Dividend stocks are great because they pay investors money simply for holding them and when they pay higher dividends than other stocks, they are even better. With the current economic conditions, it is important for investors to find a safe place to put their money. Investors are looking for returns higher than current interest rates and dividend stocks are the perfect place to find them.
Receiving the reward of a high dividend yield often requires higher tolerance of risk. Investors should look at dividend yield using automated stock screening tools like the MarketScope Advisor from Standard & Poors. Dividend yield is calculated by using the dividends of the past twelve months or by dividing the upcoming twelve months’ worth of dividends by the current stock price.
Dividend yields should exceed the overall market and be about four or five percent. Prospective investors should also research how likely companies are to continue these attractive dividend payouts. A company that is losing money may not be around to pay those great dividends over the long-term. Look at the profitability of the company by assessing return on equity, which should be about ten to twelve percent.
Another factor to assess is debt because too much of this can put future dividend payments at risk. Individuals should research the debt to equity ratio of the company and it should be 0.5 or less. They can also filter the company size for their prospective investments by identifying market capitalization. Strong and stable companies have a market cap of at least $2 billion.
Valuation represents how much the market pays for the earnings stream of the company. Dividend investors seek companies with low valuations because that means the company is undervalued. Using the price earnings ratio, investors can find companies whose stock prices have been beaten down relative to their earnings.
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Dividend investing is the only way I invest, and here's why: dividend stocks create a secure, passive income, and are less risky than non-dividend investing.
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