Tag: dividend paying stocks

  • Dividend Stock Investing – A Source Of Passive Income

    Dividend Stock Investing – A Source Of Passive Income

    Dividend Stock Investing - A Source Of Passive Income
    If you are looking for an investment that offers steady income, dividend stocks are a good option.
    Start with dividend ETFs because they are the easiest entry point.

    By Guy Avtalyon

    Dividend stock investing may be a good source of passive income. It will not generate a great profit since the average dividend yield is about 3%, but the income will be stable. But even if you don’t have a million dollars to generate significant income, dividend stock investing still can be a good choice.

    So, the first reason to invest in dividend stocks is dividends. You’ll receive a steady and expected income and, also, growing capital over time is the other reason for investing in dividend stocks. Your capital will grow and you’ll have dividends. You can reinvest those dividends in some other stocks or spend as you wish.

    How dividend stock investing is a good choice?

    To put it simply, by investing in dividend-paying stocks you’ll receive the continuous income as long as you are a shareholder.
    Dividend investing has a dual benefit in its nature. Firstly, recurring dividend payments and, secondly, the asset appreciation. 

    For example, you purchased 100 shares of a company ABC for, let’s say $20 each. And you will receive, let’s say, 3% annual dividend. Your capital invested would be $2.000, and your dividend payment $60. And you will receive your payments no matter if the stock price is growing or dropping. As long as the company is able to maintain it, you will receive your dividend payments. 

    Pay attention to high yields

    If you want to invest in dividend-paying stocks you have to be focused on dividend yields.

    If there is a high dividend yield you’ll receive large cash income. That often comes from companies that are not growing fast but have a solid cash flow to support dividend payments.

    Also, pay attention to the dividend growth rate. For example, you found a company that is fast-growing but paying dividends less than average. Since such a company is fast-growing you may expect to gain more from dividends in, let’s say, 5 years than you might get from the company with high dividend yield.

    The companies in the development or start-up stage, usually have a high price-to-earnings ratio and dividend yield can’t be big. But, when such a company expands, for example, opens new stores or similar, the per-share dividends may increase quickly because the profit rises higher.
    That could be great for buy and hold investors.

    Investing through ETFs

    Dividend ETFs give an easy option to start investing in stocks that pay a dividend.

    Since dividend ETF holds hundreds of dividend stocks that provide good diversification of your investment portfolio. As a consequence, you will have safer payouts. In case that some of the companies lower their dividends, you will still have enough, likely you will not even notice that in your total income. ETFs are a really good option for newbies because you will want safe payouts in the beginning.

    Individual dividend stock investing

    You will need time for this because it is more complex than investing through a dividend ETF. But the good thing is that when you buy dividend stocks it is possible to pick those with higher dividends than those you can find them in an ETF.

    What you have to do is to research the company, estimate the safety of the dividend, and finally, decide how much to buy.
    You can find dividend-paying stocks on different financial sites, including the online broker’s site.

    When you analyze the company, pay attention to how healthy it is, meaning, is it able to maintain the dividend payments for a long time, for example, 5 or 10 years. It requires time but you have to do that.

    You have to figure out the payout ratio. Remember, the low payout ratio means the dividend is safer and can grow faster over time. If the payout ratio is over 50%, simply don’t buy that stock.

    Also, you will need to diversify your dividend stock investment portfolio. You have to define how many stocks you want to buy. If the stock is riskier you should hold a smaller part of your portfolio on it.

    The first concern must be the safety of the stock’s dividend. Don’t focus simply on the greatest dividend yields. There is one thing you have to know, if the yield is high that means the investors have some doubts about the company’s ability to pay high dividends regularly. As a consequence, the stock price may go down and you can lose your invested capital. And the dividend will also fall.

    You can buy individual dividend stocks if you like the challenge of picking out the winning stocks. But you must be really good to be able to develop a portfolio of dividend stocks that gives a higher yield. Higher than you could find in a dividend ETF.

