One of the biggest mistakes investors make when it comes to dividend investing is assuming that BIG dividends= GREAT dividends.
Dividends are paid based on cash flow. A company can sometimes pay out a dividend through financial innovation (issuing shares as dividends, etc.), but if you are looking for REAL income from your investments, you NEED the company to be producing CASH.
No cash= no dividends= no yield.
This is why dividend investing is a tricky business. You cannot simply assume that because a company paid out a big dividend before, that it will continue to do so. You need to assess the stability of its cash flows… as well as its future prospects for growing that cash.
After all, you don’t just want the dividend to be constant, you want it to GROW!
This is why you should focus on a particular type of dividend paying investments… investments that GROW their dividend consistently over time…
Consider Exxon for example.
Exxon has increased its dividend for over 30 YEARS. Indeed, if you bought Exxon as late as 2000, you would be collecting a 7-8% yield today based on DIVIDENDS alone (share price in 2000 was roughly $32, and dividends paid in 2013 were roughly $2.50).
At the same time, your initial position in Exxon’s stock would have risen 400%!
So you’d have made 400% in capital gains… and would continue collecting 7-8% per year in dividends.
And the best part is… the dividend keeps growing!
This is how you get truly rich from investing. Find investments that are Low Risk Dividend Growers and HOLD ON for the long-term. Less than 1% of mutual funds beat the market… why even bother with them?
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Best Regards
Phoenix Capital Research
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