The ongoing conflict between Russia and Ukraine has given investors a reminder of geopolitical risk. Investors should keep geopolitical risk in mind, particularly for investors that have a high level of risk-aversion.
For example, retirees looking for income should consider safer dividend stocks. Generally, we view safe dividend stocks as those with long histories of consistent dividend growth, along with low payout ratios and durable competitive advantages.
With this in mind, investors could consider the Dividend Aristocrats, a select group of 66 stocks in the S&P 500 Index, with 25+ consecutive years of dividend increases.
You can download an Excel spreadsheet of all 66 Dividend Aristocrats (with metrics that matter such as dividend yields and price-to-earnings ratios) by clicking the link below:
Click here to download your Dividend Aristocrats Excel Spreadsheet List now.
We typically rank stocks based on their five-year expected annual returns, as stated in the Sure Analysis Research Database.
This list of dividend stocks was filtered through a number of requirements, including length of dividend history, and dividend safety (as defined by the Dividend Risk score in the Sure Analysis Research Database).
The top 20 dividend stocks below appear to be highly attractive for income investors looking for the safest dividends.
Safest Dividend Stock #20: Polaris Inc. (PII)
- 5-year expected annual returns: 11.7%
Polaris designs, engineers, and manufactures snowmobiles, all–terrain vehicles (ATVs) and motorcycles. In addition, related accessories and replacement parts are sold with these vehicles through dealers located throughout the U.S.
The company operates under 30+ brands including Polaris, Ranger, RZR, Sportsman, Indian Motorcycle, Slingshot and Transamerican Auto Parts.
On October 26th, 2021, Polaris released Q3 2021 results for the period ending September 30th, 2021. For the quarter sales increased 0.3% to $1.96 billion. Gains of 37%, 18% and 16% in the Global Adjacent Markets, Boats and Motorcycles segments were nearly offset by a –6% decline in Off–Road Vehicle / Snowmobiles and a –4% decline in the Aftermarket segment.
On an adjusted basis, earnings–per–share equaled $1.98 compared to $2.85 in Q3 2020.
The stock has a 2.1% dividend yield. We also expect 4% annual EPS growth, and a ~5.6% boost from an expanding P/E multiple. Total returns are expected to reach 11.7% per year.
Click here to download our most recent Sure Analysis report on Polaris (preview of page 1 of 3 shown below):
Safest Dividend Stock #19: V.F. Corp (VFC)
- 5-year expected annual returns: 11.8%
V.F. Corporation is one of the world’s largest apparel, footwear and accessories companies. The company’s brands include The North Face, Vans, Timberland and Dickies. The company, which has been in existence since 1899, generated over $11 billion in sales in the last 12 months.
In late January, V.F. Corp reported (1/28/22) financial results for the third quarter of fiscal 2022. Revenue and organic revenue grew 22% and 15%, respectively, over the prior year’s quarter, driven by the EMEA and North American regions, which experienced a negative impact from the pandemic in the prior year’s period. Adjusted EPS grew 45%, from $0.93 to $1.35, and beat analysts’ consensus by $0.13.
For this fiscal year, V.F. Corp expects revenue of about $11.85 billion, slightly lower than the previous guidance of at least $12.0 billion but still reflecting 28% growth, and adjusted EPS to be around $3.20.
Click here to download our most recent Sure Analysis report on V.F. Corp. (preview of page 1 of 3 shown below):
Safest Dividend Stock #18: Lowe’s Companies (LOW)
- 5-year expected annual returns: 11.8%
Lowe’s Companies is the second-largest home improvement retailer in the US (after Home Depot). Lowe’s operates or services more than 2,200 home improvement and hardware stores in the U.S. and Canada.
Lowe’s reported fourth quarter and full year results on February 23 rd . Total sales for the fourth quarter came in at $21.3 billion compared to $20.3 billion in the same quarter a year ago. Comparable sales increased 5%, while U.S. home improvement comparable sales increased 5.1%. Net earnings of $1.2 billion rose from $978 million in 4Q 2020. Diluted earnings per share of $1.78 was a 35% increase from $1.32 a year earlier.
For the full fiscal year, Lowe’s generated diluted EPS of $12.04. The company repurchased 16.3 million shares in 2021 for $13.1 billion. Additionally, they paid out $2 billion in dividends. The company remains in a strong liquidity position with $1.1 billion of cash and cash equivalents.
The company provided a fiscal 2022 outlook and believes they can achieve diluted EPS in the range of $13.10 to $13.60 on total sales of roughly $98 billion. Lowe’s expects to repurchase $12 billion worth of common shares in 2022.
The combination of multiple expansion, 6% expected EPS growth and the 1.4% dividend yield lead to total expected returns of 11.8% per year.
