In today’s Exponential Investor

  • Cutting my teeth as a ten-year-old investor
  • Where and how to start
  • Two mining giants right at the top of the list

Here at Exponential Investor, we’ve spent a lot of time thinking about how 2022 plays out.

Where should we focus our attention to help investors like you make the most of a market that’s highly unpredictable and volatile?

Of course, some of the big, exciting long-term trends will remain a focus for us: breakthroughs in decentralised finance, quantum computing, space technologies, augmented and mixed reality, and biotech, to name just a few.

But for some reason we keep coming back to an investment strategy that some many argue is a contrarian play these days.

It’s not a sexy trend. It’s not exactly going to be the centre of conversation at your next dinner party, BBQ, or meetup at the pub.

But in 2022, it could be one of the smartest ways to manage a portfolio.

The 1993 card of truth

When you signed up for Exponential Investor, you will have received a series of welcome emails from us.

In one of those, I explain how I was first introduced to investing in stocks and shares when I was just ten years old.

If you’ve not seen it before, here’s what it looked like:

Source: editor’s own photo

The picture above shows a card with the dates of purchase of stock in the ANZ Banking Group (ASX: ANZ) over the course of a couple of years, starting in November 1993.

This is what stock investing looked like in the days before trading apps, smartphones and online brokers!

This is how I cut my teeth in the markets.

This card was one of many I owned. On the flip side of each card was a section which tracked the dividend payments as well as the “DRP” of those dividends. DRP stands for dividend reinvestment plan.

There was a common theme amongst all of the stocks that my grandfather introduced me to: they all paid dividends. And with those dividends the proceeds were signed up to the DRPs. That meant the dividends were reinvested back into the stocks to compound over time.

It’s a pretty basic financial theory. Compounding returns over time should lead to greater overall returns. That’s certainly the case for cash (so long as you can get an interest rate that is greater than the inflation rate).

If you think a stock has the potential for long-term capital appreciation, then dividend reinvestment has the potential to massively amplify your long-term returns and build your wealth.

But the world we live in today isn’t that focused on the long term.

Today, people want immediate returns. 100% gains in a year – or even within months – is the expectation.

While returns like this are certainly possible, they’re hard to come by. And chasing gains like this usually involves shouldering a high amount of risk, which doesn’t always pay off.

While allocations within portfolios to high-risk growth stocks are something I think all investors should have, it’s certainly not the only way to build a portfolio.

That means if the idea of investing into dividend-paying stocks with long-term potential is something new to you, or an old friend you feel like visiting again… where do you start?

How to build your list

When it comes to finding stocks to invest in that are of a certain size, industry, pay dividends or not, there’s a number of ways you can go about it.

Most online brokers have trading tools that allow you to filter and search for certain stock features, like those mentioned.

However, not all of them do, and you also don’t want to pay for these things if it’s all new to you.

So a great, free resource is Yahoo Finance and its stock screeners.

All you need to do is go to Yahoo Finance and select “My screeners” from the menu.

From there you can choose to “Create new screener”.

You’ll then be presented with a bunch of options that looks like this:

Source: screenshot from Yahoo Finance

If you’re looking for UK-listed stocks, then you change the region to “United Kingdom”. You can then filter companies by size.

You can filter by industry, sector and more. Using the “Add another filter” option offers a raft of additional ways to screen stocks.

When looking for dividend-paying stocks, the best filter I find is the “Forward Dividend Yield %” filter. This lets you choose how much forward dividend yield you’re looking for.

For example, if inflation is at 5% then you’d want to be on the hunt for something with a yield of greater than 5% to at least offset inflation (this is a basic way of looking at it, but it’s effective).

When I filter for stocks in the United Kingdom that offer a forward dividend yield of greater than 5%, I’m presented with a list of 322 stocks.

That’s your starting point.

Stocks at the top of that list include mining giants like BHP (LSE: BHP) and Rio Tinto (LSE: RIO). Both have long histories of paying dividends, and don’t seem to be in any rush to change that.

Of course, there are other considerations when choose which stocks are right for you. For example, you don’t want to invest in a dividend-paying stock that’s tanking, as your capital losses could be greater than your dividend returns.

But if you’re looking to build your portfolio in a smart way this year by adding stocks that pay dividends, then using a stock screener is a great place to start. Build a list and start investigating.  

Over the coming weeks, we’ll dive into these 322 stocks (and more) and explore the sectors we think are worth researching further. But, in the meantime, start building your own list of stocks that you think might be a fit for you and, who knows, they might even match up with some of the ones we’ll cover in 2022.

Until next time,

Sam Volkering
Editor, Exponential Investor