If you will check the meaning of dividend, you will learn that this is a kind of return investment or a price. For a company, this is their way of distributing their profits out of running their business to their shareholders.
There are two types of dividends, the cash, and the stock dividend. Obviously, the cash dividend will be paid directly to the investors in the form of cash or cheque or through electronic transfer. As for the stock dividend, this is in the form of additional shares. This is usually the option of the company when if its availability of liquid cash is in short supply.
Being an investor, how can you be sure that you end up with the best dividend stocks? These easy steps might work for you.
- You should go for medium to large cap stocks
If you can end up with the largest company, then so much the better as it means, their revenues, profits, and cash flow are already stable. They hardly have room to grow and most of the time, they don’t really aim for that aggressively anymore. Thus there is a good chance that most of their earnings will be shared to investors as dividends in a regular basis.
- Track record in paying dividends
The reason why you will go for larger companies is for them to have better dividend payouts like about 50% at the least. However, if they are not regular in sharing dividends to their investors, then the size of their company is actually useless for you.
This is why you should check their track record when it comes to paying dividends. The best time frame should be 5 to 10 years back.
- The company’s fundamentals are also worth checking out
Yes, you are after the dividend yield of the company. However, it also pays to check its fundamentals if it’s doing well. What is the use of having the big dividends right now if it will not be regular in the future as the company’s profits and revenues are failing? This is why, before planning to be part of that company, you should check its overall health.
Receiving dividends in a regular basis is indeed what every investor dreamt of. However, this cannot be obtained if you will just blindly choose a company to invest your hard earned money on.