If you don’t have dividend stocks in your portfolio, you’re making a costly mistake because the best-performing stocks over the long haul are dividend stocks. Period. Countless studies prove it, too. Don’t waste your time on Google trying to verify that claim. The evidence is right here! [Let’s take a look.] Words: 620
So says Louis Basenese (wallstreetdaily.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Basenese goes on to say, in part:
As you can see below, dividend payers – especially companies that consistently increase their dividends – trounce non-dividend paying stocks by a country mile.
…It’s actually easy to find high-yield, dividend investments in this zero-yield world and, not only that, ones that are reliable and virtually immune to dividend cuts or suspensions.
Here’s How to Find Safe, High-Yield Investments
When you’re looking for the best dividend-yielding stocks…don’t chase yield because a high yield typically indicates that there’s a higher risk of the dividend being cut, or – even worse – being eliminated altogether. Instead, focus on companies with the following seven characteristics:
- Simple Business: …Focus on companies with businesses that you understand, rather than massive corporations that have dozens of often puzzling segments.
- Steady Demand: After identifying companies with simple business models, the next step is to verify that there’s demand for the product(s). After all, a company needs a steady stream of cash so it can afford to pay dividends to shareholders. Stick to industries or sectors with recession-proof or recession-resistant demand (food, alcohol, tobacco, healthcare, etc.).
- Cash Flow Positive: If a company isn’t generating cash each quarter, the only way to pay a dividend is by borrowing or tapping into cash reserves. Such practices aren’t sustainable over the long term – and the dividend will eventually be cut.
- High Cash Balance: Speaking of cash… it’s still king…especially when it comes to maintaining a dividend. Consider it insurance against any unexpected slowdowns. At a minimum, insist on enough cash to cover two quarter’s worth of dividends.
- Minimal Need for Credit: Even now, securing credit is difficult. Accordingly, I recommend focusing on companies that don’t need to raise significant amounts of capital…because, when interest rates rise, so will their interest payments.
- Earnings Buffer: Insist on a dividend payout ratio (annual dividends divided by annual net income) of 80% or less. This will provide ample wiggle room for the company to pay the dividend in the event of an unexpected slowdown.
- Go With Dividend Growers: Everybody loves a raise and it’s no different when you’re investing in dividend stocks. I prefer companies that have increased their dividend for at least 10 years. Pulling off such a feat demonstrates management’s commitment to shareholders and underscores the strength of the underlying business.
It’s easy to find such companies, too. All you have to do is consult the handy-dandy list of companies included in the U.S. Broad Dividend Achievers™ Index.
*http://www.wallstreetdaily.com/2011/06/07/7-key-steps-for-dividend-investing/ (To access the article please copy the URL and paste it into your browser.)
Editor’s Note: The above article has been has edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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