Dividend in simple words is the amount paid by a company to its shareholders from its profit. Dividend is usually in the form of money but sometimes companies also pay in the form of additional shares. Whatever the case is, it is important to look out for the companies with considerable profits so they can pay steady dividends to their shareholders. Steady dividends enable an investor to get money when earnings are up and also when earnings are down.
That’s why investors usually pick companies whose profit rates stay steady. A perfect example of it is Warren Buffet who is known to invest his money in top-notch dividend paying companies. This has helped him make a lot of cash. Dividends can make you rich but patience is the key.
Expect low earnings
If a company is not steadily making profit then better avoid it. It is possible that a company pays steady dividends but not making steady growth annually. It is not wise to invest in such a company. It may go into loss any time which will make you lose all your investment. So aim for low earnings so that the cash flow may remain steady.
Avoid companies with debts
If a company has a history of debt it is advisable to stay away your investments. It is possible that the company may jump overnight but why take risk. Stock market is full of risks but you have to play wisely. Because if you fail you will lose your savings in no time. Also even if a company is making steady profit but has a history of debts then when the time comes of payback, the extra cash will go to deleveraging instead of dividends.
Pick the industry carefully
You need to be very careful and should know everything related to finance when you intend to make an investment. Check the health of industry and future growth possibilities. It is not necessary that if a company has remained very profitable since ever, it will do the same in future. Examples of such industries are PEPSICO and BRITISH AMERICAN TOBACCO COMPANY. People are now turning towards healthy beverages and lifestyles. These companies had high profit rates in the past. However they are now shrinking. May be in future these will not be able to pay steady dividends to their investors. So it is very important to take into account all the factors.