. 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.