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.
Canadian telecom company TELUS Corporation (NYSE:TU, TSE:T) reported lower-than-expected profits on Thursday, yet the company hiked its dividend and extended its dividend growth program. In the first quarter of 2016, Telus generated $3.11 billion in operating revenue, up 2.6% year-over-year.
Johnson & Johnson (NYSE:JNJ), the maker of “Tylenol,” “Band-Aid,” and myriad other brands, just hiked its dividend. Could this add fuel to the recent rally in JNJ stock? On Thursday, April 28, Johnson & Johnson announced a 6.7% increase in.
100 Years of Consecutive Quarterly Dividends International Business Machines Corp. (NYSE:IBM), nicknamed Big Blue, has hiked its quarterly dividend, but the move did little to impress IBM stock shareholders. On Tuesday, IBM announced it would raise its quarterly cash dividend.
Apple Hikes Dividend, Tops Up Stock Buyback Apple Inc. (NASDAQ:AAPL) announced a dividend hike and topped up its share buyback program in a move that could signal growth is slowing down at the world’s largest technology company. Apple’s board of.
Distribution Cut Latest Sign of Hard Times for MLPs Energy pipelines were once considered the safest securities on Wall Street, but now, Mr. Market is handing investors a reality check on investing in the notoriously volatile oil patch. Case in.
CP Rail Hikes Dividend 43% The turnaround at Canadian Pacific Railway Limited (NYSE:CP, TSE:CP) has turned the company into a cash flow machine, allowing management to hike CP’s dividend and buy back shares. On Wednesday, the company announced another round.