    Is dividend stock investing an opportunity?

    For a long-term investor, dividend stock investing is a great way for passive income. The dividends you get can be reinvested and you will have more income.  

    When you notice that dividend yield is more than 4% you have to examine it very carefully. If the yield is over 10% the stock is risky.

    When dividend yield is too high it indicates the payout is not sustainable, or maybe the investors are selling the stock. The share price will be lower in that case and the dividend yield will increase. In the short term, it may be good but for a long-term investment, it is bad for sure.

    Also, if you notice that the company is giving a large percentage of its income as dividends payments, for example, more than 80%, stay away. This isn’t good because it is a sign that the company doesn’t know where to reinvest and assure its future growth. Also, when the payout ratio is too high you can be certain the dividend is unstable and the company has problems sustaining it.

     

  • International Paper Company Could Be Great Stock In 2020

    International Paper Company Could Be Great Stock In 2020

    International Paper (IP) Could Be Great Stock In 2020

    International Paper Company is quite capable of surprise, it is undervalued due to its EPS growth, but dividends are steady
    Market Cap: $17.7 billion
    Yield: 4.5%
    Revenue: $22.8 billion

    International Paper Company (IP) is a producer of packaging, paper, and pulp, based on fiber. You might think how a paper producer can be a good choice for investing in when everything around us is already digitized, who and why would need paper. Well, that is true, but only this part about digitalization. The usage of paper isn’t dead and the paper isn’t going to lose the battle in the digital era. Okay, we are ordering things online but do they come to our doors? Packed in one of International Paper’s products. Or from some other producer, of course, but we are talking about IP now.

    Not to be forgotten, some news appears that IP is about to go ex-dividend on November 14. So, you have to buy their shares before that date to receive the dividend. It will be paid on December 16.

    International paper dividend

    The company’s next dividend payment to shareholders will be $0.5 per share. That is less than the last year when they paid $2.1. If we take a look at payments from the past year, the company has a trailing yield of about 4.4% on the share price of $46.21. 

     

    Some data is very important when you have to decide to buy or not some stock because of its dividend. 

    The International Paper paid out 58% of its profit to shareholders last year. Nothing strange with that payout,  it is a regular level for most companies. But take a look at its cash flow since it is more valuable than profits when estimating a dividend. Well, IP did it well last year, it paid 35% of free cash flow. It’s good to see that the dividend is well covered, so the dividend is sustainable. Of course, it will be until earnings drop sharply.

    Is it a good dividend stock? 

    International Paper shareholders have seen a support expansion from the money managers in the past several months. After the second quarter of this year, about 30 hedge funds held IP in their portfolios. But the surprising thing is that IP stock isn’t amongst the 30 most popular. That has to be noticed.

    This company is paying dividends over 10 years now. For long-term investors, the companies that are paying dividends can be worthwhile.  International Paper Company is yielding 4.8% so for some investors it is a good opportunity if they want to buy the stock because of it.  The company has significant debts, so you will need to check its balance sheet to see if there is any debt risks.
    International Paper has a net debt of 2.61 times its EBITDA. Yes, debts are good to stimulate business growth but can boost the risks. During the last 10 years, the IP dividend has been constant. That is a sign that the company had a consistent earnings dynamic. 

    International Paper Company paid $1,00 per share in 2019, last year it paid $2,00 which is a CAGR of about 7.2% a year. This is very worthy over the long term investors if the rate of growth can be kept or increased. Also, IP would have a better result if earnings per share could grow too. Instead, the company’s EPS are flat over the past 5 years. 

    Bottom line

    When we want to buy a dividend stock, we want to know will the dividend grow, is the company is capable to support it in different economic conditions and is the dividend payout is sustainable. International Paper company’s dividend payments look fully covered. Moreover, International Paper appears like a great chance. It could be a good fit.

  • How Do Dividend Paying Stocks Work?

    How Do Dividend Paying Stocks Work?

