Types of Dividend Stocks and What to Look For
There are three main types of dividend stocks: cash, property, and one-time. Cash dividends are regularly paid out of the company’s profits to the shareholders; property dividends can either include shares of a subsidiary company or physical assets such as inventories that the company holds; one-time dividends refer to the times when a company pays a special one-time dividend, such as in times of the sale of a business or liquidation of an investment. These one-time payments can be in the form or cash, stock or property dividend stocks. In certain cases, one-time dividends can be return of capital payments – as opposed to a payment of the company’s profits – return of capital payments refer to the return of money shareholders have invested in the business. Thus, these rare type of dividends are tax free!
If you’re planning on investing in dividend stocks, you should plan on finding ones that have a few specific characteristics. Dividends should have a payout ratio of 50% or less, with the rest going back to the business for its future growth. The dividend should yield between 3% and 6% and the company should have generated positive earnings for the the past few years with little or no corporate debt. These factors combined will provide a better protection against recession and falling payouts, and are good basic rules for new investors to live by when it comes to dividend stocks.
For more information, check out what experts have to say in the “Dividend Stocks” section of our website for the latest tips and trends.