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Dividend Investing: Banking on Consistent Stocks
Posted on | June 6, 2012 | Comments Off
There are a plethora of trading options available to investors in today’s financial market, each offering their own representation of the risk-reward ratio. Whereas Contract for Difference (CFD) trading protects investors from stock specific risks or a declining market, choosing to invest heavily in emerging technologies or economies leaves a trader exposed to the threat of significant losses. While these represent two extremes of the trading spectrum, however, there is a middle ground that offers the opportunity for prolonged and consistent gain without committing to a high risk venture.
This is dividend investing, which is a strategy whereby traders build a portfolio of relatively safe blue chip stocks that generate financial returns throughout the year. Rather than investing heavily into a select few commodities and stocks, dividend investors spread their capital effectively and enjoy the benefit of regular cash deposits entering their bank accounts. While it is not entirely without risk as an investment proposition, it is ideal for traders who have a knowledge of the financial markets and are interested in organic, long term gains.
The Ideal Dividend Investment Portfolio: What You Should be Looking For
Dividend investment opportunities come in many forms for investors, but the best ones are not necessarily those with the highest returns. While this may sound strange, high dividend stocks may not be all that they seem, as their inflated return could be the sign of an underlying operational issue or poorly structured business model. Instead, it is important to research potential stocks thoroughly, and focus primarily on those which have produced a consistent yield over a 3 or 5 year period. This helps you to avoid potential dividend traps, and develop a portfolio that boasts long term growth potential.
In terms of the portfolio itself, it is important to cultivate interests across a range of prosperous industries. Selecting from options such as healthcare, manufacturing, technology and the financial sector is no easy challenge, especially given the increasing economic uncertainty and fluctuating nature of most market sectors. The key is to research each of these markets thoroughly, and see which ones have evolved and have the potential to grow consistently over a 5 year period. Again, the emphasis should be on sustained growth that can be relied upon within a given timeframe.
Picking Individual Stocks: Which brands Make for the Best Dividend Investment
Through the course of your research, you are likely to uncover numerous brands that offer a tempting investment opportunity. The key is to identify the most consistent dividend growth stocks, and make these the staple of your portfolio. Coca Cola is perhaps the most consummate example, as not only is have its dividend returns grown relentlessly since 1990, but for the last 8 years the rate of growth has also increased. Alternative brands such as Proctor and Gamble and Colgate Palmolive have followed an almost identical market trend, and therefore tick all the boxes as dividend investment opportunities.
While not all stocks have the credentials of these stellar brands, however, they at least identify the key properties to look for when selecting a dividend growth stock. A company that has grown consistently from solid business foundations makes or an ideal choice, especially if the increase in its annual dividend return has accelerated since the year 2000. Projected industry growth for the future may also help you to determine viable investment options, although this does not necessarily guarantee the development of individual brands.