6 Steps to Safely Doubling Your Money
It’s possible to double your money by investing responsibly. Here’s how to do it in 6 steps.
Step 1: Dividends Are Key
Invest in companies that pay dividends. As a shareholder, you are part owner of the company, and as part owner you are entitled to share in the profits of the company. Dividends are part of the profits the company shares with you the shareholder. Here are some examples of companies and their annual dividends today:
- Coca-Cola, $1.56
- Colgate-Palmolive, $1.68
- Target, $2.48
If you own 1000 shares of Coca-Cola you would receive $1,560 in dividends every year.
Step 2: Invest in Profitable Companies
Invest in companies that have a long-term history of increasing profits. Each year companies report their earnings. Here are the Earnings per Share (EPS) for some companies:
- Coca-Cola, $0.29
- Colgate-Palmolive, $2.36
- Target, $5.33
Here is their average EPS growth rates from the last 30 years:
- Coca-Cola, 9%
- Colgate-Palmolive, 32%
- Target, 12%
Step 3: Invest in Leaders
Invest in companies that are leaders in their industry. These are companies that have a large customer base and make it very difficult for competitors to challenge them. It would be unwise to launch a soft drink company today to compete with Coca-Cola. Coca-Cola was established in 1886, has 61,800 employees, operates in over 100 countries, and is one of the largest beverage companies in the world. Coca-Cola is definitely a leader in the beverage industry.
Step 4: Invest in Dividend Growers
Companies that are leaders in their industry also have a history of increasing dividends. Dividends are money in your pocket, so it’s better to invest in companies that increase their dividends each year. Here’s a look that the number of years of consecutive dividend increases:
- Coca-Cola, 54 years
- Colgate-Palmolive, 53 years
- Target, 49 years
Step 5: Hold for the Rising Dividends
Continue to hold for the rising dividend. In 2008 Target’s dividend was $0.52 per share, today it’s $2.48 per share. Each time the dividend goes up, the amount of money (passive income) you receive goes up. In other words, your dividend yield goes up with each dividend increase.
|Stock||Stock Price in 2008||Dividend in 2008||Dividend Today||Dividend Yield (based on stock purchase price)|
Target purchased in 2008, today would provide you with a 9.5% return (just from dividends) annually.
Step 6: Focus on Quality and Value
The steps outlined above help you select quality companies to invest in. The final step is to ensure that you are buying stocks when they are priced low (undervalued). The best method for determining when a stock is low is to compare the stock’s current dividend yield to its average (10yrs) dividend yield. When its current dividend yield is higher than its average dividend yield the stock is undervalued (priced low). You can learn more about selecting undervalued stocks from my video.
Doubling Your Money
Doubling your money is possible, but it does take time, you have to remain patient and hold the shares as the dividends and share prices increase over time.
|Stock||Amount invested in 2008||Value today, including dividends||Gain|
$3000 invested in just these 3 stocks in 2008 would today be worth over $8723 representing a gain of 191%
Investing Made Simple
Investing doesn't have to be complicated. Invest in quality companies when they are undervalued, then hold for the rising income. Start today and your future self will thank you for the growing passive stream of income you've created.
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