Dividend Investing
April 4, 2018 2021-08-03 18:05Dividend Investing
Dividend Investing
Many of you may have heard the saying, “Slow and steady wins the race”. This is true when it comes to dividend investing. Dividend investing is for investors who are looking for stable and long term growth for their portfolio. However, dividend investors must acknowledge that their stocks may not look very attractive in the short run. It is true that dividend paying stocks may not outperform the market or increase in value by 15% in one quarter. Dividend paying stocks may perform average or below average for the short term. Therefore, it is important to have the mindset and patience for your investment to grow.
On the plus side, dividend paying stocks can decrease the amount of risk in your portfolio. Dividend paying stocks may be more attractive for investors who do not have the stomach for high volatile stocks (For example: the technology industry). However, in the long-term, dividend stocks are more reliable to provide you with a substantial return, even in bad times! But, how do you find good dividend stocks? Well here are some basic tips:
- The company should have a long history of paying dividends (ideally 10 years or more).
- Look for annual and consistent increases in dividends. For example: you may see a company increasing dividends by $0.2 every year. Thus, this shows that the company is consistent and they have a spectacular management team. However, this part may be tricky and it may involve some research. Find out if the company has enough cash to distribute increasing dividends. Also, if you see that there may have been a year where a company has not paid any dividends, try to find more about that situation. A great example are the banks. They were the best dividend paying companies until the financial crisis. However, some of the banks are once again raising their dividends. Toronto-Dominion Bank has bumped their quarterly cash four times in the past two years.
- You can also select dividend stocks by looking at the payout ratio, which indicates how much of a company’s earnings are being paid out to shareholders.
Overall, dividend paying stocks can help increase your return on your portfolio. Not only it can add value, but it can add security to your investments for the long term.