Stock Market Information

When examining a dividend paying stock, one of the most important things to keep in mind is the potential for that dividend to grow as you hold onto it. This is due to the fact that in today’s environment, low yields are much more common than high dividend-yielding stocks (and those that have high yields are dangerous, just look at the financial sector right now), so you’ll want to rely on dividend growth in the future to pad your performance.

An ever increasing dividend with a low yield now is much more valuable than a high dividend that remains flat as the years pass. When analyzing a stock and looking at it’s prospects, there’s a very simple formula to keep in mind:

Dividend Yield + Dividend Growth = Prospective Return

Remember that much of the dividend investor’s performance is driven by a long term buy and hold strategy coupled with a rising dividend stream as you hold it. You should be willing to hold onto a company as long as the dividend stream continues to grow and the company’s future prospects remain relatively firm. The market price at any given moment is less important when you’re focused on dividends. It still does have it’s place, however, especially when accounting for your total return in the event that you have to (or want to) sell stock in a particular company.  When selecting stocks, you’ll likely want a minimum return (like 10%) in order to make buying them worth your while. This will be fueled by the company’s growth as well as rising dividends.