    How Do Dividend Paying Stocks Work?
    Dividends may be a sign of good stock but never invest in some stock just because of dividends it pays.

    By Guy Avtalyon

    The dividend is like interest on a loan. A company that earns real money every year operates with it on three options. First, the company can reinvest earnings to make new products, find more customers, or to make business more efficient. Some companies can buy back their stock in order to own more of the company and more profits. The third way is to return some of the money to shareholders through dividends. It is very important to understand how dividends work. Stocks that pay dividends can be great to hold.

    Dividends are like interest on a loan. Assume you loan your relative $1000 for a year at 5% interest. You expect to get back your $1000 plus that 5%, which is  $50 more. The dividend is that except the $1000 stays in the company because you still own part of it. It’s your part of the profit the company made.

    Unfortunately, not all companies will pay dividends. Some companies don’t make the profit and they can’t pay out anything. Other companies flow all of their money back into the company to grow faster. The rule is there is no rule. What works for one business doesn’t work for others.

    Is investing in dividends a good choice?

    I know some people who like to receive dividend checks. For instance, some reliable companies may payout every three months. Even if the share price has small moves every year, investors still make money from these dividend payments and they don’t have to sell their shares to get that money. The check comes at the end of a certain period.

    This money gets paid to all shareholders, no matter how many shares they own. The retiree who owns one share of some company gets the dividend in the same way as the wealthy hedge fund manager. The reliability of dividends gives them attractivity in investment.

    Do Stock Pay Dividends?

    High dividend-paying stocks have rates of 5%, 10%, or even more.

    Why they are so high? It is simple to explain. Let’s see this simplified example.

    A company with a share price of $100 which pays a dividend of $1 per share every year has a dividend yield of 1%, while a company with a share price of $10 which pays out $1 per share every year has a dividend yield of 10%.

    Notice that the price you pay for a stock and the growth of the business over time determine how much money you make on that stock. Keep in mind there’s no shortcut to investing little money with high returns. Unfortunately, but that’s true.

    The easiest way to find if a stock pays dividends is to look at any stock research site. You will find a dollar amount for the latest dividend announced, the annual amount paid, and the current yield. Always check the dates. The point is that stock may pay out one quarter and not the next.

    Is it profitable to invest in the high dividend-paying stocks?

    High dividend-paying stocks are paying more than the average dividend rate. Companies that pay high dividends are considered as good companies. But they may have some other reason like to attract investors to drive up the share price. It also may be a sign that the share price has dramatically gone down recently. Sometimes this means the stock is on sale or that the company is in trouble. You can’t know this just by looking at the share price or how high is the dividend amount. You have to have better information about the company’s business and its current financials.

    The company must choose to pay a dividend and the amount paid may vary. Not all companies will regularly raise the number of its dividend payments.

    Is investing in stocks that pay dividends a good strategy?

    Yes, especially if you want regular cash coming in reliably. Reliability is the keyword because dividends aren’t guaranteed. You still have to do your research. It is better to buy great companies, not just stocks that pay the highest dividends per share.

    High dividend stocks are not necessarily a good investment. Pay attention do they pay them every year, every quarter or does a certain company follow a regular schedule for the rise of its payment amount. It is possible to make more from dividends every year per share than you initially paid for the stock. Keep in mind this the tricky part of a dividend yield of stocks; it’s always calculated relative to the current price, not what you paid. A company that pays a huge dividend is a warning sign. How does the company plan to maintain its payment strategy? Is this a temporary trick to raise the stock price to fake levels? Always think about reliability.

    Does value investors make money from high dividend-paying stocks?

    Dividends are excellent. And value investing looks for underpriced stocks.

    “What are the best stocks to invest in?” or “What are the reasons to invest in a company?”, can be the questions you ask yourself. In that case, dividends may be a sign of a good stock. But not all great stocks pay dividends, indeed. Some never do. Some pay from time to time. It depends.

    If you pick a powerful company that gives you a check every quarter and if the price is right relative to the value, then you have no problem. That gem belongs to you.