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Tips for investing in the stock market for dividends

july 20, 2014 | Finance

Much of what has been said for the long-term investor could be applied to the investor in dividends, but with special emphasis on the dividends generated by the company and its ability to continue generating them in the future. This way of facing the market is one of the ones I like the most, especially if you have been able to read my presentation, what I am looking for is financial freedom, and the only way to not live to work is to get passive income. This is what you can offer to invest in the stock market looking for dividends, but "eye" is not all that glitters gold.

Search for strong companies

Strong companies are usually mature companies, which have been operating for some time and have shown that they are capable of generating profits (with those that pay their shareholders) over time.

Companies with acceptable debt

You have to look for companies with limited debts. I do not want to say that it is necessary to invest in companies without debts, because in some sectors it is necessary to borrow for the normal operation of the business, but we have to know if the company will resist adverse situations. A clear example has been Telefónica, a company with a heavy debt, which in a very hard period has had to abolish its dividend and when it has been redistributed has been much smaller than before. Sometimes high dividends are masking some problem, or are the result of the decision of a board of directors with very bad criteria.

Invest in profitable companies

In the investment for dividends I look for mature companies, precisely because over time is when profitability is demonstrated. It is very difficult for a company that is starting to be profitable and if it is, a large part of the capital it generates will go to growth. Therefore, they are not exactly interesting companies for all those who seek dividend yields.

Growing Payouts

The payout is the part of the profits that the company allocates to its shareholders. The ideal is for the company to have a growing Payout history, while maintaining prudence. You have to invest in companies that have a reasonable Payout, because if at a certain time the benefits decrease, the shareholder remuneration can be maintained. I like companies that keep Payout close to 50-60% and of course you have to flee from companies that get into debt by paying dividends, or that have high Payouts, simply because they are not sustainable over time.

Dividend history

It is good to know that the company in which we have decided to invest takes care of its shareholders; a good fact is to look at the evolution of the dividend payment, to know if it has been suspended on any occasion and what the reason was. These are my 25 best tips to learn to invest in the stock market, maybe I have left some in the pipeline, or maybe you think I have not commented on any aspect that you consider interesting, feel free to write your own advice.

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