When you, as an investor, are looking at income earning opportunities, you should definitely mull over the option of dividend growth investing. Dividends allow you to enjoy your share in the profit of a company on a quarterly basis. Dividends are the total amount of money that a particular company pays out to its shareholders. The amount of dividend depends upon the performance of the company and dividend growth requires that a company have a sustainable growth model. Remember, however, that dividend payments are not set in stone. It entirely depends upon the prerogative of the company to offer dividends to its shareholders, or not.
Dividend growth investing is an excellent strategy that you can use to maximize your cash income generated from your equity investments. In fact, if you can put in place a smart and consistent dividend growth strategy, you can replace the income from your regular job. Or, if you are in debt, you can utilize the dividend proceeds to become debt free.
However, to design a successful dividend growth investing strategy, you must have good knowledge of the dividend growth companies on the market. To find dividend growth stocks, you can check out the historical dividend performance of various companies on the Dividend Achievers and Dividend Aristocrats lists.
Of course, past good performance does not ensure robust future performance. Rather, you have to select stocks which are fundamentally strong and which are undervalued at the current time to frame out a successful dividend investing strategy. Here are few tips so that you can find out successful dividend investing strategy.
Dividends are not rights but privileges
It is to be kept in mind that dividends are not guaranteed, rather they are more like privileges enjoyed by the shareholders. It depends entirely upon the discretion of the board of directors of a company to issue dividends to the shareholders, given the condition that the company has scripted a solid financial performance. Paying dividends to the shareholders shows the financial strength of a company and it also attracts income-minded investors to the company’s fold. Again, when a company cuts back the dividend amount, it shows that the company is not doing well.
Be skeptical about very high dividend yields
Do not expect to earn huge money with super-yield dividends. In fact as a general rule, any dividend yield which is over two and a half times the broader market, should be viewed skeptically. It has been seen time and again that many stocks fared exceedingly well and fetched super returns and dividends to the shareholders during the bull phase but plummeted appreciably during the bear phase, offering no dividends at all to the shareholders. This has been the case with many real estate investment trust (REITs), with their stock prices receiving a serious drubbing during the bear phase.
Analyze the cash flow statement
To find a high-dividend stock, it is important to analyze the cash-flow statement of a company. Check whether the company has the required cash to pay out the dividends or it is resorting to debt or selling stock to finance the dividend payment. If the company is selling stocks or resorting to debt to pay out the dividends to the shareholders, it can’t be a sustainable.
Follow the above mentioned tips to find out successful dividend investing strategy and to earn a lot of money.
This guest post is written by I Davis. She is the Community Member of http://www.creditmagic.org/ and has been contributing her suggestions to the Community. She is quite knowledgeable of various financial matters like tracking down identity theft, money investment tips, credit card debt, credit card fraud and has a unique approach to analyze them. Check out her articles on various financial topics with special emphasis on ‘Credit’ related issues.