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Saturday, July 14, 2007

Puplava on value investing

Jim Puplava's Financial Sense Newshour, July 7: to get rich slowly but surely, invest in companies that pay high dividends.

Puplava quotes research showing that over 100 years, the stockmarket has grown by 5.4% per annum, but reinvesting the dividends raises the return to 10.1% p.a. Over a long period, this margin compounds up impressively.

Features he suggests you look for:
  • a low P/E ratio (i.e. a high dividend proportionate to share price)
  • essential industries - companies that make things people need constantly or frequently (e.g. energy, consumer staples)
  • companies that have a record of increasing dividends over the years
  • larger, more mature companies - ones that have gotten past the stage of having to plough back most of their profits into R&D
  • strong cash flow and earnings growth
  • good management and solid corporate governance

In response to a listener's question, Puplava opines that the utility sector is currently "grossly overvalued", but says there may be reasonably-priced shares available in oil and consumer product companies.

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