johnson
(12:09):
has had 61 years of consecutivedividend increases.
Think about how many marketcrashes we've had in the last 61
years, how many marketdownturns we've had in the last
61 years.
But companies like this, andespecially in this case, johnson
Johnson, has continued to notonly pay the dividend but to
grow the dividend over time.
(12:32):
Let's take a look at a real-lifeexample here to see how
dividends in the beginning willfeel like they're very small and
insignificant, but over timethey grow quite a bit.
If we go back to 2002, at thetime the stock price was $52.26,
the dividend back then was$0.79 per share, and now it's an
(12:59):
annual dividend.
So you would have to hold evenone share for the whole year to
get your $0.79.5.
So that doesn't seem like a lot.
However, fast forward to today,as of this recording, the share
price is at over $161 a shareand the annual dividend is at
(13:20):
$4.70 a share.
Now we're talking aboutdividend yield, so let's take a
look at dividend yield on cost,which is basically the dividend
yield based on your purchaseprice.
So had you bought shares inJohnson Johnson back in 2002,
your dividend yield back thenwould have been 1.5%.
(13:42):
So again, that doesn't seemlike a lot and the dividend
doesn't seem like a lot.
However, the dividend yield oncost today is 9%.
Why?
Because the company hasincreased its dividend every
single year.
They've done it for over 61years, but in this example we're
(14:03):
just going back to 2002.
So since 2002, the dividend hasgone up every single year.
And remember our formula fordividend yield, which is the
dividend divided by the purchaseprice.
So the dividend now is $4.70.
We divide it by the purchaseprice of $52.26.
You can see the dividend yieldis now 9%.
So this investment today isearning 9% annually, regardless
(14:30):
of what happens to the stockprice.
So let's take a look $20,000invested in Johnson Johnson back
in 2002.
Today would be worth over$83,600.
Now that includes all of thedividends you would have
received since 2002.
(14:51):
So take a look at this Again.
Your initial investment was$20,000 back in 2002.
Since then, you would havereceived over $21,800 in
dividends.
So that covers your initialcapital investment.
So your risk has now gone downto zero because your initial
(15:13):
money has been paid back to youin the form of dividends.
Now, if we add that to theshare price.
That's how we get the totalamount, which is over $83,600,
which represents a return ofover 318%, which is a great
return.
So dividends are key.
It takes time.
It takes years and years andyears to grow the dividend and
(15:37):
reinvest the dividend over timeand to collect the growing
dividend.
But the dividend yield alsohelps us to determine value when
is the stock priced low andwhen is the stock priced high?
So that's the key here.
So the question on mostpeople's mind as well should I
just go out and buy any dividendstock today?
And the answer is no.
(15:58):
There's a couple of otherthings that we need to check and
I'm going to go through thosewith you right now.
So our approach to investing isto invest in high quality,
dividend paying stocks whenthey're priced low.
So the key here is qualitydividend stocks when they're
priced low.
So not just any dividend stock.
It has to be a quality stockand it can't be just any quality
(16:20):
dividend stock.
It has to be priced low.
So how do you know when you'relooking at a stock anywhere in
the world?
When you're looking at a stock,how do you know that it's a
quality stock?
How do you know that it'spriced low.
So for that I've created what Icall the 12 rules of simply
investing.
You can see them up on thescreen right now.
This is basically yourchecklist.
(16:42):
If a company fails even onerule, skip it, move on to
something else.
A company has to pass all ofthese 12 rules before you invest
in it.
So rule number one do youunderstand how the company is
making money?
If not, skip it, move on tosomething else.
Rule number two 20 years fromnow, will people still need its
products?
(17:02):
Rule number three does thecompany have a low cost
competitive advantage?
Rule number four is itrecession proof?
Rule number five is itprofitable?
Rule number six does it growits dividend?
Rule number seven can it affordto pay the dividend?
Rule number eight is the debtless than 70%?
Rule number nine we want toavoid any companies with recent
(17:23):
dividend cuts.
Rule number 10, does it buyback its own shares?
And rule number 11, is thestock priced low?
So we covered a few things inrule number 11 in today's
episode.