Click here to download our most recent Sure Analysis report on Lowe’s (preview of page 1 of 3 shown below):
Safest Dividend Stock #17: Franklin Resources (BEN)
- 5-year expected annual returns: 11.8%
Franklin Resources is a global asset manager with a long and successful history. The company offers investment management (which makes up the bulk of fees the company collects) and related services to its customers, including sales, distribution, and shareholder servicing.
On December 14th, 2021, Franklin Resources announced a $0.29 quarterly dividend, marking a 3.6% year-over-year increase and the company’s 42nd consecutive year of increasing its payment.
On February 1st, 2022, Franklin Resources reported Q1 fiscal year 2022 results for the period ending December 31st, 2021. (Franklin Resources’ fiscal year ends September 30th.)
Total assets under management equaled $1.578 trillion, up $48.0 billion compared to last quarter, as a result of $24.1 billion in long-term net inflows, $10.4 billion of positive market change, and other items. For the quarter, operating revenue totaled $2.224 billion.
This represents 0.143% of average AUM or ~57 basis points annualized. On an adjusted basis, net income equaled $553.6 million or $1.08 per share compared to $644.6 million or $1.26 per share in Q1 2021.
Click here to download our most recent Sure Analysis report on Franklin Resources (preview of page 1 of 3 shown below):
Safest Dividend Stock #16: T. Rowe Price Group (TROW)
- 5-year expected annual returns: 11.9%
T. Rowe Price Group is one of the largest publicly traded asset managers. The company provides a broad array of mutual funds, subadvisory services, and separate account management for individual and institutional investors, retirement plans and financial intermediaries. T. Rowe Price had assets under management of $1.69 trillion as of December 31st, 2021.
On February 9th, 2021, T. Rowe Price declared a $1.08 quarterly dividend, representing a 20.0% increase and marking the company’s 35th year of increasing its payout.
In the 2021 fourth quarter, T. Rowe Price reported net revenue growth of 13.2% year-over-year to $1.962 billion, representing 0.119% of average AUM or roughly 47 basis points on an annualized basis. Adjusted net income equaled $736.7 million or $3.17 per share compared to $680.2 million or $2.89 per share in Q4 2020.
For the year, T. Rowe Price generated $7.672 billion in net revenue (or 0.48% of average AUM) up 23.6% compared to 2020. Adjusted net income equaled $2.995 billion or $12.75 per share versus $2.277 billion or $9.58 in 2020.
Shares trade for a P/E of 11.6, below our fair value estimate of 14. In addition to 3% expected EPS growth per year and the 2.8% dividend, T. Rowe Price stock could generate total returns of 9.6% per year.
Click here to download our most recent Sure Analysis report on T. Rowe Price (preview of page 1 of 3 shown below):
Safest Dividend Stock #15: Genuine Parts Company (GPC)
- 5-year expected annual returns: 12.0%
Genuine Parts Company was founded in 1928 and since that time, it has grown into a sprawling conglomerate that sells automotive and industrial parts, electrical materials, and general business products. Its global span reaches throughout North America, Australia, New Zealand, and Europe and is comprised of more than 3,000 locations.
Genuine Parts is also a Dividend King, having raised its dividend for an incredible 66 consecutive years.
Genuine Parts reported fourth quarter and full–year earnings on February 17th, 2022. Total revenue was up 13% year–over–year to $4.8 billion, which was $140 million ahead of expectations. Sales gains in the fourth quarter were attributable to an 11.3% increase in comparable sales, as well as a 1.9% benefit from acquisitions.
Earnings in Q4 came to $1.79 per share, up sharply from $1.52 per share in the comparable period a year ago on an adjusted basis.
For the year, sales were $18.9 billion, a 14% increase from 2020. Net income on an adjusted basis was $997 million, or $6.97 per share, up 31% from $5.27 in 2020.
The combination of 8% expected EPS growth per year, the 2.9% dividend, a rising P/E could generate total returns of 11.6% per year.
Click here to download our most recent Sure Analysis report on Genuine Parts (preview of page 1 of 3 shown below):
Safest Dividend Stock #14: Walgreens Boots Alliance (WBA)
- 5-year expected annual returns: 12.0%
Walgreens Boots Alliance is the largest retail pharmacy in both the United States and Europe. Through its flagship Walgreens business and other business ventures, the company employs more than 325,000 people and has more than 13,000 stores.
On January 6th, 2021, Walgreens reported Q1 results for the period ending November 30th, 2021. Sales from continuing operations grew 7.8% over the prior year’s quarter, driven by COVID-19 vaccinations and testing.
U.S. retail comparable sales grew 11%, which is a 20 year high growth rate. Adjusted EPS grew 53%, from $1.10 to $1.68, and exceeded analysts’ consensus by $0.34.
