Typically, investors look for high dividend-paying stocks that can help them enjoy a steady income over a medium to long term. But to pick such stocks, one needs to filter through a big pool of companies that pay high dividends. Investors, therefore, should check the roots of such companies through a thorough fundamental analysis and the future potential, as these broadly constitute the driving factors to ensure a secured and stable dividend over time.
The companies that offer above-market yields are generally selected by income investors. Dividend Yield, expressed in percentage, represents an annual dividend amount per share to the price per share for a particular company. Though higher yields are generally seen as an attractive measure to the investors’ buying decision, they need further assessment to gauge the underlying fundamentals.
The interval cycle of dividend payments also plays a key role when an investor is greatly dependent on dividend income. A company may pay dividend yearly, half-yearly, quarterly or even monthly. It is worth to check the number of times the company pays dividends in a particular year and the franking credits awarded with it.
Dividend represents a distribution of a reward stemming from a company’s earnings to its shareholders. It is prudent to see that whether the industry in which the company operates has the potential for continued growth. The companies deeply involved in research, development and innovation, like biotech or IT companies, may opt for business-driven investments for further growth over dividend payments. However, some exceptions to this concept do exist and need to be understood at company level as well as industry level.