So we compare the current yieldto the 20-year average yield.
We also do look at the PbRatioand the PbRatio.
If a company meets all of thosethree conditions, then it
(17:44):
passes.
Rule number 11 and we know thatthe stock is priced low.
And rule number 12, keep youremotions out of investing.
So, for those of you that areinterested, I have an online
self-paced simply investingcourse.
We cover all of these rules indetail.
The course itself is made up ofvideos, so there's 10 modules.
(18:06):
Module 1, we cover theinvesting basics.
Module 2, we cover the 12 rulesin detail.
Module 3, we apply the 12 rulesto real-life examples.
Module 4, we show you how touse the simply investing
platform.
Module 5, placing your firststock order.
Module 6, building and trackingyour portfolio.
(18:28):
Module 7, knowing when to sell,which is just as important as
to knowing when to buy.
Module 8, how to reduce yourfees and risk, especially if you
have mutual funds, index funds,etfs.
Module 9, your action plan toget started right away.
And module 10, I answer yourmost frequently asked questions,
(18:49):
and we also have a simplyinvesting platform, which is an
online application.
It applies these rules to over6,000 companies in the US and in
Canada every single day, so youcan immediately see which
companies pass which of therules and which companies fail
which of the rules.
So it really allows to filterout just the high quality,
(19:15):
dividend paying stocks that areundervalued today.
So if you're interested ineither the course or the
platform, you may want to writedown the coupon code
SAVE10SAVE10.
It's going to save you 10% offthe course or the platform
itself.
If you enjoyed today's episode,be sure to hit the subscribe
(19:36):
button.
We have a new episode out everyweek.
Hit the like button as well,and for more information, take a
look at our website,simplyinvestingcom.
Thanks for watching.
In this episode, I'll give you the secret to
successful investing in just twowords.
Hi, my name is Kanwal Sarai andwelcome to the Simply Investing
Dividend Podcast.
In this episode, we're going tocover the following four topics
First, the inspiration for thisepisode, next, we'll talk about
(00:24):
who is Arnold Bernhardt, andthen next, I will give you the
two words for successfulinvesting.
And then the last topic is wewill cover dividend yield with a
real life example.
Let's get started with ourfirst topic.
So I want to give a shout outto our friends at Investment
(00:44):
Quality Trends, specifically the2011 December 1st edition on
page 10, for inspiration forthis episode.
Also, a shout out to the Maximsof Wall Street.
This is a book written by MarkSkosin, so thank you to both
Mark Skosin and InvestmentQuality Trends for inspiration
(01:08):
for today's episode.
Let's move on to our next topicwho is Arnold Bernhardt?
So Arnold Bernhardt was born inNew York City on December 2nd
in 1901.
He spent his entire careerworking in Wall Street and in
1931 he founded Value Line,which was best known for
(01:33):
publishing the Value LineInvestment Survey.
And in 1958 he also published abook called the Evaluation of
Common Stocks.
Now let's move on to our thirdtopic in today's episode.
In two words, what is the keyto successful investing?
(01:56):
So in his late 80s, mrBernhardt was asked Mr Bernhardt
, you have lived a long,successful career on Wall Street
.
If you could reduce yourapproach to investing to one
sentence, what would it be?
And Mr Bernhardt responded hesaid the secret to successful
(02:18):
investing can be reduced to twosimple words no value.
He said that everyone on WallStreet knew the prices of stocks
and other assets, but fewunderstood what its assets were
really worth or what they wouldbe worth in the future.
Paraphrasing Oscar Wilde,bernhardt declared brokers,
(02:42):
security analysts and investorsthe whole lot know the price of
everything and the value ofnothing.
Now our friends at InvestmentQuality Trends also write if the
sole purpose of investing is torealize a return on investment,
there is nothing more immediateand fundamentally
(03:02):
representative of value and areturn on investment than the
receipt of dividends.
Of the three fundamentalmeasures of value Priced
earnings, priced a book anddividend yield the dividend
yield, which exists only ifthere is a receipt of dividends,
is the only measure offundamental value that is
(03:23):
tangible.
This is to say that you can'tspend or reinvest a PE ratio or
a PB ratio.
