Candlestick Trading Forum
keyword search

Candlestick Trading Forum        

Dividend Paying Stocks

Dividend paying stocks are those stocks that increase their dividends while you hold them. You can increase your yield due to a higher payout which will typically drive the price of the share higher. On the other hand, a dividend drop is not good. The best way to find dividend stocks is to use programs specifically designed to search the entire market for stocks that meet your determined criteria. This investing strategy is referred to as “screening.” Dividends are defined as cash payouts given to stockholders of a company and are a great way for companies to reward their stockholders for investing in their company. Dividend paying stocks are also a great way to distribute profits made by a company.

Dividend paying stocks are great for many reasons. They save on taxes in that qualified dividends are taxed at lower long-term capital gain rates, and they also accumulate over time. Dividend paying stocks also will rise over a period of time.  As long as companies raise their dividends over time as well to keep up with inflation, the value of your interest over time will not be negatively affected. Some investors will argue that companies who produce dividend paying stocks are less likely to destroy shareholder value through stock option abuse. The abuse of stock options has been a problem and dividends are not attuned to stock options. In fact, dividend payments reduce the stock prices appreciations thus transferring the value to current holders of stock and not to those investors who have an option to buy stock.

Dividend payers require at least a 10% return on equity from dividend paying stocks and also practice the belief that passing stocks has to have been reasonably profitable for at least 5 years prior before they invest. This is due to the fact that many companies producing high dividend paying stocks only recently went public. These companies have not been in business long enough to establish a reliable track record of producing dividend paying stocks in the stock market. On that note, bigger companies are less volatile and are safer than your smaller firms who have a smaller market capitalization. Reducing risk is a vital part of dividend investing and small caps are by far the riskiest. (Small cap stocks are those stocks with a market cap below one billion)

Dividend paying stocks also tend to fall less during bear markets. They do this for various reasons, one being that dividend paying stocks generate current income. Dividend paying stocks are consistent and bear markets take place normally during trying times such as recessions when people may find themselves earning less, or even unemployed. The quality of earnings is also higher with dividend paying stocks because shareholders receive their earnings in the mail in an actual physical envelope with an actual physical check. No cooking of the books on the mind and even better, real, hard cash. Dividend paying stocks also become yield supported in that the dividend yield increases as the earnings per share price decreases.

Dividend paying stocks are great for investors who have a hard time handling volatility when investing in stock. Stocks are of course a riskier investment than most, but dividend paying stocks appear to display consistency (as opposed to other ventures) due to the fact that dividend paying stocks typically fall less.

 

Candlestick Trading Forum