Sunday , 6 October 2024

Dividend Stocks Belong in Your Portfolio – Period! Here’s Why & How

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:

  1. Simple Business: …Focus on companies with businesses that you understand, rather than massive corporations that have dozens of often puzzling segments.
  2. 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.).
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.

Have your say on the subject via:

We’d like to know what you have to say.

Related Articles:

1. Attn. Financial Advisors: How Much Asset Class Diversification Is Really Necessary?

[No one would argue that] diversification is not a sound investment practice but exactly how much risk reduction, in actual numbers, is obtained through application of this philosophy? This analysis is an attempt to quantitatively determine its relevance – [and you will be surprised by the answer. Read on!] Words: 1317

2. Understanding Systematic Risk, Modern Portfolio Theory and the Efficient Frontier

Risk inherent to the entire market or market segment is referred to as systematic risk and modern portfolio theory says that a blend of investments has the potential to increase overall return for a given level of risk, and/or decrease risk for a given return that the investor is trying to achieve. The expected risk/return relationship is known as the efficient frontier. [If you have a portfolio of investments then you need to fully understand what all this really means and how you can apply it to your portfolio makeup to enhance returns under any circumstances. Let me do just that.] Words: 1325

3. Should Stocks Be the Cornerstone of Your Portfolio?

There is a common notion that stocks, at least if held for a long-time, outperform other assets [and, as such,] should be the cornerstone of any long-term portfolio. [While that is indeed true,] it is best to focus first on how much you are able and willing to lose (i.e. what risk you are able and willing to bear) when determining the optimal allocation for your portfolio. [Only] then [should you] think about what potential investment returns you might be able to capture. [Let me explain.] Words: 1503

4. Value Investing: The Practical Application of Benjamin Graham and Warren Buffett’s Principles

While the average amateur investor may be excellent in their own career field, it doesn’t mean they know what to invest in, or how to pick stocks. In fact being very good at your field can give you the false sense that whatever stocks you pick or your broker picks for you must be good, because after all, you picked them and you picked your broker — and you’re smart so, no doubt, those stock prices will go up. Unfortunately, the smart and talented stock-picking neophyte is not investing at all but speculating. Words: 924

5. Motivated Stock Pickers CAN Beat the Market! Here’s How

What hope can there be for motivated stock pickers – no matter how much they sweat and toil – to outperform the low-cost index funds that simply mechanically track the market? Well – in spite of the absurd rise of the Nobel-acclaimed, and highly promoted, Efficient Market Hypothesis that claims that individual investors can’t beat the market – it turns out there is plenty! Just ask Warren Buffett, for one. [Let me explain.] Words: 1574

6. Don’t Invest in Mutual Funds! Here’s Why

The amount of evidence stacking up that…mutual funds…do not provide value for their investors is just staggering…While there are certainly signs that the public’s tolerance of excessive fees and executive pay is falling, the likelihood of significant structural change in the finance industry is still remote. Given such a backdrop the probability remains that investors in funds will, on average, continue to underperform their benchmarks. So what is an investor to do? [Read on!] Words: 830

7. I’m Hooked on Dividends – Here’s Why

Dividends aren’t just for Warren Buffett and retirees. Dividends have the power to support your goals of becoming independently wealthy. Here are 3 reasons why. Words: 586

8. Don’t Invest in the Stock Market Without Reading This Article First

History has shown that investors who stick to disciplined, fundamental-focused strategies give themselves a good chance of beating the market over the long haul and James O’Shaughnessy has compiled data that stretches back to before the Great Depression…back-tested numerous strategies, and has come to some very intriguing conclusions. [Let me share some of them with you.] Words: 1325

9. Size Does Matter: A Look at Market Capitalization and What It Means for Investors

People choose certain stocks for many different reasons – business location; sector strength; product innovation – but some investors choose what to buy based on company size, or market capitalization [believing that size does matter. Yes,] understanding the difference between small-cap, medium-cap and large-cap companies is the first step to making the right choice. [Let me explain.] Words: 600
Many income investors have been taught to believe that “market-timing” is anathema to their investment objectives and/or that it can’t be done successfully… I will argue that this piece of conventional wisdom is false – dangerously false. In a three-part series of essays, I will argue that market-timing needs to be incorporated as a fundamental component of income investing. I will demonstrate why market-timing is important, when it should be applied and how it should be implemented. [Read on!] Words: 1956