Do you want a dividend income stream that will increase every year? Here are some simple tips to check for the dividend stocks you’re interested in. The order to check matters because if the dividend stock doesn’t pass checkpoint one, it’s out.
Does the dividend stock have a track record of dividend payments?
Notably, this checkpoint allows dividend stocks that have a track record of maintaining or increasing their dividends to pass. Though we prefer stocks to increase their dividends every year, we understand that sometimes the macro environment forces stocks to freeze their dividends. It is a great feat to even maintain dividends during stressful times.
For example, to be prudent, the regulators forced the big Canadian banks to freeze their dividends around the time of the last financial crisis in 2009 and 2010. Once again, the regulators forced the banks to freeze their dividends. Even the best of the bunch, National Bank of Canada (TSX:NA) has maintained the same quarterly dividend for seven consecutive quarters so far, whereas prior to the pandemic, it increased dividends every two quarters.
Again, the dividend freeze is no fault of the big banks. National Bank has maintained or increased its dividend every year since at least 2002. Now, that’s a track record!
Depending on your comfortability, you might seek dividend stocks that have maintained or increased dividends for at least five, 10, 15, or 20 years.
If a dividend stock hasn’t made consistent dividend payments for at least five consecutive years, it’s out. The five-year test would include the stressful pandemic period that we’re experiencing, which is a decent test of resilience/defensiveness for a dividend stock.Read More