An overview of Walgreens’ most recent quarterly performance can be seen in the image below:
Source: Investor Presentation
Click here to download our most recent Sure Analysis report on Walgreens (preview of page 1 of 3 shown below):
Safest Dividend Stock #13: Leggett & Platt (LEG)
- 5-year expected annual returns: 12.0%
Leggett & Platt is an engineered products manufacturer. The company’s products include furniture, bedding components, store fixtures, die castings, and industrial products. Leggett & Platt has 14 business units and more than 20,000 employees. The company qualifies for the Dividend Aristocrats Index as it has 50 years of consecutive dividend increases.
Leggett & Platt reported its third-quarter earnings results on November 1. The company reported revenues of $1.3 billion for the quarter, which represents a 9% increase compared to the prior year’s quarter. Revenues were in line with the consensus estimate. The company’s revenue increase was weaker than the one recorded during the previous quarter, but that can be explained by the very easy comparison in Q2, whereas Q3 2020 had been better.
Leggett & Platt generated earnings–per–share of $0.71 during the third quarter, which was slightly weaker than the company’s EPS during the previous year’s third quarter.
Click here to download our most recent Sure Analysis report on Leggett & Platt (preview of page 1 of 3 shown below):
Safest Dividend Stock #12: Telephone & Data Systems (TDS)
- 5-year expected annual returns: 12.4%
Telephone & Data Systems is a telecommunications company that provides customers with cellular and landline services, wireless products, cable, broadband, and voice services across 24 U.S. states. The company’s Cellular Division accounts for more than 75% of total operating revenue. TDS started in 1969 as a collection of 10 rural telephone companies. The company generates more than $5.3 billion in annual revenues.
On February 17th , TDS reported financial results for the fourth quarter and full year 2021. The company’s total operating revenues were $5.3 billion for the full year, up from $5.2 billion in 2020. Net income was $117 million, down significantly from last year’s $226 million. Diluted earnings per share of $1.00 compares unfavorably to the $1.93 earned one year ago.
Higher postpaid average revenue per user (ARPU) at US Cellular drove service revenue growth since customers chose higher-value plans. Postpaid ARPU of $48.62 was a 2.3% increase.
Click here to download our most recent Sure Analysis report on TDS (preview of page 1 of 3 shown below):
Safest Dividend Stock #11: ABM Industries (ABM)
- 5-year expected annual returns: 12.5%
ABM Industries is a leading provider of facility solutions, which includes janitorial, electrical & lighting, energy solutions, facilities engineering, HVAC & mechanical, landscape & turf, and parking.
The company has an impressive dividend history:
Source: Investor Presentation
Shares also look significantly undervalued, with a fiscal 2022 price-to-earnings ratio of 12.2, which is well below our fair value estimate of 17.5.
We expect total annual returns of 12.5% over the next five years, driven by 5% expected EPS growth, the 2% dividend yield, and a ~5.5% annual boost from a rising P/E multiple.
Click here to download our most recent Sure Analysis report on ABM (preview of page 1 of 3 shown below):
Safest Dividend Stock #10: Pentair plc (PNR)
- 5-year expected annual returns: 12.8%
Pentair operates as a pure–play water solutions company with 3 segments: Aquatic Systems, Filtration Solutions, and Flow Technologies. Pentair was founded in 1966. Pentair has increased its dividend for more than four decades in a row, when adjusted for spin–offs.
Pentair reported its fourth quarter earnings results on February 1. Revenue of $990 million increased 24% year-over-year. Core sales, which excludes the impact of currency rate movements, acquisitions, and dispossessions, were up 19% year over year. Pentair recorded earnings–per–share of $0.87 for the fourth quarter, which was up by 24% year over year.
Pentair issued its guidance for the current year during the earnings report as well. For fiscal 2022, Pentair is now forecasting earnings–per–share in a range of $3.70 to $3.80, which indicates slid earnings–per–share growth of around 13%.
Total returns are expected to reach 12.8% over the next five years.
Click here to download our most recent Sure Analysis report on Pentair (preview of page 1 of 3 shown below):
Safest Dividend Stock #9: Best Buy Co. (BBY)
- 5-year expected annual returns: 13.1%
Best Buy Co. Inc. is one the largest consumer electronics retailers in North America with operations in the U.S. and Canada. Best Buy sells consumer electronics, personal computers, software, mobile devices, and appliances and provides services.
At end of Q3 FY2022, Best Buy operated 938 Best Buy stores in the U.S, 16 Best Buy Outlet Centers in the U.S., 21 Pacific Sales Stores, 129 Best Buy stores in Canada, and 33 Best Buy Mobile Stand-Alone Stores in Canada. Best Buy exited Mexico operations in fiscal 2021. The company’s annual sales exceeded $47B in fiscal 2021.
