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.
LTC Properties Is a Top Monthly Dividend Stock If you are an income investor, you know that few things are better than monthly dividend stocks. We have to pay bills every month, so why wait a quarter to collect dividends?.
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This Midstream Partnership Delivers Big Returns In today’s ultra-low-interest-rate environment, double-digit yields are extremely difficult to find. But investors of this midstream energy partnership have been enjoying a close-to-10% yield for quite a while. I’m looking at Blueknight Energy Partners.
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Procter & Gamble Stock Is a Top Dividend Pick Procter & Gamble Co (NYSE:PG) stock isn’t really an exciting name in today’s market, but if you held on to PG stock for the past 12 months, you would have made.