Tuesday, April 21, 2009

What a Company Needs to Pay A Dividend Every Year

I was fortunate (or unfortunate depending on your opinion of them) to get a free version of The Motley Fool's new book, The Million Dollar Portfolio. In this book they have a chapter on dividends which lists some qualities that a company must posses in order to pay a dividend consistently year after year. There are four of them according to the authors.

1. Consistent and proven cash earnings power that can grow over time.

2. A stable business in an industry that won't experience massive distributions that could negatively affect dividends.

3. Shareholder-friendly management dedicated to treating shareholders as owners

4. A business model that doesn't require massive amounts of capital outlays relative to its earnings power

I can't really argue with any of these, however I think it is not as cut and dry as it seems. Banks for example were once considered a stable business as was GE - anything can happen and one years stable business can be the next years villain. No matter your criteria for a stable business, it is crucial to ensure you are fully diversified with a strong asset allocation.

This article was written by The Dividend Guy. You may email questions or comments to me at info@thedividendguyblog.com.


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