Utilize dividend income investing strategies that focus on a history of dividend payments, particularly in market downturns, and you will be investing in strong stocks
One of the best dividend-income investing strategies involves looking for companies that have been paying dividends for at least 5 to 10 years. Companies can trump up quarterly earnings, issue press releases to appear to be making strong progress, but they cannot fake dividends, particularly over a number of years.
Dividend stocks are a sign of investment quality. Some good companies reinvest profit instead of paying dividends. But fraudulent and failing companies hardly ever pay dividends. So, if you only buy stocks that pay dividends, you’ll automatically stay out of almost all the market’s worst stocks.
The Growing Power of Dividends
Learn everything you need to know in '7 Winning Strategies for Dividend Investors' for FREE from The Successful Investor.
The Best Canadian Dividend Stocks to Buy: REITS Canada and other Top Canadian Dividend Stocks.
Dividend income investing strategies can provide you with a big part of your portfolio returns
Dividend stocks offer both capital-gains growth potential and regular income from dividend payments. In fact, dividends are likely to still be paid regardless of price fluctuations in the underlying stock.
Taxpayers who hold Canadian dividend stocks get an additional bonus. Their dividends can be eligible for the dividend tax credit in Canada. This means that dividend income will be taxed at a lower rate than the same amount of interest income.
A couple of decades ago, you could assume that dividends would supply up to about one-third of the stock market’s total return. It’s still safe to assume that dividends will supply a significant percentage of the market’s total return over the next few decades.
When you add in the security of stocks that have dividend records going back many years or decades, and include the potential for tax-advantaged capital gains as well as dividend income, Canadian dividend stocks are an attractive way to increase your portfolio returns with the least risk.
Look for these qualities in stocks as part of your successful dividend income investing strategies
We also look for dividend stocks that have industry prominence, if not dominance. Our reasoning, besides brand recognition, is that major companies can influence legislation, industry trends, etc. to suit themselves. Minor firms can’t do that.
Dividend stocks are an important contributor to your long-term gains, and, as mentioned, dividend-paying stocks typically expose you to less risk than non-dividend-payers. That’s why the majority of your stocks should be dividend-payers. What’s more, as you get older and closer to retirement, you should raise the proportion of dividend-paying stocks in your portfolio, to cut risk and improve the stability of your investment results.
Furthermore, when considering specific investments and buying or selling growth-stock picks start by putting all the important information you know about a company into perspective. For instance, while its new invention may be a marvel, how does it compare to what the competition is doing? Its new project may sound impressive, but how much impact will it really have on the company’s profit? If the firm’s debt looks high—will the company be able to keep up its agreed-upon interest and principal repayments?
More factors to look at as part of your dividend income investing strategies
The top dividend-paying stocks to invest in have strong positions in healthy industries. They also rely on strong management to make the right moves to keep them competitive in changing marketplaces.
The top dividend-paying stocks (or the companies that issue them) also have the following characteristics:
They provide regular income
They are one of the dominant firms in an industry
They feature hidden assets
They are high-quality, proven companies
They operate a well-established business
They have strong management
They have manageable debt
Above all, for a true measure of stability, focus on stocks that pay a dividend they’ve maintained or raised during economic or stock-market downturns. That’s because these firms leave themselves enough room to handle periods of earnings volatility. By continually rewarding investors, and retaining enough cash to finance their businesses, they also provide an attractive mix of safety, income and growth.
A track record of dividend payments is a strong sign of reliability and a sound indication that investing in the stock will be profitable for you in the future.
To sum up: Here are the key components of successful dividend income investing strategies
If you stick with top-quality high dividend yield stocks, the income you earn can supply a significant percentage of your total return—as much as a third of your gains.
It bears repeating, that when it comes to investment safety, a long history of steady dividends is more important than a current high dividend yield.
Good dividend stocks are a valuable component of any sound investment portfolio.
Use our three-part Successful Investor approach to make better stock selections overall
Hold mostly high-quality, dividend-paying stocks.
Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
Downplay or stay out of stocks in the broker/media limelight.
Do you believe that the distribution of income has no effect on the cost of equity?
How much of your portfolio is dedicated to dividend stocks?
Learn everything you need to know in
'7 Winning Strategies for Dividend Investors'
FREE Special Report from The Successful Investor.
The Best Canadian Dividend Stocks to Buy:
REITS Canada and other Top Canadian Dividend Stocks.
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7 Winning Strategies for Dividend Investors
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