Click here to download our most recent Sure Analysis report on Best Buy (preview of page 1 of 3 shown below):
Safest Dividend Stock #8: Sonoco Products Co. (SON)
- 5-year expected annual returns: 13.4%
Sonoco Products provides packaging, industrial products and supply chain services to its customers. The markets that use the company’s products include those in the appliances, electronics, beverage, construction and food industries. The company generates about $7 billion in annual sales.
Sonoco Products reported fourth quarter and full year earnings results on 2/10/2022. Revenue increased 4.3% to $1.44 billion, which was $40 million above estimates. Adjusted EPS of $0.90 compared favorably to $0.82 in the prior year and was $0.02 ahead of expectations. For the year, revenue grew 6.7% to $5.59 billion while adjusted EPS of $3.55 compared to $3.41 in the 2020.
Click here to download our most recent Sure Analysis report on Sonoco (preview of page 1 of 3 shown below):
Safest Dividend Stock #7: PPG Industries (PPG)
- 5-year expected annual returns: 13.8%
PPG Industries is the world’s largest paints and coatings company. Its only competitors of similar size are Sherwin–Williams and Dutch paint company Akzo Nobel. The company generates annual revenues of about $18 billion.
PPG Industries reported fourth quarter and full year results on 1/20/2022. For the quarter, revenue grew 11.4% to $4.19 billion, beating estimates by $140 million. Adjusted net income of $298 million, or $1.26 per share, compared to adjusted net income of $403 million, or $1.69 per share, in the prior year.
Adjusted earnings–per–share was $0.07 ahead of estimates. For 2021, revenue grew 21% to $16.8 billion. Adjusted net income of $1,619M, or $6.77 per share, compared favorably to adjusted net income of $1,452M, or $6.12 per share in 2020.
We expect 13.8% annual returns, driven by 8% annual EPS growth and the 1.9% dividend yield, along with an expanding P/E multiple.
Click here to download our most recent Sure Analysis report on PPG (preview of page 1 of 3 shown below):
Safest Dividend Stock #6: 3M Company (MMM)
- 5-year expected annual returns: 14.1%
3M sells more than 60,000 products that are used every day in homes, hospitals, office buildings and schools around the world. It has about 95,000 employees and serves customers in more than 200 countries.
3M is now composed of four separate divisions. The Safety & Industrial division produces tapes, abrasives, adhesives and supply chain management software as well as manufactures personal protective gear and security products.
The Healthcare segment supplies medical and surgical products as well as drug delivery systems. Transportation & Electronics division produces fibers and circuits with a goal of using renewable energy sources while reducing costs. The Consumer division sells office supplies, home improvement products, protective materials and stationary supplies.
3M reported fourth-quarter and full year earnings results on 1/25/2022. Revenue inched higher by 0.3% to $8.6 billion, which was $30 million better than expected. Earnings–per–share of $2.31 was down slightly from the prior year, but was $0.29 ahead of estimates.
For 2021, revenue grew 9.9% to $35.4 billion while earnings–per–share of $10.12 was an 8% improvement from the prior year.
Click here to download our most recent Sure Analysis report on 3M (preview of page 1 of 3 shown below):
Safest Dividend Stock #5: Bristol-Myers Squibb (BMY)
- 5-year expected annual returns: 14.4%
Bristol-Myers Squibb is a leading drug maker of cardiovascular and anti-cancer therapeutics.
The company transformed itself due to the $74 billion acquisition of Celgene, a peer pharmaceutical giant which derived almost two-thirds of its revenue from Revlimid, which treats multiple myeloma and other cancers.
The end result is that Bristol-Myers Squibb is now an industry giant. The company generated solid growth in the fourth quarter, and in 2021:
Source: Investor Presentation
Shares of BMY trade for a forward P/E ratio below 10. Our fair value P/E estimate is 13-14, which is more in-line with the pharmaceutical peer group.
Lastly, BMY has a 3.1% dividend yield, leading to total expected returns of 14.4% per year over the next five years.
Click here to download our most recent Sure Analysis report on Bristol-Myers Squibb (preview of page 1 of 3 shown below):
Safest Dividend Stock #4: Donaldson Co. (DCI)
- 5-year expected annual returns: 14.5%
Donaldson has been creating filtration solutions for a wide array of applications since 1915. Its sales consist of filters in various engine and industrial applications as core categories, but continuous innovation and acquisitions have expanded the portfolio. The company is expected to produce about $3.1 billion in revenue this year.
