Income investors not just look for cheaper stocks with dividends but also for stocks that can help derive good and consistent income over a long run. Thus, the dividends come to play a role here and it becomes important as to which dividend shares to buy. Dividends are the regular stream of income for most of the value investors generated when a Stock makes profit. One of the most important things to remember about your dividend investments is that investors buy each security for a reason looking at the value, and expect a dividend income from their securities. Taking the example, Westpac Banking Corporation (ASX: WBC) has a dividend yield of 6.42% against Commonwealth Bank of Australia (ASX: CBA)that has a dividend yield of 5.9%. Looking at macro picture (with Royal Commission in action) and fundamentals etc., investors might want to go for WBC over CBA taking into account WBC’s strong financial performance, trading levels and scandals that have drenched CBA through Royal Commission.
Formulation of a time frame becomes essentially important to know when to receive the dividend and plan the strategies accordingly as longer term goals may require high dividends and less risk while short term goals may settle for lower dividend and may be a little more risk-oriented. Along with the time frame a healthy pay-out ratio is also very important as it helps us know that how much of a company’s earnings is paid out as dividends. A history of the dividends being paid out i.e. a company having a track record of consistent dividend payout for a period of 10-25 years is a solid base for those companies. Some gems of this category include the well-established BHP Billiton Limited (ASX: BHP) and RIO Tinto Limited (ASX: RIO) that have been providing good returns to the shareholders while the same are now trending a bit high.
There are smaller players also in the domain that can be identified basis the rising earnings and consistent dividends. For example, you have Money3 Corporation Limited (ASX: MNY), which lately declared an increased interim dividend of 4.5 cents per share which was significantly up on a year on year basis and was paid on 21 May 2018. The company has an annual dividend yield of 3.93% and is fully franked.
MNY Dividend Pay Out, Source: Company Reports
While one may identify these stocks based on financial performance and looking at PE values in view of dividends, but all may not fit into the portfolio. For instance, below is a list of some stocks but it won’t be true to say that all pass to be the dividend shares to buy as PE ratios and past performances do take some weightage in stock selection.
Annual Div. Yield for 5 Stocks, Source: ASX as at July 02, 2018
Now, investors can also seek players like Ramsay Health Care Limited (ASX: RHC), which is one established company in the health care sector with an annual dividend yield of 2.58 percent (fully franked), and has been declaring dividends on a regular basis. However, the stock was lately smitten by the trading updates. Nevertheless, it looks undervalued and may play over many in the long run.
Dividend Trends for RHC, Source: Thomson Reuters
Another caution to be observed is the fact that very high yields of stocks are speculative and risky and you can’t keep them in a portfolio of a long term perspective like retirement as they can’t afford to lose money. A high yield could be a result of the inherent risk a particular industry carries as the stocks then tend to be very reactive to the market conditions. Therefore, a portfolio of good dividend shares to buy need to be based on a well-built strategy and with careful consideration for wealth-creation over a long period of time.