You can only spend or reinvestcash essentially, which is the
dividend.
Now, investment quality trendscontinues to write.
They say fundamentally, then,the underlying value of a stock
(03:45):
lies within its dividend, whichdetermines yield.
In a world of unansweredquestions, what I do know is
this Great, high-qualitycompanies with long track
records of performance over timeincrease their dividends and
reward shareholders with higherstock prices End quote.
(04:07):
So this is really important.
This is coming from KellyWright, who is the editor of
Investment Quality Trends, andwhat he's talking about here is
the importance of dividend yield.
So that is our next and finaltopic in today's episode.
So let's talk about dividendyield.
I'm going to show you areal-life example as well, and
(04:28):
we're going to see why it is soimportant and how it helps you
to understand the value of astock.
Now, as you all know, dividendsare basically profits that a
company shares with you, theshareholder.
So if a company is paying adividend of $1 per share and
this is an annual dividend andyou own a thousand shares, you
(04:52):
will receive $1,000 every yearfor as long as you own those
shares and as long as thecompany continues to pay the
dividend.
Now you can spend the dividendif you wish or reinvest it.
The dividend is depositeddirectly into your trading
account as cash and we're goingto see in a couple of minutes
that, even if stock prices go upand down, the dividend remains
(05:15):
consistent.
So what is dividend yieldBecause that's what Arnold
Bernhardt was referring to andthat is what Investment Quality
Trends was referring to is thedividend yield?
So it's quite simple.
It is the annual dividenddivided by the share price.
So if you look at the currentshare price, you are going to be
(05:37):
then calculating the currentdividend yield.
So let's say the dividend is $1.
This is an annual dividend pershare and the share price today
happens to be $20.
So 1 over 20, we want toexpress that as a percentage is
5%.
So what does the 5% really tellyou?
Well, it's a quick way tofigure out how much dividends
(06:00):
you'll receive.
So in this example, let's sayyou have $20,000 to invest in
this company.
Well, a 5% yield 5% of $20,000is $1,000.
So you will receive $1,000every year for as long as you
own the shares in this companyand as long as the company
(06:20):
continues to pay you a dividendof $1 per share.
Now another way to look at itis, again, we're going to assume
in this example You've gottwenty thousand dollars to
invest in this company.
The share price happens to betwenty dollars a share.
That means you're going to beable to buy a thousand shares.
So if we take a thousand shares, multiply that by the one
(06:41):
dollar dividend, we end up witha thousand dollars again.
So we end up with the sameresult at the end of the day.
So basically, the dividendyield is the return on your
investment While you hold on toyour shares, again regardless of
the share price.
The share price could drop tofive dollars a share or three
(07:01):
dollars a share, or it could goup to eighty or ninety dollars a
share.
But if your purchase price wastwenty dollars and the company
is paying a dividend of onedollar, your dividend yield will
remain at five percent.
Now the dividend yield can alsohelp you determine Value, and
that's what we're talking aboutin today's episode is how do you
(07:23):
calculate or figure out value?
So this is interesting.
Looking at the dividend yield,we can figure out when a stock
is priced low, when it'sundervalued, and when a stock is
priced high, when it'sovervalued.
So if you're looking at a stockand it's overvalued and it's
priced high, well, you want toskip it for now.
(07:44):
If the stock is undervalued andit's priced low, then you may
want to consider it for purchase.
So if you take the currentdividend yield and you look at
that and you compare to theaverage Dividend yield and we
like to use the 20 year averagedividend yield so if the current
(08:04):
yield is higher than thestock's 20 year average dividend
yield, then the stock isconsidered to be priced low,
which means it's undervalued.
Now the reverse is true if thecurrent dividend yield is less
than the 20 year averagedividend yield, then the stock
is considered to be priced highor overvalued.
(08:25):
Right, it means historically,the stock is now priced high,
it's overvalued, and we don'twant to be investing in
companies when they're pricedhigh.
Now for those of you that areinterested in more details on
how we came up with both ofthese formulas up on the screen
how do we determine when a stockis priced low?
How do we know when it'sovervalued?
(08:46):
I cover all of this in detail.