Donaldson reported first quarter earnings on December 1st, 2021, and results were better than expected for both revenue and profits. Total sales were up 19.5% to $761 million, up from $637 million in the same period a year ago.
Gross margin declined to 33.8% of revenue from 35.0%. This weakness reflected higher costs for raw materials, labor and freight, partially offset by higher sales and pricing.
We expect 9% annual EPS growth for Donaldson going forward, while the stock also has a 1.6% dividend yield. With a very small boost from P/E multiple expansion, we expect 14.5% annual returns over the next five years for Donaldson stock.
Click here to download our most recent Sure Analysis report on DCI (preview of page 1 of 3 shown below):
Safest Dividend Stock #3: Stanley Black & Decker (SWK)
- 5-year expected annual returns: 14.9%
Stanley Black & Decker is a world leader in power tools, hand tools, and related items. The company holds the top global position in tools and storage sales. Stanley Black & Decker is second in the world in the areas of commercial electronic security and engineered fastening.
You can see an overview of the company’s 2021 fourth-quarter performance in the image below:
Source: Investor Presentation
Revenue grew 17% on an organic basis. Adjusted earnings-per-share increased 30% year-over-year.
The stock has a 2% dividend yield, and we expect 8% annual EPS growth. With a ~4.9% boost from an expanding P/E multiple, total returns are expected to reach 14.9% per year.
Click here to download our most recent Sure Analysis report on SWK (preview of page 1 of 3 shown below):
Safest Dividend Stock #2: Silgan Holdings (SLGN)
- 5-year expected annual returns: 15.0%
Silgan Holdings manufactures and sells metal and plastic containers, as well as packaging closures. Its containers are found in everyday food consumables such as pet food, fruits and vegetables, and drinks, while its closures are applied to the beverage, garden, and personal care products. The company generates nearly $5.0 billion in revenues.
On January 26th, 2022, Silgan reported its Q4-2021 results for the period ending December 31st, 2021. Quarterly revenues rose 17% year-over-year, reaching $1.44 billion, while adjusted EPS increased 32% increase versus Q4-2020. The company’s revenue growth was again driven by higher sales volumes across all segments.
During FY-2021, metal containers achieved volume growth of 4% year-over-year. Along with price hikes, metal container sales reached $2.81 billion in turnover (50% of sales), 10% higher vs. the prior year period. This was powered by higher demand for pet food and customer purchases in advance of significant raw material inflation expected in 2022.
Following the successful integrations of last year’s acquisitions, management estimates adjusted EPS in 2022 in the range of $3.80 to $4.00.
We expect 15% returns annually, comprised of 9% EPS growth, the 1.5% dividend yield, and a 4.5% annual boost from an expanding P/E multiple.
Click here to download our most recent Sure Analysis report on Silgan Holdings (preview of page 1 of 3 shown below):
Safest Dividend Stock #1: UGI Corp. (UGI)
- 5-year expected annual returns: 15.0%
UGI Corporation is a gas and electric utility that operates in Pennsylvania, in addition to a large energy distribution business that serves the entire US and other parts of the world. It was founded in 1882 and has paid consecutive dividends since 1885. The company should generate about $8.3 billion in revenue this year.
The company operates in four reporting segments: AmeriGas, UGI International, Midstream & Marketing, and UGI Utilities.
UGI reported FQ1 results on 02/02/22. Adjusted earnings–per–diluted share for the quarter came in at $0.93, up from $1.18 per diluted share in the year–ago quarter. Revenue increased by 38.3% year-over-year to $2.67 billion. UGI filed a gas base rate case for an overall distribution rate increase of approximately $83 million.
We expect 15% annual returns over the next five years, due to 6.8% EPS growth, the 3.7% dividend yield, and a ~4.5% annual boost from a rising P/E multiple.
Click here to download our most recent Sure Analysis report on UGI (preview of page 1 of 3 shown below):
Final Thoughts
Volatility has returned to the stock market because of the ongoing Russia/Ukraine conflict. Investors can brace their portfolios for additional volatility, by focusing on high-quality dividend stocks.
The 20 dividend stocks in this article have maintained long histories of increasing their dividends each year, even during recessions and elevated geopolitical risks.
We believe they will continue to pay (and raise) their dividends each year moving forward, while also providing high total returns to shareholders.
You may also be looking to invest in dividend growth stocks with high probabilities of continuing to raise their dividends each year into the future.
The following Sure Dividend databases contain the most reliable dividend growers in our investment universe:
- The Dividend Achievers: dividend stocks with 10+ years of consecutive dividend increases.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500. - The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Dividend Kings: considered to be the ultimate dividend growth stocks, the Dividend Kings list is comprised of stocks with 50+ years of consecutive dividend increases.
