Dividend Paying Stocks – Although capital appreciation is
the first choice of investors in comparison with dividend income, that does not
make dividend less worthy. Despite the fact, that capital appreciation yields
are higher; it is volatile and risk associated. On the other hand, income from
the dividend is balanced and predictable.
Most importantly, Dividends are a great source of “Passive
Income”. Once you have
invested in the dividends, it continues to pay you for long term; you just need
to buy, sit back and enjoy the consistent flow of dividends. The income from
the dividends keeps growing with the pace of Company’s growth. Simply by
holding a good stock for long term (10 years or more), their dividend yield
itself will become high enough to beat the returns of any debt.
Suppose this person held on to his shares till year 2018. What
will be his dividend yield as on Mar’18? [Additionally, company-issued bonus
shares 1:1 to all shareholders between Mar’09 & Mar’18, which simply
doubles the income of dividend]
So, from all the angles,
investors of the dividend stocks are the gainers, without any extra effort.
In order to go a step
ahead, one can also reinvest the earnings from the dividend into the same stock
(during the lower phase of the stock) and increase the income further.
In this article, let’s
see, what the factors are; which needs to kept mind while investing in dividend
paying stocks.
Consistency in Profits and
Strong Cash Flow
The very first thing you need to look for is consistent profits.
If a company isn’t making steady profits, there are less chances that it would
be able to deliver dividends. Profitable growth of the company is the key
indicator of a quality
dividend-paying company.
Also make sure, that the
company has sturdy cash flow generation. Because, it is the cash flow which
pays off the dividend.
For
Example:
are considered good
dividend paying stock as they not only pay dividends regularly, but dividend
also grows with time. This is due to their regular strong cash flow.
Check
Industry Strength
This is most overlooked
factor, while choosing long term dividend paying stocks. If an industry is
touching the roofs for past few years, it does not mean that the stocks won’t
drop ever, but they’re likely to be more resilient than most stocks. And as
long as the industry is in prosperous mode, there is more chance for increase
in dividend, over the period of time.
In order to identify potentially good dividend-paying
companies, do the following research
·
Dig into the financial
reports. Look for the profit and loss account of the company.
·
Check, how much
the Earning per share (EPS) of the company has grown in last 5 years.
·
Check if dividend per
share of the company has grown in last 5 years.
·
Relate, if EPS growth
and dividend per share growth are similar. If this is so; it is a good sign for
you. Growth in EPS indicates that the net profit of the company is improving
and Dividend per share growth mean that the company believes in idea of paying
dividend to the investors. Therefore, having similar EPS and Dividend per share
means, as the profits of the company upsurges in future, it will increase the
dividend pay out to the investors.
Bottom Line
Dividends are long term
investments. Dividend payment is a process by which company share its net
profit with its stockholders. Good dividend paying companies are more likely to
increase its profits over time. As the profits improve, dividend payment by the
company also rises.
In 2019, some of the top
dividend paying stock in India are:
1.
Ingersoll Rand
2.
Wall Street Fin
3.
IOC
4.
National Steel and Agro
Industries
5.
21st Cent Mgmt
6.
Vedanta
7.
Merck
8.
Shervani Industries
9.
Nalco
10. Polyplex Corp
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