The U.S. market has been led by the bull for pretty much 10 consecutive years. So, it’s better to take a more defensive stance to prepare for attacks from the bear. A core component of a defensive portfolio is it can utilize conservative dividend stocks as its foundation.
Here are some tips for choosing your foundation conservative dividend stocks.
Earnings or Cash Flow Stability
Healthy dividends are paid from earnings or cash flow. So, stable earnings or cash flow generation improve the dividend safety of a stock.
Typically, utilities, REITs, the big Canadian banks, the big Canadian telecoms, and energy infrastructure stocks are good places to search for businesses that generate stable earnings or cash flow.
When checking for dividend safety, the first 2 things to look at are the payout ratio and dividend track record of the company. Typically, the lower the payout ratio, the safer the dividend.
However, certain industries like REITs and utilities tend to have higher payout ratios. So, it’s best to compare a company’s payout ratio to that of its industry peers.
Market corrections are scary. And who knows if this market correction will turn into a market crash with all the uncertainties in the global economies … Brexit, trade tensions, global growth slowdown, etc.
A Quick Overview on Global Economies
The European countries’ economies look like it could be falling apart with the unemployment rates in France, Italy, and Spain sitting at about 9%, 15%, and 10%, respectively.
Gross domestic product (“GDP”) is a monetary measure of the market value of all the final goods and services produced in a period of time.
Here’s a comparison of the 2017 GDP of the 3 countries:
Germany and the U.K. are doing OK with recent unemployment rates of +3% and +4%.
Note that the combined 2017 GDPs of Germany, the U.K., France, Italy, and Spain was about 10.8 trillion, which was about 56% of the U.S.’s GDP. Still, if Europe’s economy falters, there’s going to be a ripple effect. Read More