Stock Market Information

When it comes to being a dividend focused investor, it’s important to understand the strategy you’re employing and why. According to research done by Wharton Professor Jeremy Siegel, dividends are what has driven much of the market’s growth historically, and so it’s important to take at least a part of your portfolio and devote it to long-haul, usually large cap companies that give out hefty dividends as a reward for being a shareholder. If you’re curious as to what exactly entails a dividend, here’s the exact definition (courtesy of Investopedia:

A distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield. Dividends may be in the form of cash, stock or property. Most secure and stable companies offer dividends to their stockholders. Their share prices might not move much, but the dividend attempts to make up for this.

So with that said, what should you look for when seeking out a great dividend-oriented company? Historically speaking, banks and other financial institutions were a great place to start, and many dividend-focused ETFs and other mutual funds were heavily weighted in that sector. Given the recent subprime mess and credit crisis affecting many banks, however, the risks are much higher than what they were previously. If you’re in it for the long haul (as you should be if you want superior performance), you’ll want a company that continually pays a dividend and continues to increase that dividend payout each year at the rate of inflation or better. In future posts we’ll take a more detailed account into what it means to be a dividend investor and why it could be a lucrative strategy for anyone looking for performance over the long term.