How to Turn $5,000 into $151,025.76 in Just 5 Years
Aug 26th, 2008 | By Jim Nelson | Category: Stock Market InvestingOne way to go about it is to start with a simple stock screen. A couple of key items to screen for would be dividend yields, dividend growth, cash flow, and debt. Here’s how that works…
Obviously, the company needs to pay a dividend for it to be an “income” play. While most people will tell you that you need to find high dividend yielding stocks, I disagree. The growth is the only thing that matters. I look for yields around 3%-6% — solid but not too large — and dividend growth over 5%-10% per year. This gives a strong dividend position.
Second, you’ll have to make sure the company is making enough to continue to payout dividends. If the company is just piling on debt to appease income investors, forget it. That’s robbing Peter to pay Paul. You don’t need that. That’s why you have to look at the company’s income and current debt levels.
Once you narrow that search down, you can plug in any other criteria you might have, like a share price under $10 or a market cap under $1.5 billion — to make sure you are only looking at penny stocks.
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Once you find a few company’s to look at, you’ll need a checklist to determine if these companies are actually worth buying:
- Does the company have plenty of cash on hand?
- Is the company’s operating cash flow minus capital expenses sufficient for future dividend payments? (Three times current dividend is a safe bet.)
- Is the company’s business safe from competition?
- Is the company’s product or service recession proof?
- Would you be willing to sink an investment in this company and leave it for a few years?
If you answer yes to these questions, you might have found a winner…
Lastly — and most importantly — you’ll need to look at the company’s future prospects. If a company isn’t going to grow much more, or bring in any more income than it did in the past, there’s no way it can grow its dividend without maxing out at some point. You must make sure the company and its industry are on track to continue to grow.
Take the Terra Nitrogen example again… If you had predicted the ethanol boom coming, you would have been able to spot the need for fertilizer. After all, it takes a ton of fertilizer to grow corn. Foresight like that, even if it’s just a few times, can leave an average investor with a large retirement account, along with big dividend checks for life.
While we continue to scour the penny stock market, we’ll keep you informed if any penny income plays pop up. That just might be your best bet to grow your retirement with just a few bucks…
P.S. If income is what you seek, you might want to check out the brand-new report Jim’s colleague Chris Mayer just finished. He details a way for you to have up to 75 checks sent straight to your account. Read what Chris discovered here…
Source: Penny Income Explained
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