Investors are once again in search for consistent and safe
income in a near-zero interest environment, a series of drastic dividend cuts
and rising U.S.-China tension. Nothing is better than dividend investing at
this time. This is because investors can enjoy rising current income while
anticipating capital appreciation irrespective of market conditions.
While there are several dividend stocks that could provide
capital appreciation, honing in on stocks with a history of dividend growth
leads to a healthy portfolio, with greater scope of capital appreciation as
opposed to simple dividend-paying stocks or those with high yields.
Strong Dividend Growth Indicates Further Dividend Hike
Stocks that have a strong history of dividend growth belong
to mature companies, which are less susceptible to large swings in the market,
and thus act as a hedge against economic or political uncertainty as well as
stock market volatility. At the same time, these offer downside protection with
their consistent increase in payouts.
Additionally, these stocks have superior fundamentals that
make dividend growth a quality and promising investment for the long term.
These include a sustainable business model, a long track of profitability,
rising cash flows, good liquidity, a strong balance sheet and some value
characteristics. Further, a history of strong dividend growth indicates that
dividend increase is likely in the future.
Although these stocks do not necessarily have the highest
yields, they have outperformed for a longer period than the broader stock
market or any other dividend-paying stock.
As a result, picking dividend growth stocks appear as
winning strategies when some other parameters are also included.
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