Dividend investing immediately comes to your mind when the country is having record low-interest rates, a recovering residential real estate market, strong cash balances and investors searching for yield.
Dividend investing has been a time-tested way to profit from stocks. In these times of ever falling bank interest rates coupled with uncertainty in other forms of assets, dividend investing has gained more traction. More so, whether the economy is booming or not and whatever your goal be.
For most stocks, the dividend income just keeps coming despite the swings in the market. For this reason, dividend investing can be worth it for investors with high net worth. Dividend investing has been a traditional source of expected steady retirement income for many decades.
Dividend investing offers a chance to create a regular stream of income in addition to the growth in a portfolio's market value from asset appreciation. Buying stocks that pay dividends can reward you over time as long as a few guidelines are followed and care taken while making intelligent buying choices.
Do income-seeking investors look only for dividend yield? On the contrary, many other factors are equally important while selecting stocks for this purpose.
The first and foremost being to identify companies known for their long-term outperformance. This done is just like having won almost half a battle.
The screening continues for companies with a high return on capital. Such companies tend to have sustainable cash flow and are likely to be hiking dividends. Companies with stable and increasing dividends are the most sought ones.
Good investors while seeking good returns look for safety also simultaneously. This is reflected primarily by the dividend payout ratio.
As one bad event could wipe out the whole thing, it is always wise to go for companies with a stable income and cash flows with an adequate payout ratio besides looking for good dividend yield. By investing in a company currently paying lower-than-average dividends but growing quickly may eventually turn out to be a wise decision years later.
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