Dear DTA,
I’m a single mother and have been out of school for quite some time. I did very well in my economics class with mock stocks. I’ve been seeing recommendations for penny stocks. And these marijuana stocks seem like an idea I’d be very interested in. I’ve never invested in the stock market except for hypothetical situations in my economics class. Any information would be very helpful. I’m trying to gain independence, and I believe I could excel with the right advice and information. Thank you very much!
-Rebecca M.
Hi, Rebecca. Thank you so much for taking the time to write in. We very much appreciate our readership, and that’s why we started this series of mailbag articles. We want to help and reach out to readers just like you.
First, that’s great that you took an economics class. It’s even better that you did well. That bodes well for you.
Keep in mind, too, that these aren’t just “stocks”.
These are businesses.
When you buy a stock, you’re buying a small piece of ownership in a real company.
So if you’re buying a “penny stock”, the odds are pretty good that you’re buying into a business that isn’t doing terribly well.
That’s usually why it’s a penny stock.
And while I share your enthusiasm for the growing marijuana industry, it’s very difficult to invest in it now.
That’s because the industry isn’t even legal across the entire country yet. As such, it’s incredibly risky.
It’s also still very new. And so the true long-term winners and losers haven’t really emerged yet.
Moreover, due to the aforementioned legal issues, the industry is largely cash – which makes it tough to know exactly what you’re getting into.
You say you want to gain independence.
Well, I know all too well how you feel.
It was just a few short years ago that I wanted independence with every ounce of my being. I wanted it so bad, I could feel it.
I knew there was this future me who was completely financially independent, largely able to go about life as he chose.
But I was stuck with the me of the current time – a guy who was below broke.
That’s right. In early 2010, at 27 years old, I was worth a negative amount of money.
The fact that I was able to be alive for 27 years old and go backwards in wealth relative to the $0 net worth I was born with mystified and disappointed me.
But it also motivated me.
And so I started aggressively saving my money and investing that excess capital into high-quality dividend growth stocks like those you’ll find on David Fish’s Dividend Champions, Contenders, and Challengers list.
It was a plan I hatched after reading about how really successful investors had amassed great wealth and freedom.
It worked out fabulously, as I reached financial freedom just six years later, at the age of 33.
The real-money, real-life stock portfolio I built in the process now generates five-figure passive dividend income on my behalf, which covers my basic core expenses in life.
So believe me when I say I know exactly how you feel when you say you want independence. It was something I craved so badly that I ended up changing my entire life in order to achieve it.
But you have to go about it correctly, and chasing after low-quality businesses that are just barely publicly listed probably isn’t how you want to approach your journey to financial independence.
Can you make money trading penny stocks?
Sure.
You can also make money playing the lottery or gambling at a casino.
That doesn’t mean it’s a viable long-term strategy to building reliable and predictable wealth and income.
Instead, I recommend investing in high-quality businesses that reward shareholders with growing dividends.
Dividend growth investing is the strategy I used to personally achieve financial freedom in just a few years, and it’s just an incredibly robust, tangible, and approachable strategy that can work for just about anyone.
If you look at some of the world’s most successful investors – Warren Buffett is perhaps the best example – you’ll notice that many of them invest in wonderful businesses for long periods of time.
Well, growing dividends is a great initial litmus test for quality, as dividends are paid in cash from cash.
A business can’t pay increasing dividends for years or decades on end without the growing profit necessary to sustain that behavior.
That’s why lengthy dividend track records are typically reserved for only the best businesses in the world, which makes them ripe for long-term investment.
A company that is able to increase revenue and profit through multiple economic cycles, technological shifts, and generational changes has an incredible and proven business model that should endure, which means the odds are good that you can look forward to ever-larger dividend checks.
Just take a look at PepsiCo, Inc. (PEP), for example.
They’ve increased their dividend payment for 45 consecutive years.
That time frame includes the likes of: Vietnam, Black Monday, 9/11, and the Great Recession.
Yet Pepsi kept on paying and increasing their dividend.
How so?
People continued to buy their beverages and food products, which means the company’s revenue and profit continued to rise, allowing those larger dividends to be funded and paid.
People don’t stop drinking orange juice or eating oatmeal simply because the economy isn’t doing well. And so that gives an investor in a high-quality company like Pepsi some reassurance that the income is going to keep coming in, almost regardless of what is going on in the world.
When you think about financial independence, you want to think about durable and sustainable passive income. You want to know that you can go about your life almost as you please, without worrying about how the bills are going to be paid. That’s real independence.
And don’t worry about jumping on the marijuana train too late.
Check this out.
Altria Group Inc. (MO) is one of the best dividend growth stocks out there. The company has paid an increasing dividend for 47 consecutive years.
They sell tobacco products, like Marlboro cigarettes (the country’s #1 cigarette brand).
Well, cigarettes have long been past the peak they experienced back in their heyday (in terms of volume and overall smokers).
Yet investors didn’t need to get into Altria back in the 40s to do really well.
You could have invested in Altria just five years ago – long after the decline of cigarettes began – and you still would have done really well thus far.
The stock has more than doubled over the last five years. Plus, it’s paid out a sizable and growing dividend all the way along.
We’re talking an annualized total return well into the double digits here, and this is in an industry that is supposedly on the decline.
So you don’t need to jump on the marijuana train right away to do really well.
If the industry is going to be what many of us think it will, you have plenty of time to get in and do really well – after things are sorted out and it’s easier to figure out the real winners.
In fact, if the marijuana industry ends up anything like the cigarette industry, you have many decades of opportunity ahead of you.
There’s even a possibility that the major tobacco companies – like Altria – end up getting into the industry after legal and regulatory issues are sorted out.
There are so many opportunities around you, Rebecca. It’s totally unnecessary to get into high-risk penny stocks.
If you instead methodically and systematically build a portfolio of really high-quality businesses that value shareholders and reward you with growing dividends, you could end up totally independent sooner than you think.
There are plenty of resources designed to help and educate you. And since you did well in economics, you’ll probably pick up on things pretty quickly.
One resource is fellow contributor Dave Van Knapp’s lessons on dividend growth investing, which is basically a series of articles that highlight the entire dividend growth investing strategy. You’ll learn why it’s such a great long-term investment strategy and how to successfully implement it.
And then when you’re ready to actually put capital to work, I highlight an undervalued high-quality dividend growth stock every Sunday.
You have the tools right in front of you. You have the background. And you have motivation.
But the key, as always, is to get started as soon as possible.
I wish you luck and success.
Jason Fieber
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Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.