Tips for Dividend Growth Investing
The popularity of dividend growth investing has increased among the investors. This is especially so in the United States considering the many blog posts that are available on the matter. Dividend growth investing involves purchasing of shares in companies that are reputable when it comes to dividends payment. All you need to do is to find such a company, invest your money and then wait. However, you need to consider more than a company track record of five or ten years. You need to ensure that the company has good chances of providing steady dividends in the years to come.
It is important to understand that dividend growth investing is more than just dividends. This is because it also involves capital growth. The share price of a reputable company are expected to grow with time in accordance with fundamental growth. These companies are also strong regardless of the market cycles. Their prices tend to be more steady and do not sink in a downturn. This is mostly so when the company is defensive stock offering goods like groceries which are needed by people even in difficult times.
You should also be very considerate when it comes to value. This is because you are after making a return with dividend growth investing. It is important to find out what drives full return and yield, the essential growth of the business, and valuation. You should not purchase a company that is making a six percent yield payment but does not have any positive growth or revaluation into the price. This means that you are likely to get a very poor full return. Therefore, you should not make the mistake of investing at the cost of valuations.
However, even after doing a perfect selection, sometimes you will not always get it right. A company with a stable record track mighty suddenly perform less than expected or maybe make a bad strategic move. Therefore, you should be careful with companies that are highly dependable on credit for sales, are on high debt levels, or ones that portrays poor governance. You need to find out if the cash flows and profits of a company are supporting the dividends they pay out, or they return capital to shareholders on top of profits and cash flows. Also, if the yields are too high, that might not be the case in the next one year.
You also need to consider the business balance sheets. This is because businesses that are carrying too many debts are at risk of stopping dividends payment. You also need to focus beyond the larger and well known companies. There are plenty of good businesses that are not well known although they are worth many millions, from where you can be able to find good valuations. The best time to select the best dividend paying company is during the season markets are volatile. When the share prices of a company with the capability of growing their dividends are lower, this is a very good opportunity for buying.