- The High Yield Dividend Aristocrats List is comprised of the Dividend Aristocrats with the highest current yields.
- The Complete List of Monthly Dividend Stocks: stocks that pay dividends each month, for 12 payments over the year.
- The Blue Chip Stocks List: this database contains stocks that qualify as either Dividend Achievers, Dividend Aristocrats, or Dividend Kings.
Thanks for reading this article. Please send any feedback, corrections, or questions to [email protected].
This article originally appeared on SureDividend.com and was syndicated by MediaFeed.org.
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50 investment phrases, decoded
Any new endeavor — from rock climbing to investing — means getting familiar with new words and phrases. Some investment terms may seem complex, but this list will take the mystery out of the most common investing terminology, so you can feel even more confident as you start your investing journey.
Related: Is there such a thing as a safe investment?
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Alpha is used to gauge the success of an investment strategy, portfolio, portfolio manager, or trader compared with a relevant benchmark. You may also hear alpha defined as “excess return” in that it refers to returns that can be attributed to active management, over and above market returns.
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An asset is anything that holds value that can be converted to cash. Personal assets might include your home, a car or other valuables. Business assets might include machinery or patents. When it comes to investing, assets are typically the securities you invest in.
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An asset class is a group of investments with similar characteristics that is likely to perform differently in the market than another asset class. Types of asset classes include stocks, bonds, real estate, currencies and more. Given the same market conditions, stocks and bonds often move in opposite directions. Most financial advisers recommend you invest in multiple asset classes in order to have a well-diversified portfolio and minimize risk.
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An asset allocation fund is a diversified portfolio consisting of various asset classes. Most asset allocation funds have a mix of stocks, bonds and cash equivalents. These types of funds can be popular as some advisors stress the importance of having diverse portfolios to minimize potential losses.
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Beta refers to how risky or volatile a security or portfolio is compared with the market overall. Calculating the beta of the stocks in your portfolio can help you determine how your portfolio might respond to market volatility. You can also gauge the beta of a stock to help determine how much risk it might add to your portfolio.
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A bear market occurs when the market declines, typically when broad market indexes fall 20% or more in two months or less. Bear markets can accompany a recession, but not always. They often signal that investors feel pessimistic about their investments’ ability to make money and the market’s ability to rebound.
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A bull market is the opposite of a bear market, meaning prices are rising or are expected to rise for extended periods of time. Bull markets usually mean security prices are rising for months or even years at a time.
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Blue chip companies are generally thought to be well-established, financially sound, and therefore high-quality investments. Blue chip stocks are typically large companies, and many of them are household names. In some cases, blue chips may be more expensive to invest in since they can be considered relatively stable and likely to grow.
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When governments or corporations need to borrow money they issue bonds. Investors who buy the bonds are effectively loaning that entity cash, which will be repaid according to the terms of the bond (e.g. a 10-year bond with an interest rate of 3%). Bonds are often considered to be relatively stable, lower-risk investments compared with stocks.
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An investment broker, whether a person or a firm, acts as a middleman to help investors buy and sell securities. Brokers may be necessary because some securities exchanges only allow members of that exchange to make an investment order. A broker’s primary function is to help clients place trades, although many brokers also help clients with market research and investment planning.
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You’ve probably heard that you should aim to have a diversified portfolio. That means investing in a range of asset classes that are likely to behave differently under different market conditions, in order to mitigate risk. A portfolio of only stocks, for instance, could be more vulnerable to market volatility than a portfolio that also included bonds, real estate, commodities and so on.
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When a company shares their profits with investors, these are called dividends. Dividends are often paid in cash (although they can be paid in stocks). Some companies — e.g. many blue chip firms — pay dividends, but not all companies do. Ordinary dividends are taxed differently than qualified dividends, so you may want to consult a tax professional if you own dividend-paying stocks.
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Also called fractional share investing, dollar based investing is a way for investors to buy partial shares of stocks. Instead of buying shares of a company, you instead invest a dollar amount. Dollar based investing is a great way for smaller investors to buy into popular companies that they may otherwise be priced out of.
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EBITDA is a way to evaluate a company’s performance that is considered more precise than simply looking at net income. EBITDA stands for: earnings before interest, taxes, depreciation, and amortization. To calculate EBITDA, use the following formula: Net Income + Interest + Taxes + Depreciation + Amortization.
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EBIT is a simpler way to calculate a company’s profits than EBITDA, as it’s only one part of the EBITDA equation (literally!). It stands for “earnings before interest and taxes.” It’s calculated using this formula: Net Income + Interest + Taxes.
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EPS stands for earnings per share, which is a common way investors measure how well a stock is performing. EPS is calculated by finding a company’s quarterly or annual net income and dividing it by the company’s outstanding shares of stock. Increases in EPS can be a sign that the company’s profit performance is on the upswing, whereas a decrease can be a red flag for investors.
