Dividends4Life: Dividend Stocks For Solid Income While U.S. Interest Rates Remain Low

Do you think that investing for income is boring? You’re not alone, and it’s always sexier to tout the next market sector that’s set to soar, or talk about what isn’t working at the moment, namely oil-related stocks. But many investors rely on income from investments, and with interest rates remaining so low for so long, maintaining and growing this income can be very difficult. Investors are shying away from high-yielding stocks that don’t have clear support for their dividend payouts. So we’re revisiting a strategy outlined in May by Bill McMahon, the chief investment officer of Thomas Partners.

McMahon focuses on identifying companies that not only have attractive dividend yields, but have levels of free cash that could support significantly higher payouts. Free cash flow is a company’s remaining cash flow after capital expenditures. One approach favored by McMahon is to calculate a company’s cash flow yield, by dividing the free cash flow per share over the past 12 months by the share price. Then a company’s headroom to raise its dividend can be calculated by subtracting its current dividend yield from the cash flow yield.

Source: Market Watch

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