.png)
Dividends are money (or shares) that a company pays its investors or stockholder from its net profit. A dividend investor checks three pieces of information before deciding whether a company is good for dividend investing.
 |
| DIVIDEND INVESTING |
1) Dividend Yield
2) Payout Ratio
3)Dividend Growth
#1 Dividend Yield
Dividend Yield is the amount in dividends per share that a company gives per year divided by the current price of the stock multiplied by 100. if a company gives quarterly dividends, then the sum of all amounts is divided by the current price. For Dividend Yield, the higher, the better.
#2 Dividend Payout Ratio
The Dividend Payout Ratio is the number of dividends a company pays relative to its net income. good companies usually set aside a portion of their net income for investments, expansion or R&D. Go for companies with a dividend payout ratio somewhere between 35% to 55%.
#3 Dividend Growth
If a company gives a 10% Dividend Yield this year but historically only gave less than 1% the previous years, then you should check what might have contributed to the sudden spike. Is it because of a one-time profit due to asset liquidation? if the spike in Dividend Yield is caused by a temporary gain in net profit, this is not good as it may not be repeatable in the succeeding years. If the increase is due to organic growth in the company's earnings, that would likely continue at least in the near future.
Goos Dividends should be backed up by good fundamentals, finances and a sound operating environment.
Important Dates:
1) Date of Declaration - this is when the company declares the amount and Dividend dates.
2) Ex-Dividend date (or ex-date) this is usually one business day before the record date. You need to be a holder of the stock before the start of this day otherwise, you will not be entitled to receive the Dividend.
3) Record Date - the date when the company records who will receive the dividend.
Buy the stock before the ex-date if you want to receive dividend.
Pro Tips
* Good dividend payout without good fundamentals is useless. The best scenario is to find a company that is cheap in valuation but gives good dividends. This way, you can earn from both dividends and capital appreciation.
* Think long-term. Dividend investing is slow and is for investors looking for regular income, capital preservation, or a simple hedge against inflation. If you are going for capital appreciation, then go for growth stocks.
* Check the historical performance of the dividend payout (past five years). They should be consistent.
* A dividend yield of approximately 4-5% is already enough to beat inflation in most countries.
