Read about my successes and failures. Learn from my experiences and gain insight without losing any cash!!!
Lesson: Catching a Falling Knife
Lesson: Currency Exchange
Lesson: Mutual Fund
Lesson: Paid to Wait
Lesson: Pricing in a Downturn
This is where you’ll find find my Blog. I will comment on the latest news relating to investing, real estate, and the financial markets.
Is the highest paying dividend stock that is available for purchase always the best one to purchase for improving cashflow and building wealth? Obviously, this is a personal perspective, but I think likely not. With all things, being smarter and purchasing an asset with growth potential could serve you better for the life of your investment.
First, the highest paying dividend stock on the market may not be the most stable or safe. Why has the market valued the stock so low, and allowed the yield to be so high? A yield is the return on the purchase price, that a company pays you in the form of a dividend calculated annually. A yield typically correlates with the general risk of the company, so you could be taking a larger risk by purchasing this blindly. That having been said, look into the company behind the stock and see what they manufacture or what their business is, and what their prospects are. Also search news articles for recent bad news or announcements, to verify that the high yield is justified – if it isn’t then go ahead and buy.
An alternate paradigm is to look at historical dividend payouts by the company, and trend the growth, if any. What you are looking for is a steady history of sustainable growth that shows the company incrementally increasing the dividend over time without needing to cut it back. You can then calculate the amount of yearly increase in a company’s dividend over a lengthy period of time and estimate what future increases you might expect.
Why is this useful? Example: a company’s stock price is currently $100 and their yearly dividend is $2, therefore 2/100*100 = 2%. If they historically have been raising their dividend by $0.20 per year, you could reasonably say that the dividend is growing by 10% per year. So in ten years the dividend could be forecasted to be $4, the original $2 + 10 years X $0.20 = $4
If you could buy this stock now, which you can, you could expect your money to be earning a 4% dividend in ten years, which is double the original yield. So an alternative riskier stock paying a 3% dividend with no growth prospects may not seem as appealing an investment to you. The highest paying dividend stock on the market may then be viewed, in my opinion, as the stock that has the highest initial dividend rate, coupled with the highest dividend growth rate. You could also find a winner with a reasonable dividend and a stellar growth rate. To find the highest paying dividend stock on the market, make a list of companies who you would like to buy. Next, list their yields from high to low, and look for the highest yield, coupled with the best growth rate. You may have just found a winner!