Everybody likes getting the news that they’ve got some dividends on the way! (Yes please!) As you may know by now, a dividend is a sharing out of a portion of a company's profits to its shareholders. Warren Buffett, a super smart and rich investor (big deal), likes investing in dividend-paying companies and then re-investing his dividends to boost his returns. Some people prefer to use dividend pay-outs as a way to earn passive income; getting little chunks of money throughout the year that they can supplement their income with (ehem, Christmas presents?).
But it’s not as simple as picking a few companies at random – you need to be a little more strategic about it if you want to get the best bang for your buck. You also need to remember that dividends aren’t a given – a company can decide to lower or cancel dividends if times are tough, and that this info is constantly updated.
Here are considerations you might want to make when you’re making your pick:
Cash flow
This is where your dividend pay-outs are going to come from, so a company with a strong cash flow should get some extra brownie points in your selection process. Similarly, you might want to find out if the company is in any excessive debt. This might mean they’ll want to use the profit to pay that off at some point which could translate to less or no money for your dividends down the line.
Consistent growth
Companies that increase their dividend rate year on year are going to help ensure your payouts beat inflation. It’s also a sign that the company is going strong and would be a lower risk to you. Also, check out the state of the industry they are in; if a particular industry takes a knock and a company’s share price goes down this could affect dividend payouts as well.
Dividend yield
This represents the amount that is being paid out as dividends relative to the company’s share price. These range from company to company and could affect the amount of risk associated with buying a particular share. Companies that are looking to grow quickly might be a higher risk to dividend-seeking investors, as they’ll want to use the revenue they generate to expand. This means less is available for dividend payouts. Whereas bigger, more established companies take a slow and steady approach, which could offer more consistent and reliable dividend payouts for investors.
Do some research on ASX-listed companies that plan to pay dividends in the next year. Visit Google or Yahoo Finance to get some more info on each stock and its current pricing. Most of these shares are available on our platform (get in touch with us if you’d like to request to have a company listed!). If you want to work out how much of a dividend pay-out you’d get, look at the dividends per share column and multiply this number by the number of shares you own in a company. Remember this info is constantly being updated, so you need to keep checking in on companies for their most recent numbers.
New to investing and want to know more about the latest research?
