Michael Ralby on Do Good Companies = Good Stock?

If you are looking to invest your money in a high stock, you probably look at the health of a company as an indicator that it is a good investment. However, this is not always the case. If you aren't aware of what to look for, you could be fooled by companies that are a great investment in theory but bad on paper.

Take Coke, for instance. As one of the world's leading brands, it has an excellent reputation and is known everywhere. However, Coke is already developed as a brand. If you invest today, you are not likely to leave the position with a significant lump sum of cash.

Stocks like Coke are major brands that are already established. That means they will have a steady stream of revenue, but the upside potential for massive growth is not there. There is one way they can benefit you though, and that is in the form of dividends.

With dividend investing you are looking at the payouts per quarter or month that the stock will give you. In essence, you risk your money upfront when buying the stock. Eventually, you hope the dividends will pay you back and then some so you can profit off of the purchase.

Dividends can be profitable over the long term and give you a stable income. However, they don't always come to fruition. When looking at stocks, ask yourself if the company is on the rise or the decline. A company like Coke might have steady revenue, but looking at its numbers for the last decade compared to the last several decades makes it clear that people are moving away from those kinds of beverages.

As an investor, you want to find companies whose stocks are not always touted by every major financial news company already. By the time it's hitting the mainstream, it could be too late. Instead, look for companies with stable earnings that you can scoop up at a low ratio that lets you ensure profit sooner rather than later and reduce your risk overall in the short and long term.

When it comes to getting more for your investments, you want to look further than the company itself. While a company in good health is usually a good sign, it doesn't mean it will necessarily be a great stock for you. Make sure you understand the various aspects of the market and potential growth rate before parking your hard earned money in a shiny new investment.

Originally posted at MichaelRalby.com