3 Things You Can Do to Boost Your Dividend Investing

Like any other type of
investing, dividend investing needs patience
and discipline. It will also help if you do these three things, as these could
increase the odds of making money from betting on dividend stocks and aid you
in creating a solid investment portfolio with good yield potential. 

Learn About Dividend
Payout Ratio

Determining whether a
company can keep providing dividend payments right now and in the future plays
an essential part in a high-yield dividend investment plan. The best way to
find that out is by calculating the dividend payout ratio of the firm’s stock.

The payout ratio refers
to the amount of dividends paid to shareholders during the year relative to the
company’s earnings after tax (EAT).

Simply put, the payout
ratio shows how much of the profit was used to finance the company’s operations
and the amount given to the shareholders. The overall ratio is calculated by
dividing the dividends paid by the firm’s net income.

You can also calculate
the payout ratio on a per-share basis by dividing the dividends per share by
the earnings per share (EPS). However, this formula may need more work than the
first method since you will have to determine the EPS and divide the dividends
by each outstanding share.

Nonetheless, both
methods should give you the same result.

Consider Investing in
Dividend Aristocrats

Adding stocks with a
good dividend growth history to your portfolio can also provide a boost to your
dividend investment plan. 

However, if you’re
having a tough time finding such high-yielding dividend investments, one thing
you can do is to look into stocks that intend to raise their future dividends
or have an excellent track record of either increasing or keeping their dividends
unchanged.

That is where the
so-called dividend aristocrats come in. Dividend aristocrats are S&P
500-listed companies that have raised their annual dividends each year for at
least the last 25 years. They are a good option, as they can present steady dividend
growth in the future.

Steer Clear of
Cyclicals and Commodities

Keep in mind that every
dividend is unique. Some stocks with a high dividend yield can be unstable or
at risk of disappearing due to the industry the company is doing business in.

Two industries that
you, especially if you’re an individual investor, need to steer clear of are
the cyclical and commodities space.

Cyclical Industry

Companies in the
cyclical industry are exposed to the business cycle, meaning they perform well
when the economy is in robust condition and perform poorly when the economy is
weak.

The business cycle
tends to be unpredictable; therefore, investing in a stock in the cyclical
space can be a riskier decision than choosing a stock that does not belong in
this industry.  

Commodities Industry

Commodity-driven
businesses are at risk of seeing their profits decline when the price of the
commodity they are following falls. Such characteristic makes companies in the
commodities industry very difficult to predict. For investors, that means they
need to further analyze any
current dividend payouts.