Investing Online: How to Be Successful in a High Payout Investment for Dividend Stocks
By Efraim Lezama
A high payout investment is an investment that can give you high dividends at a given point of time at regular intervals such as quarterly or monthly. High payout investment options may attract higher risks unlike low payout investments.
However, high returns at low risk are a catch to investors. Payouts can be paid as cash, property, interim or stock dividends. Stocks that offer high dividend payouts can provide you passive income for the rest of your life.
Factors to Consider for a High payout Investment Strategy
1. Dividend yield: represents the annualized return a stock pays in terms of dividends. You can compare the relative attractiveness of high dividend paying stocks to know what to expect from the stock.
2. Company size: you can determine a company size from firms that provide company profiles and information. The number of employees, sales revenue, type of ownership, sources of finance, management structure and market share are important when considering the size.
3. Payout ratio: you can calculate the dividend payout ratio to know the earnings per share. A company's annual report may avail this information. A high payout ratio can be considered good for investors that can receive a large portion of dividends per share.
4. Long-term performance: high dividend paying firms are mature companies. Firms that do better and exceed a certain benchmark can offer high dividends. The company may do better than average thus it may have a high return.
5. Dividend growth rate: a stock that increases its dividend rate can provide you a rising stream of income every year. Growth may last and over time pays off. A one-off huge payout may not last, instead it may diminish gradually.
6. Ability to generate cash: a company with no record of good cash flow may not have enough cash to pay dividends. If it were to pay dividends, it may do so by selling stock or debt. These two options are not viable.
7. Consistent dividend payouts: a company should consistently payout its dividends. This gives management a bit of discipline since the board has to ensure profitability to always pay out dividends to investors.
Keep in mind:
- Not all stocks pay dividends instead the company may decide to reinvest the dividends, acquire another firm or pay down debt.
- Picking high dividend stocks only is counterintuitive. You may need to consider a few things before settling for some stocks. A company with attractive stocks could have underlying problems. Learn to spot dividend traps and avoid them completely.
- Dividends are a privilege because they are not guaranteed. The board of directors of a company you invested in may choose to pay or not to pay dividends.
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