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Exchange-traded funds, or ETFs, are similar to mutual funds in that the fund’s portfolio can include dozens or even hundreds of different securities, and investors buy shares of the fund. Unlike mutual funds, ETF shares can be traded like stocks throughout the day (mutual fund shares are traded once a day). Most ETFs are considered lower-cost, passive investments because they track an index, although there are actively managed ETFs.
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An expense ratio is an annual fee investors pay to cover the operating costs of mutual funds, index funds, ETFs and other types of funds. Fees are typically deducted from your investments automatically (you don’t pay a separate charge), and they can reduce your returns over time so it’s wise to shop around for lower fees. Expense ratios are calculated using this formula: Total Funds Costs / Total Fund Assets Under Management.
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Free cash flow is the money a company has after it has paid its expenses. This number is important to investors because it can show them how likely it is that a company could have extra cash for dividends or share buybacks. A continuous decrease in free cash flow over a few years can also be a red flag to investors.
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Growth stocks are shares in a company that’s growing faster than its competitors, typically showing potential for higher revenue or sales. Growth stock companies may be considered leaders in their industry.
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Hedge funds are usually managed by an LLC or limited partnership that invests in securities and other assets using money from multiple investors. Hedge funds tend to be more risky and expensive than mutual funds or ETFs, which often makes them accessible to more wealthy investors.
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Index funds are a type of mutual fund that invest in securities that mirror a particular index, such as the S&P 500 Index or the MSCI World Index. Indexes track many different sectors, from smaller U.S. companies to big global companies to various kinds of bonds. Each index acts as a proxy for how that market sector is performing; the corresponding index funds reflect that performance.
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The interest rate is the amount a lender charges to borrow money — and it can also mean the amount your cash earns in a savings, money market or CD account. The baseline interest rate in the U.S. is set by the Federal Reserve. This rate in turn influences savings rates, mortgage rates, credit card rates and more. Generally, when the Federal Reserve lowers interest rates, the stock market tends to rise.
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A large-cap company has $10 billion or more in market capitalization. These companies are often considered industry leaders, and are relatively conservative, low-risk, and safe investments. A company’s stock may be considered large cap, mid cap or small cap.
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Market capitalization, or market cap, is the value of a company’s total outstanding shares. It’s often used to measure a company’s value and build a diversified portfolio. You can calculate market cap by multiplying the number of outstanding shares by the current price per share. Companies with lower market caps usually have more room to grow and usually are associated with newer companies, meaning they can also be riskier.
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Mid-cap companies are usually between $2 billion to $10 billion in market capitalization, putting them somewhere between small- and large-cap companies. Many mid-cap companies are in a growth phase, making them attractive to some investors who believe the company may grow into a large-cap over time, although this is not guaranteed to happen.
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Mega-cap companies are the largest companies you can invest in, with a market value of $1 trillion or more. Mega-cap stocks are typically industry leaders and household name brands, like Apple or Microsoft.
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Mutual funds may invest in stocks, bonds and other securities — or a combination of these (e.g. a blended fund). Mutual funds can also be industry-specific (such as a mutual fund consisting only of energy stocks, green bonds, or tech companies and so on).
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When talking about investing, net income usually refers to how much a company makes (or its total losses) after it has paid all its expenses. Net income is therefore usually calculated by subtracting a company’s expenses from its revenue. Investors may want to know a company’s net income because it can help determine how profitable the company is, although EBITDA (defined above) is another measure.
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Not all stocks are publicly traded. These “private” stocks, often called over-the-counter stocks, usually have to be traded through a broker. Companies may offer OTC stocks if they don’t meet the requirements to be traded publicly. Such companies are often startups or other small companies. So, while these companies may eventually grow to be able to trade publicly, investing in them also carries the risk that they may fold or even engage in fraudulent activity since the market is far less regulated than publicly traded markets are.
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Investors commonly use P/E or price-to-earnings ratios to gain insight into how profitable a company is compared to its stock price. In other words, price-to-earnings ratios can help investors decide if the price of a stock is worth it when compared to how much a company is making.
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Banks are likely to offer their best customers — those with the best credit histories and the lowest risk of defaulting — a prime interest rate for a loan. The prime interest rate is generally the lowest rate the bank will offer. A bank’s criteria for determining their prime interest rate may vary, but most banks consider the federal funds rate when setting any interest rate.
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Portfolio management simply refers to how you select and manage the investments in your portfolio. There are many different management styles, such as active or passive, growth or value. Additionally, you can elect to manage your own portfolio or hire an individual or group to manage it for you.