You got to go back and watchepisode number one and we cover
all that in there.
I'm gonna leave you with onelast quote and then we're gonna
jump into our real-life example.
So this quote comes to us fromGeraldine Wase, who is the
founder of investment qualitytrends, and she says, I quote a
(09:09):
clever accountant Can makeearnings appear good or not so
good, depending on the season orthe objective.
There can be no substituteabout a cash dividend.
It is either paid or it is not.
End quote.
So this is super important,right, you can use clever
(09:29):
accounting to manipulate theearnings, but you cannot do that
with the dividend, because itis paid to the shareholders as
cash and the cash has to comefrom somewhere, right?
So this is so important.
You can't lie about thedividend or the dividend yield.
Now let's take a look at areal-life example with Johnson
(09:52):
and Johnson.
As of this recording, thecurrent dividend yield is 2.96%.
Now we're interested in let'stake a look at the past.
We want to go back and look atthe last 22 years.
So we're gonna go all the wayback to 2002.
You can see the blue line, orthe purple line, is the stock
(10:14):
price and, like I said before,stock prices go up and down all
the time.
The orange line represents thedividend and you can see the
dividend has gone up everysingle year.
Now, if you take a look at thestock price, you'll notice,
there are dips.
There are times when the stockprice drops by five dollars a
(10:37):
share, ten dollars a share, evenmore than twenty dollars a
share.
So how can a company likeJohnson and Johnson Continue to
pay the dividend?
How can they continue toincrease the dividend when its
stock price tanks, in some casesby more than twenty dollars?
And the answer is the dividendis not paid from the share price
(11:01):
.
The dividend is paid from theearnings.
So as long as the company isprofitable and has a long-term
track record of profitabilityand they continue to earn money,
then they can afford to pay thedividend and they can afford to
grow the dividend every year.
So this chart up on the screenis remarkable.
This is the last 22 years andhas the dividend ever gone down?
(11:25):
No, that's the orange line andit keeps going up.
As dividend investors, this isimportant for us because this is
part of it makes up ourdividend income.
We want our dividend income tocome in every single year as
consistently, every single yearconsistently, but also to grow
(11:47):
every single year.
That's what's going to help usto stay ahead of inflation as
well.
In fact, johnson Johnson hasbeen paying a dividend since
1944 and they have had over 61years of consecutive dividend
increases.
This is important, so I'm goingto say it again Johnson Johnson
(12:09):
has had 61 years of consecutivedividend increases.
Think about how many marketcrashes we've had in the last 61
years, how many marketdownturns we've had in the last
61 years.
But companies like this, andespecially in this case, johnson
Johnson, has continued to notonly pay the dividend but to
grow the dividend over time.
(12:32):
Let's take a look at a real-lifeexample here to see how
dividends in the beginning willfeel like they're very small and
insignificant, but over timethey grow quite a bit.
If we go back to 2002, at thetime the stock price was $52.26,
the dividend back then was$0.79 per share, and now it's an
(12:59):
annual dividend.
So you would have to hold evenone share for the whole year to
get your $0.79.5.
So that doesn't seem like a lot.
However, fast forward to today,as of this recording, the share
price is at over $161 a shareand the annual dividend is at
(13:20):
$4.70 a share.
Now we're talking aboutdividend yield, so let's take a
look at dividend yield on cost,which is basically the dividend
yield based on your purchaseprice.
So had you bought shares inJohnson Johnson back in 2002,
your dividend yield back thenwould have been 1.5%.
(13:42):
So again, that doesn't seemlike a lot and the dividend
doesn't seem like a lot.
However, the dividend yield oncost today is 9%.
Why?
Because the company hasincreased its dividend every
single year.
They've done it for over 61years, but in this example we're
(14:03):
just going back to 2002.
So since 2002, the dividend hasgone up every single year.
And remember our formula fordividend yield, which is the
dividend divided by the purchaseprice.
So the dividend now is $4.70.
We divide it by the purchaseprice of $52.26.
You can see the dividend yieldis now 9%.
So this investment today isearning 9% annually, regardless
(14:30):
of what happens to the stockprice.
