The Finance Blogger


How to Buy Dividend Paying Stocks

How to Buy Dividend Paying StocksMany people have been wondering what to do about the low yields they are getting from everything from bonds to mutual funds. This post is about how to buy dividend paying stocks and still get a good yield as well as a raise every year. Our friends who happened to be retired are wondering how they will survive for the next 20 years on a fixed income. They should consider themselves fortunate that they have a pension and not have to worry about were their money is coming from.

It is a serious question for many people regarding how they can circumvent the fixed pension concept and continue to live comfortably as inflation gradually eats into their income buying power. They all seem to be fixated on this concept of a fixed income, however they still receive inflation increases every year with their indexed pensions. For those people without pensions that are not indexed, what do you do to keep up with inflation?

It is easy to buy stocks and it is easy to buy dividend paying stocks but how do you buy dividend paying stocks that are relatively secure and provide increases every year. The first thing is to realize that nothing remains the same. Everything evolves and everything changes, but there are things you can do to help you decrease the risk and receive a raise almost every year.

Dividend Paying Stocks

We decided to build a criteria table for our own use and wanted to share it with people. If you are reading this and it helps you great. If you are reading this and disagree with us or feel that we missed something, let us know and leave a comment! This is the approach we are taking to ensure a raise every year for us, protect our investments and keep up with inflation as we get older.

Here is our list of criteria in no particular order:

  • What is the dividend yield of the company you are looking at
  • How many years have they paid dividends
  • Have they missed any payments
  • Have they increased their dividend payments each year
  • Is the yield abnormally high, if so avoid it unless there is a good reason
  • Do they support dividend reinvestment
  • What percentage of their cash flow are they paying out. Less than 50% is good
  • Review all of their other financial factors to ensure that they are within a proper range
  • Are they considered a blue chip company
  • This is not for speculation, regular dividend payments are important
  • Regular dividend increases are important over the long term

The yield level is important since it compares how much money you are making on dividends and allows you to compare the yield to other investment instruments, such as bonds and mutual funds.

Dividend Stocks

The total dividend payment of the company should be less than 50% of the cash flow of the company. If there cash flow decreases in a bad year, do they still have the ability to make their dividend payments? This is the key question to ensure that they do not miss a payment.

If the yield is abnormally high, it may imply risk in that the stock is low and they may decrease the dividend to bring it into line with the market. Stay away from speculation and focus on income while in the later years just prior to or post retirement to preserve your income and to also gain increases over time.

There are actually some companies that have a record of increasing their dividends for 40 years in a row! What a record that is. Of course this also means they paid a dividend every year. It provides a pretty good idea of the level of risk you are facing. Never let your guard down, monitor these companies as well when you invest in them.

Any stock broker or financial adviser can purchase stocks for you in your account. Check them out carefully before you pass your money to them. Read some of other posts on this subject on our web site for more information.

Comments are welcome. Invest wisely and carefully! Practice diversity and seek second opinions when it sounds too good to be true.

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One Response to “How to Buy Dividend Paying Stocks”

  1. i wish more people would talk about buying dividend paying stocks. I have been in mutual funds for a long time and have always wondered about the fee’s. now I understand it better and will gradually move to dividend paying stocks.

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