Dividend - Understanding Dividend Investing
Many people are looking for a safe way to invest their money that will allow them to supplement their income or save for retirement
. No matter what you want the end result of your investing to be, it is important that you proceed carefully, and fully understand the risks and benefits of the stocks you're interested in, and the potential successes or failures that they might experience. Some people only have a very basic understanding of how the stock market works, and they assume that all types of investing are the same, but of course that just isn't true. Here are some details about the unique challenges associated with dividend investing and how you can manage them.
In order to understand the dividend investing basics, you have to first understand what a dividend actually is. When a company goes public and accepts investments from just about anyone, they are required to provide certain services to these people, who come to be known as shareholders. One of the services that corporations must provide to shareholders is a distribution of their profits, called dividends. Younger companies almost always reinvest these profits in the company, which is why many new stocks will not provide dividends for years. However, well established companies will distribute these profits in equal amounts to the shareholders, according to how much stock they own.
When you are thinking about dividend investing, it is important to consider several key factors, and to do your research about the history of the company in which you are investing. One of the most important things that you should pay attention to is the payout ratio that the company advertises to you. Keep in mind that although the higher ratios make it sound like you will be making more money, they can actually put the company and your money at increased risk. A good rule of thumb is never to mess with ratios higher than sixty five percent.
Another thing that is worth looking into is how long the company has been making dividend payments. Are they a fairly new company that has only been showing a profit for a couple of years or are they a well established corporation with many satisfied shareholders? If a company is fairly young and they are advertising that they are now paying dividends, it might be worth it to ask some tough questions about whether or not they will really be able to sustain that payout.
by: Troy Truman
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