You can invest in any “safe” income-producing vehicles consistently to get an ever increasing income. Such vehicles include real estate, farms, and dividend stocks.
In this article, we’ll focus on dividend stocks. By consistently, I mean that you invest every month, quarter, or year. Get this. By buying safe dividend stocks over time, your income can only increase.
What is a good dividend payout ratio for a company? Is 70% too high? Does a company with a low ratio imply high dividend growth?
Using a concrete example, we’ll answer 3 simple questions to figure out if a company has a good dividend payout ratio that supports a healthy dividend. You can ask the same questions for any dividend company you’re interested in.
To determine if a dividend is safe or not, one must analyze the company that’s paying the dividend. There are multiple things to look for.
Is the company financially strong?
Dividend companies with financially strong profiles are less likely to cut their dividends. So, invest in companies with credit ratings of BBB+ or better to improve your dividends’ safety.
For example, Telus Corporation (TSX:T)(NYSE:TU) has a BBB+ S&P credit rating.
Are the earnings stable?
As one of the leading Canadian telecoms, Telus also earns stable cash flows and earnings from its subscribers. It has 12.4 million total subscriber connections, including 8.5 million wireless subscribers (about a third of the market), 1.6 million high-speed Internet subscribers, and one million TV subscribers.
Businesses that are dependent on volatile commodity prices, including oil and gas producers and mining companies, will experience volatile earnings. Read More