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A good dividend stock is like a good dog. No matter how nasty the outside world gets -- at the end of the day you come home to a big lick on the face.
If you create a portfolio of good dividend-yielding stocks you will have a steady stream of licks on your face while the world sorts out its problems.
Before the 2008 financial meltdown, dividends were viewed as a bonus to the capital gains generated by a thirty-year bull market. In the earlier part of the last century dividends were a much larger part of overall returns. Welcome to the 1900s.
With interest rates and bond yields at rock bottom investors are finding dividend stocks are the best income alternative. However, unlike quality bonds, dividend stocks do carry a risk of capital loss. In other words, although the dividend per share may remain constant the value of the stock could go down -- or rise if your glass is half full.
The best dividend paying stocks are generally financial, utility, telecom and resource companies. A good, low-risk, dividend stock could pay out four percent to six percent annually.
One warning for income hunters looking for the highest yields: be sure the payouts are sustainable. Companies with dividends that are too good to be true may be borrowing from future earnings. In addition, other dividend hunters may have driven up the price of that stock.
What you want are stocks with potential for dividend growth. Since dividends come from revenue and earnings, look for revenue and earnings growth. A solid cash position could also be a sign the company is ready to spread the wealth.
Technology companies like Microsoft have been introducing and increasing dividends lately. Microsoft pays out 2.66 percent right now but with strong revenues and less potential for expansion that money is finding its way into shareholders' pockets. Right now the Nasdaq 100 pays out just over 1 per cent but with cash-flush Apple as the biggest component a payday could be coming soon.
On Portfolio Builder, Scotia McLeod senior investment executive Winnie Go talks about finding the best dividend growers and mentions a few of her favorites. So, sit back and enjoy. Sit. Sit!
February is Your Money Month on BNN. Don’t miss an episode of BNN’s Portfolio Builder where our experts help you sort through your options for investing. The BNN Portfolio Builder brings you everything you need to know about RRSPs and TFSAs, as well as tips on sorting through mutual funds, ETFs, stocks and bonds.