In this final part of the series I would like to focus on some additional factors you should be aware of when it comes to dividend stocks.
Here we go …
Remember that not all dividend paying stocks are created equal.
The dividend yield* of a company alone doesn’t mean anything. As with investing in any company, it is super important to look at the business as a whole and make sure you choose companies for your investment portfolio that are successful and have clear strategies in place to continue a path of profitability, success, and leadership for years to come.
A company that is profitable and has healthy financials will be able to continue paying and increasing dividend payments for many years going forward. You want companies that not only pay solid dividends but that are also capable of continuing to increase those payments over time.
For example, Dividend Aristocrats are companies that have been able to continue to pay and increase dividends for 25 years or longer. On a personal level, a proven track record is incredibly important when analyzing a prospective investment.
Sustainable Competitive Advantage.
In addition to looking at the company’s financial statements and making sure finances are healthy you also want to take a look at the company’s Competitive Advantage – what makes the business unique? And/or why would a customer choose the products or services of that business over another? Is that advantage sustainable? Can they maintain and/or continue to grow market share for the next 5, 10, 20 years? Just some questions to think about.
Important Dates In The Dividend World.
To be completely honest, I personally don’t focus on dates when investing in dividend-paying stocks (or stocks in general). If you’ve followed me for some time now, you know that I own most of my investments for several years – I am talking 5+ years on average – and so, if the investment turns out to be truly profitable over time, the date of purchase becomes irrelevant.
However, I did receive questions about specific dates in the dividend world, as so, I feel is important to share what they mean and where to find them.
You can find all dividend-specific dates for a company of your interest by going to sites like Dividend.com, Yahoo! Finance or Google Finance, among others. Just click on the dividend information tab.
For this example, I’ll use dividend.com. Once you enter the company name in the search tab scroll down to the “Upcoming Dividend Payout” tab.
Here is what the most relevant dates mean:
Pay Date or “Payable Date”: This is the date you will receive your payment from the company if you became a shareholder prior to the Ex-Dividend date (explained below). If you have your investments in an online brokerage account; you’ll usually receive an email letting you know when payment was received.
If you don’t receive an email, you can simply log into your account and look for a “payment notifications” or “notifications” tab. If all fails, you can always call your online broker directly and ask!
Ex-dividend Date: In order to receive a dividend payment, you have to own the stock prior to this date. If you end up buying shares of the stock on the “Ex Dividend Date” or any day thereafter, you would have to wait until the following Pay Date to receive your payment.
For example – the ex-dividend date for the example above is 11/27/17; this means that if you buy shares of the stock on that date or any date after, you will not receive payment on the next Pay Date of 12/12/17 and will have to wait for the following Pay Date to receive your first payment.
Record Date: This is the date when the company takes a look at the shareholders of record who will be entitled to a dividend payment – the people that bought before the ex dividend date.
Dividend Payments Not Only Come From Individual Stocks.
Something you should also be aware of is that in order to benefit from dividend income you don’t only have to focus on individual stocks. Other investment vehicles such as Index Funds, Exchange Traded Funds (ETFs), and Mutual Funds also pay dividends.
Other very popular dividend payers include R.E.I.Ts (Real Estate Investment Trusts) which are required to pay 90% of their profits in the form of dividends to their shareholders.
However, I take this all the way back to point #1 on this post– not all dividend payers are created equal and you must do your research. When it comes to funds, one important factor to look into are expense ratios and fees – specially with actively managed funds. You don’t want fees to be so high they eat into your potential profits. My preference is usually 0.05% or lower. Anything above 0.10% I consider too high. Again, this is a personal preference.
And that’s all folks! I want to make it clear that there is so much to talk about when it comes to dividends! My mission with this series is to introduce the subject to my beginner investors and elaborate on some of the most important topics.
Have a fantastic week and cheers to profits!
Love our content and excited about investing? Make sure you are part of our mailing list.
New to investing? Check out the following resources:
- FREE 8-day series: “Preparing yourself to start investing”? If you haven’t yet, you can enroll here.
- Looking for an awesome book to get started? Check out our Amazon Bestseller: “Stock Market Investing Mini Lessons for Beginners”.