Investing in dividend-paying stocks in Malaysia is a great way to build long-term wealth. The dividend stock that you own for every share you paid is a portion of the company’s earnings. However, it’s easy to get caught up in the search for a big yield of what makes a great dividend investment.
If you love dividend stocks and want to invest in it, then how do you find the best dividend stocks?
It’s actually simple to find a short list of great dividend-paying companies to select from, here Multi Management Future Solutions team of research analyst presenting the seven simple steps to find the best dividend stocks this year.
To find dividend stock first, investors should always to look at a company’s dividend-paying history. Always consider a company that has a long history of increasing its dividend, which shows a management commitment to returning value to shareholders over time.
You should adjust the number of consecutive annual increases to your taste. For example, some investors will only consider companies that have increased their dividends for 25 years or more. But you might be flexible here. For example, Nestlé Malaysia has paid an increasing dividend per share for the last 13 years. It’s dividends increase from RM0.821 per share to RM2.35 in 2013. This implies that dividend has grown up, on average, 8.4% a year the last 13 years.
When coming to a company’s payout ratio it should be not more than 80% of its earning per share. If a company earns $0.50/share and is paying a dividend of $0.75/share, it could be in trouble. It is most important to differentiate the earnings per share and the dividends per share. During the past 13 years, the highest Dividend Payout Ratio of Bursa Malaysia Bhd was 2.18. The lowest was 0.00. And the median was 0.90.
Always select a company with a stable product line. Whether it’s beer, food, oil, or computer chips, the company you’re investing in should have a core business with a worldwide need for its product and presence.
A company is dividend-paying should have lots of cash. To Check the company’s current ratio, which calculates its potential to meet short-term obligations. The “current ratio” is the ratio of current assets to current liabilities. If a company’s current ratio is greater than 1, it’s in a good state.
Stock price stability is one of the important factors in choosing dividend stocks. Investors need continuously remind themselves that no matter how big or stable a company, its stock price can still fall. The stock prices of many big, dividend-paying companies fall in the 2008 crash. However, they experienced less vandalism than the total market, and they recovered more rapidly.
Some of the other better dividend yields are in sectors that experience more volatility. A sensible investor will diversify his dividend-paying stocks among different sectors to reduce the overall impact of market swings.
To look for a company with a history of buying back its stock is a great way to analyze the dividend stock. It’s a big addition if the company has enough earnings to pay good dividends and buy back stock at the same time.
Check the current dividend yield percentage is the last one but not least. There are many good dividend-paying stocks out there, but investors should factor in the price of any companies paying at least 3%.