Dividends Don’t Lie – Part 2

This is a continuation of my previous post.

As an income investor, there 3 more things on the checklist that you should check too.

4. Are the dividends payout sustainable?

Learn how to calculate Dividend Payout Ratio

The payout ratio indicates the percentage of a firm’s earnings that are paid out to its shareholders. The complement of the payout ratio is the retention ratio, which is the percentage of earnings that a company chooses to reinvest in its operation.

Although in my previous post, I mentioned that it is good to be on the lookout for companies that has a track record of paying dividends, it is important to note that  if the company’s payout ratios is too high, you need to be careful. A company with high payout ratio (characterized by 60 percent of earnings and above) can probably not sustain these high payouts and might need to lower its payout ratio again. It is considered a bad sign to the market when a company needs to lower its payout ratio. Therefore, the highest ratios are not the most likely to sustain a continuously payouts, the ones lying between 40-60 percent of earnings are more likely.


5. Seek Mid-to-Large Cap Stocks [>$1 billion market cap]

Income investing is different from growth investing strategy. Usually if you are buying stocks to create passive income through dividends, you are looking at the regular streams of payout rather than capital appreciation. As such, I will usually go for companies that are matured, established and market leaders in their own industry.


6. Defensive business model

I will search for businesses that are most resilient and recession-proof and avoid cyclical industries at all cost.

Usually, the utilities and consumer staples sectors come to mind.

Here you have it. 6 points to consider and think about when you are going about doing your income investing strategy. Hope this has been helpful and wishing you guys out there all the best in collecting more dividends for yourself. Dividends don’t lie!!!

Income investing is just 1 of the many strategies you can apply to create more wealth for yourself in your journey with money. I would like to introduce you to value and growth investing strategies as well. For those of you who want to learn more about this strategy, I want to invite you to Value Investing College preview workshop where you can find out how this strategy can help improve your investment decisions. Do drop us a message and we will get back to you.

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