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.
Bank stocks are having some solid gains recently as the U.S. Federal Reserve makes a June interest rate increase look like a real possibility. KeyCorp (NYSE:KEY), which operates through its subsidiary KeyBank National Association, just announced another catalyst, though—a dividend.
Southwest Hikes Dividend 33% In a sector often dismissed by investors, one company is trying to prove the skeptics wrong. On Wednesday, Southwest Airlines Co (NYSE:LUV) announced it will hike its dividend and ramp up its share buyback program next.
Defense Contractors Cashing In Media reports of beheadings and car bombings can be horrifying. But those fear-mongering reports scrolling across CNN sound like cash registers for one company—Northrop Grumman Corporation (NYSE:NOC). On Wednesday, the defense contractor announced another dividend hike.
Is Potash Corp’s Dividend at Risk? Potash Corporation of Saskatchewan Inc (NYSE:POT, TSE:POT) posted weaker-than-expected earnings and slashed its full-year guidance, leaving some analysts worried the company’s dividend could be at risk. On Tuesday, Potash Corp reported a big drop.
Financial Firms Cashing In Movies like The Big Short tell us of a banking culture run amok, but one bank always seems to keep a healthy cash flow: JPMorgan Chase & Co. (NYSE:JPM). Earlier this month, the financial giant declared.
Delta Will Bump Annual Dividend to $0.81 In an industry often despised by investors, one company is trying to clean up its act. In a presentation to analysts on Tuesday, Delta Air Lines, Inc. (NYSE:DAL) announced it will hike its.
Canadian financial services company Equitable Group Inc. (TSE:EQB) reported earnings and raised its dividend again. However, the highlight was actually one of its new initiatives. On May 12, Equitable Group released its earnings for the first quarter of 2016. Net.
Loblaw Companies Limited (TSE:L), the largest food retailer in Canada, just released a solid earnings report and raised its dividend. On May 4, Loblaw announced its financial results for its first quarter (ended March 26, 2016). The company generated $10.4.
If you thought that a cold winter would deter Canadians from going to the movies, you’d be wrong. Cineplex Inc (TSE:CGX), the company that owns and operates most of the movie theaters in Canada, just released a tremendous earnings report.
Exxon Mobil Boosts Dividend Slightly Exxon Mobil Corporation (NYSE:XOM) managed to eke out only a small dividend hike last quarter, signaling the energy giant is getting by, even under the weight of low oil prices. On Wednesday, the world’s largest.