These are trying times for investors who rely on dividends from share portfolios for income. Yet income investing can be an attractive strategy. "In volatile markets the most guaranteed part of your total return is not capital gains - it is dividend income,'' says the director of research at Bell Potter Securities, Peter Quinton. ''So we are seeing [it] become a lot more important than is normally the case."
Classic dividend-investing theory teaches the importance of buying shares in companies that are growing and boosting their dividend yearly. Quinton advises investors to seek stocks paying above-average yields and aim for companies unlikely to report a profit decline over the next two years. He stresses the need to check that the company offers adequate dividend cover - a ratio that tells how much after-tax profit is being used to finance dividends: a ratio of two times means half the profit is being paid in dividends.
Source: stuff.co.nz
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