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.
Board Approves $640 Million-Buyback Plan New York, NY — The board of directors of BB&T Corporation (NYSE:BBT) declared a quarterly common stock dividend increase today of $0.02 to $0.30 per share. The increase is consistent with BB&T’s capital plan the.
Lender Says Growth Outlook Strong New York, NY — Comerica Incorporated (NYSE:CMA) is increasing its quarterly cash dividend by 4.5% to $0.23 per share as the growth outlook brightens for the Dallas-based lender. The board also authorized an increase in.
Earnings Report Brightens Outlook Texas Instruments Incorporated (NASDAQ:TXN) may increase its dividend payout in September or October after the chipmaker announced better-than-expected earnings, according to an analyst at Bank of America Merrill Lynch. The shares of Texas Instruments stock surged.
Company Benefits from Acquisition New York, NY — Reynolds American, Inc. (NYSE:RAI) said it’s increasing its quarterly dividend by 9.5% to $0.42 per share as sales climbed after the tobacco company benefited from last year’s acquisition of rival Lorillard LLC,.
Analyst Raises Questions on GM Identity New York, NY — General Motors Company (NYSE:GM) is facing an identity crisis, according to an analyst at Barclays Securities who raised many interesting questions associated with the GM brand after the Detroit-based carmaker.
Business Spin-Off to Generate Cash New York, NY — Hewlett Packard Enterprise Co (NYSE:HPE) may double its dividend payouts to $0.46 a share as the company frees up more cash after the spin-off of its services business, according to a.
Fourth-Quarter Profit Rises 12% New York, NY — Provident Financial Holdings, Inc. (NASDAQ:PROV), the holding company for Provident Savings Bank, F.S.B., raised its quarterly cash dividend by eight percent to $0.13 per share as the mortgage market strengthened in its.
Dividend Hike Possible as Debt Level Falls New York, NY — Kinder Morgan Inc (NYSE:KMI) may increase its dividend payout by 25% as early as 2018 as the pipeline giant tries to cut leverage and return to growth, according to.
Higher Electricity Prices Propel Growth New York, NY — Capital Power Corp (TSE:CPX) announced a seven percent increase in its dividend payout as the Alberta-based company swung to profit on higher prices for electricity sales in the second quarter. The.
Dividend Hike Comes Amid Fall in Profit New York, NY — Watsco Inc (NYSE:WSO) said it plans to increase its dividend payout by 24% to $4.20 per share supported by continued positive cash flows and a strong balance sheet. “This.