Stocks that provide dividends are an excellent way to build long-term wealth. Not only do dividends provide investors with regular income, but dividend stocks can also help investors weather market volatility. How? Whether the markets are going up, down, or sideways, dividends provide investors with a steady income stream.
Having said that, while dividends are usually paid out quarterly, at the discretion of the company’s board of directors, they can be raised, cut, or eliminated.
Not all dividend stocks are created equal. As a result, there are a number of factors investors need to consider when looking at dividend stocks.
Dividend yield is one of the most important factors to consider when investing in dividend stocks. It might be tempting to just invest in a stock with the highest dividend yield, but there is a risk/reward trade off when it comes to dividend-yielding stocks—the higher the yield, the greater the risk.
Stocks that provide an annual dividend of 10% or more tend to be very risky. Because they are risky, there is a greater chance the dividend could be cut—or worse, the share price could plummet. This means investors lose out on dividend growth and capital appreciation.
History is another important factor to consider. Look for stable companies that have a long history (five, 10, or even 25+ years) of both paying an annual dividend and increasing that dividend annually. Those stocks that offer annual dividend growth as part of their corporate culture are more likely to continue that trend.
The best way to determine whether or not a company can continue to provide an annual dividend and raise its yield is to look at the company’s free cash flow. Free cash flow is the amount of free cash, or money left over after it pays for operations and necessary capital expenditures. The more money a company has in the bank, the greater the chances are that it can sustain or increase its high dividend yield.
A Top Dividend Growth Stock for Income Investors If you’ve been following the markets long enough, you’ll probably have noticed that there is always a strong demand for dividend growth stocks. And this shouldn’t come as a surprise: no matter.
Finally, a Safe High-Yield Stock Dividend investors treat high-yield stocks like children treat cookies: they can’t get enough. High-yield stocks generally represent low-quality businesses. Like sweet treats, the adult in all of us needs to avoid these temptations. But once.
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Main Street Capital Corporation Now Pays 7% I usually avoid high-yield stocks, and for good reason. Each day, I screen the market for new investment ideas. And with a few mouse clicks, you can pull up dozens of high-yield securities..
Microsoft Stock Delivering Huge Returns If you’ve been following financial news lately, you’ll likely have come across Microsoft Corporation (NASDAQ:MSFT) stock in the headlines. MSFT stock has been trending up for nearly a decade, and thanks to the latest earnings.