If you want to invest in dividend stocks, the most important thing to do is to look for a good dividend-paying company in addition to doing a thorough stock analysis. There are certain attributes of a good dividend-paying company you should always consider. The first attribute is excellent corporate governance. Premium dividend-paying companies generally have excellent corporate governance. Immediately a company enforces dividend-paying policy, it will be very unlikely for the company to dispense with the policy. Because dividend payments must be included in earnings statements and with cash flow, the management will not be willing to pay out the dividends if the company’s earnings are low.
This therefore becomes an effective precaution against managerial misuse of shareholder or investor capital, hence the reason why dividend investing is considered to be safe that even corporate bond investing. The second attribute of a dividend-paying company is dependable and predictable income stream. Over the last eight decades, dividends that have been reinvested in the same company that issued the payments account for over 35% of the overall increase in stock prices. The reliability and safety of dividend payments for investors who rely on incomes also offers more protection against all forms of inflation.
Thirdly, dividend paying companies are both offensive and defensive. Dividend paying companies always realize or anticipate when investor demands will emerge especially in times of market downturns. This realization or anticipation becomes a very crucial factor in the establishment of a well-diversified and defensively positioned portfolio. In the stock market, dividend stocks provide a better return irrespective of the price fluctuations and other conditions in the stock market. This is also one main reason why many investors have demonstrated comparatively stronger demands for dividend-paying stocks in times of market downturns. High profitability and the strong balance sheets of dividend-paying companies will always act as a cushion throughout market volatility periods.