So let's take a look $20,000invested in Johnson Johnson back
in 2002.
Today would be worth over$83,600.
Now that includes all of thedividends you would have
received since 2002.
(14:51):
So take a look at this Again.
Your initial investment was$20,000 back in 2002.
Since then, you would havereceived over $21,800 in
dividends.
So that covers your initialcapital investment.
So your risk has now gone downto zero because your initial
(15:13):
money has been paid back to youin the form of dividends.
Now, if we add that to theshare price.
That's how we get the totalamount, which is over $83,600,
which represents a return ofover 318%, which is a great
return.
So dividends are key.
It takes time.
It takes years and years andyears to grow the dividend and
(15:37):
reinvest the dividend over timeand to collect the growing
dividend.
But the dividend yield alsohelps us to determine value when
is the stock priced low andwhen is the stock priced high?
So that's the key here.
So the question on mostpeople's mind as well should I
just go out and buy any dividendstock today?
And the answer is no.
(15:58):
There's a couple of otherthings that we need to check and
I'm going to go through thosewith you right now.
So our approach to investing isto invest in high quality,
dividend paying stocks whenthey're priced low.
So the key here is qualitydividend stocks when they're
priced low.
So not just any dividend stock.
It has to be a quality stockand it can't be just any quality
(16:20):
dividend stock.
It has to be priced low.
So how do you know when you'relooking at a stock anywhere in
the world?
When you're looking at a stock,how do you know that it's a
quality stock?
How do you know that it'spriced low.
So for that I've created what Icall the 12 rules of simply
investing.
You can see them up on thescreen right now.
This is basically yourchecklist.
(16:42):
If a company fails even onerule, skip it, move on to
something else.
A company has to pass all ofthese 12 rules before you invest
in it.
So rule number one do youunderstand how the company is
making money?
If not, skip it, move on tosomething else.
Rule number two 20 years fromnow, will people still need its
products?
(17:02):
Rule number three does thecompany have a low cost
competitive advantage?
Rule number four is itrecession proof?
Rule number five is itprofitable?
Rule number six does it growits dividend?
Rule number seven can it affordto pay the dividend?
Rule number eight is the debtless than 70%?
Rule number nine we want toavoid any companies with recent
(17:23):
dividend cuts.
Rule number 10, does it buyback its own shares?
And rule number 11, is thestock priced low?
So we covered a few things inrule number 11 in today's
episode.
So we compare the current yieldto the 20-year average yield.
We also do look at the PbRatioand the PbRatio.
If a company meets all of thosethree conditions, then it
(17:44):
passes.
Rule number 11 and we know thatthe stock is priced low.
And rule number 12, keep youremotions out of investing.
So, for those of you that areinterested, I have an online
self-paced simply investingcourse.
We cover all of these rules indetail.
The course itself is made up ofvideos, so there's 10 modules.
(18:06):
Module 1, we cover theinvesting basics.
Module 2, we cover the 12 rulesin detail.
Module 3, we apply the 12 rulesto real-life examples.
Module 4, we show you how touse the simply investing
platform.
Module 5, placing your firststock order.
Module 6, building and trackingyour portfolio.
(18:28):
Module 7, knowing when to sell,which is just as important as
to knowing when to buy.
Module 8, how to reduce yourfees and risk, especially if you
have mutual funds, index funds,etfs.
Module 9, your action plan toget started right away.
And module 10, I answer yourmost frequently asked questions,
(18:49):
and we also have a simplyinvesting platform, which is an
online application.
It applies these rules to over6,000 companies in the US and in
Canada every single day, so youcan immediately see which
companies pass which of therules and which companies fail
which of the rules.
So it really allows to filterout just the high quality,
(19:15):
dividend paying stocks that areundervalued today.
So if you're interested ineither the course or the
platform, you may want to writedown the coupon code
SAVE10SAVE10.
It's going to save you 10% offthe course or the platform
itself.
If you enjoyed today's episode,be sure to hit the subscribe
(19:36):
button.
We have a new episode out everyweek.
Hit the like button as well,and for more information, take a
look at our website,simplyinvestingcom.
Thanks for watching.
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