Dividend investing can be an excellent way to invest in stocks but there a few things you need to know before you get started.
Dividend investing is an strategy for investing in stocks to revolves around buying shares in a portfolio of companies that have a history of paying dividends.
By investing in this dividend stocks, you can establish a reliable income stream.
And the more often you receive and reinvest your dividends, the higher your eventual rate of return.
On the face of it, you might think that the stocks with highest dividend should be a better bet. Unfortunately it might not be
But there’s more to it.
Here are a few things you need to note:
1⃣ Quality – This is measured by the dividend yield which is the ratio of the dividend to the current stock price. The higher it is, the better.
2⃣History – It is important to consider how long the company has been paying dividends.
3⃣Consistency – Has the company had an unbroken history of making dividend payments. You will also need to strip out companies that made one off dividend payments.
4⃣Growth – This is assessed by the historical growth rate as well as the potential growth rate.
5⃣Safety – This is measured by the dividend payout ratio. This ratio tells the proportion of profit that is paid out to investor. So the dividend from company paying out 50% is likely to be more reliable than that of a company paying out 80%.
Accessing a company on all this points would help you fish out the ‘dividend aristocrats’.