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A preferred stock means investors own shares in a company and get scheduled dividends, similar to how bond interest payments work. Preferred socks may not fluctuate in price like common stocks do, meaning they are often less volatile and risky.
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You probably know what profit and losses are, but do you know how to read a company’s P&L or profit & loss statement? It can help you determine a company’s bottom line, as it can show you how well a company is doing compared to its peers in the same industry. If you’ve never read one before, this article about profit & loss statements could give you some tips on what to look for.
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Companies that offer stocks, bonds and mutual funds to investors are required to file a prospectus with the Securities and Exchange Commission that provides details about the investment they are offering (e.g. the expense ratio, the constituents of a fund and more). Investors can use the prospectus to better understand a given security and how it might fit in their portfolio, or not.
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A recession is a period of economic contraction. The National Bureau of Economic Research (NBER) defines a recession further as a decline in monthly employment, personal income, and industrial production. As an investor, a recession may indicate a drop in the value of your portfolio, although this may be temporary: When looking at the history of U.S. recessions, the stock market has typically rebounded after recessions.
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Real estate investment trusts (REITs) are a way that investors can further diversify their portfolios. Instead of having the responsibility of managing an investment property yourself, you can invest in REITs, which are generally large-scale real estate projects that investors can help fund in exchange for partial ownership. Most REITs are publicly traded and pay dividends to investors.
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When looking for a company’s net income statement, you may come across the term “retained earnings,” also sometimes called unappropriated profit, uncovered loss, member capital, earnings surplus, or accumulated earnings. In general, retained earnings is the amount of money a company keeps and potentially reinvests after it gives its investors a dividend payout.
As an investor, knowing whether a company had positive retained earnings can help you determine how much money it has to continue growing. If its retained earnings are negative, that could be a sign the company is in debt and may not be a good investment.
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Return on equity, sometimes called return on net worth, can help investors compare how well companies are managing their stockholders’ contributions. You can calculate it using this formula: Net income/Average shareholder equity. A higher return on equity can signal to investors that a company is managing its money efficiently.
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Return on investment (ROI) is just that: the return you get after making an investment in a stock, bond, mutual fund, and so forth. Investors generally hope for a positive ROI, meaning that their investment has made a profit. While a good ROI will vary depending on the type of investments you’re making, some investors look to the historic return of the stock market (about 7%) as a barometer.
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A small-cap company usually has a market cap of $250 million to $2 billion. Investors may be attracted to a small-cap company because they believe it has growth potential or may be undervalued.
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SPAC stands for special purpose acquisition company. SPACs are shell companies that list shares on an exchange to raise money so they can merge with a privately held company. Once the merger between the public SPAC and the private company is complete, that company is now in effect a public company — which is why a SPAC is sometimes called a backdoor IPO. Many companies may elect to use SPACs instead of traditional IPOs because they are often faster and less expensive.
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If you’ve made it this far, you probably know what a stock is. To review, a stock is a way to buy a piece of ownership into a company. You can buy and sell your stocks depending on whether you anticipate your stocks will decrease or increase in value.
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A stock exchange is the place where you buy, sell, or trade stocks. Common U.S. stock exchanges are the New York Stock Exchange (NYSE) and the Nasdaq.
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A stop-loss order can help investors have more control over their stocks. When a stock reaches a certain price that you choose, your broker will sell, buy, or trade that stock. Having a stop-loss order can help you limit how much money you make or lose in the stock market.
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A target date fund is a type of mutual fund that includes a mix of asset classes to provide investors with a portfolio that adjusts over time to become more conservative as they age. Target date funds are often used to help investors plan their retirements. Target funds are typically constructed around various target retirement years (e.g. 2030, 2040, 2050) so investors can pick a date that corresponds with their hoped-for retirement.
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A value stock is a stock that investors believe is undervalued and/or inexpensive compared to its past prices on the stock market or with its competitors. Investors may consider a stock’s price-to-earnings ratio to help them determine if something is a value stock.
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Venture capital is money a startup uses to grow its business. This money usually comes from private investors or venture capital firms. Investors may elect to invest venture capital into startups they believe have the potential to be profitable with time.
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Yield is another way of referring to the return of an investment over a set period of time, expressed as a percentage. You may hear the term in relation to bonds (e.g. high-yield bonds), but yield is more accurately a measure of the cash flow an investor gets on the amount they invested in a security during that time period, and is different from total return.
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Getting familiar with a few key investing words and phrases can go a long way in helping you gain confidence when you’re new to investing. Getting fluent with investing terminology is like any other pursuit — there’s a learning curve at first, but the terms will feel more natural as you move forward and start investing regularly.
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This article originally appeared on SoFi.comand was syndicated by MediaFeed.org.
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