Investing in the stock market is one of the most sought after methods of earning some extra cash. But this method can be highly profitable only if you do the selection process correctly. And unfortunately, choosing the correct stocks to invest in can prove to be quite a challenge. Do not worry. Here are some points to help you decide.

Think of long-term earnings
Before investing in a company, it is crucial to study it. The company’s history can tell a lot about their future and which way they are heading. It would be best to look for firms with an annual earnings growth of more than 5%. This shows the entity has true potential with steady growth and is likely to provide you with a good profit.

However, companies with too much annual earnings growth (more than 15%) are more likely to flourish temporarily. This can backfire if you are looking for high-yield stocks. According to statistics, companies with rapid development disappoint in later stages as they have a hard time handling the growth.

Stay aware of the news
Most often, a stock is severely affected when it is mentioned in the news. This is because the market is usually swayed by the general public. They react to seeing a company on the news, and their stocks may rise or fall drastically depending on the portrayal.

For instance, if Apple comes out with a new iPhone, the chances are that the company’s stock will rise substantially. This is because people will predict that the stock will rise soon. And the hopes of buying it low and selling it high will create a buying surge. These stocks also become very volatile due to their massive upwards momentum. Once they reach a stagnation point, they come crashing down since everyone starts selling out of fear.

Study the dividend payout ratio
A company’s dividend payout ratio is the ratio of dividends paid to the shareholders to the amount the company retained. This ratio can tell a lot about the firm. Purchasing stocks of low or high dividend payout ratio companies can be extremely foolish.

A percentage of 0% to 35% is decent for a company, whereas 35% to 55% is outstanding. Any other percentage exceeding this range can be dangerous and, more often than not, is a risk not worth taking. You could hit the jackpot by investing in a company with a decent ratio percentage, as they might pay you significant dividends in the future. However, a company with an average percentage may be a more reliable source of income.

Focus on market cap
Most brokerage services provide valuable tools for identifying the right company. These tools can prove to be invaluable to an investor. When selecting a high-yield stock to invest in, you can use these measures to find beneficial information to make your search easier.

Investing in stocks of generally high-value companies at their 52-week low is one way of potentially making a lot of money quickly. A Fortune company generally will not be at its 52-week low for long. Other methods such as the open and closing price can also indicate the potential direction of the security.

The stock market is a vast arena with a massive potential for making a profit. But if you are in the market without adequate knowledge, your luck may not be good enough, and you may lose a large sum simply by investing. But if you use this guide, you can control your profits yourself rather than waiting for a good luck charm to turn things around. In little to no time, following these simple yet valuable tips will make you a successful investor.