When buying a stock, I look at the company’s growth to see if I will be able to sell the stock at a later date for more money than I bought the stock for. Obviously, if the business looks like it is in the decline, then I will not buy it at a premium valuation. Another thing that I look at is if the stock is paying a dividend. If a company is growing their earnings year-over-year while offering a dividend, I like that stock because I can buy into the company and get cash flow from the company that I can use to invest into other businesses. Not only will I benefit from the eventual sale of the stock, but I will be able to grow my cashflow along the way.
Many people take this idea and then try to find the stocks offering the biggest dividends. That can be a problem though. When one finds a stock offering a huge dividend, the question they should ask is why? Why is the company offering such a high dividend? One reason is often because they have to. If a company is seeing a massive decrease in share value, they might offer a bigger dividend to keep investors from selling. If one buys stock in a business at $40 a share and receives a 10% dividend but then that company decreases in value by 20%, they’re still losing money.
I like to buy into companies that are offering a dividend, but it is important that that company is still experiencing growth or at the very least not declining in growth. I also like to put high dividend paying stocks into a Roth IRA so that I do not have to pay taxes on the dividends I receive. Dividends are taxes as income which can put a good-sized dent into one’s overall return.
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Finance by CWT 