This week I started reading over the parts of The Dividend Investor by Rodney Hobson that I’d already highlighted in 2021. I only got to P13 of 248 since I didn’t actually end up having a full hour to work on this on Wednesday; I think I only managed to fit in about 20 minutes…
Here are the points I saw that I’d highlighted so far:
Reinvest the dividends you receive if you can so that you benefit from a cumulative effect;
Try to become knowledgeable enough that you don’t need to rely on investing in a managed fund, since you will then lose some of the profits you make to paying the fund manager, and give up control of what you invest in;
Invest in smaller and medium-sized companies as they are more likely to be undervalued than big companies are, and offer higher yields. Small companies are also able to bounce back from turmoil sooner and further than big companies are;
If a company doesn’t make a profit, it can’t pay a dividend;
Capita Registrars is an organisation which keeps the shareholder records of over 1,000 quoted companies up to date;
The ratio of the interim to the final dividend is usually 33:67 - which is basically 1:2;
There is a third tier trading system called Plus;
Larger companies usually try to cover the dividend with earnings that are two or three times that of the dividend, but sometimes it can be four times.
Scrip dividends are when a company rewards you with more shares in the company as opposed to cash. Usually, you’re ineligible to receive them if you have an online account where shares are held in a nominee account. If scrip dividends are issued by a company in your ISA account, the new shares qualify for tax relief under the ISA scheme. (I don’t fully understand what those last two sentences mean.)
Part of my plan is to talk to my dad each week about what I’ve learned to get his take on it, since he’s dabbled in stocks and shares for as long as I can remember. (By the way, what is the difference between a stock and a share - is it the same thing? I will Google this and write about what I learn below.) One of the first things he said when I told him about my plan was that it’s unlikely the average person will make much money from investing - that he hasn’t, anyway - but if you’re sensible you’re unlikely to lose any money, so it’s worth doing if you are so inclined. He said he thinks one of the only ways you have a chance of making big money is if you become aware of an IPO that’s happening (not really sure what this is either - I will Google) and get in on the company while it’s still in it’s infancy, before it becomes really profitable, if it does. He said he has a share dealing bank account, which is how he buys and sells shares, and that I should look into eToro. He also said that scrip dividends, as mentioned above, aren’t worth much and that he would avoid them.
Q: Is there any difference between a stock and a share?
A: So, I think a share is like, what the company sells so that you can invest in them, i.e. you could buy a single share. Whereas, if you had stock in a company, let’s say, that would mean that you owned one or more of that company’s shares. So I think it was incorrect of me to say above that “he’s dabbled in stocks and shares” above. I probably should have said something like “he’s dabbled in buying and selling shares” or “he’s dabbled in investing” instead.
Q: What is an IPO?
A: IPO stands for Initial Public Offering, so that makes sense. So basically it’s the first time a company offers shares to the public.
So based on what I learned this week, next week I’m going to start by doing the following:
Trying to answer the question, what makes a company small or medium as opposed to big? I asked my dad and he said if you subtract the companies on the FTSE 100 from those on the FTSE 250, that would leave you with only the medium-sized companies on the FTSE 250…;
Looking into what Capita Registrars is;
Figuring out what a third tier trading system is;
Looking into eToro.