There are many common misconceptions about dividend investing. For example, all dividend paying stocks are stable companies. Or, a dividend from a stock will more than offset any losses you receive in share price over the long term. However, there is one that I find most persistent in both new and experienced dividend investors. It is often viewed as a reason to buy a stock, yet it should never be the only reason. I know I have been guilty of basing a buy decision on this misconception in the past.
That misconception is that a dividend stock that increases its dividend is a good buy.
Please do not get me wrong, as a dividend growth investor one of my most important criteria when completing stock analysis is a long track record of increasing dividends. Read More…
Exactly. There’s always a reason for these increases and one of them you can be assured isn’t because they are just being nice to their investors. Microsoft went from a growth company and is now offering dividends seeing itself as less an innovator these days and something more of a staple you can count on.
If you fail to consider available cash flow during a time when it does increase any company that does so is a company that might be attempting to bail out and close shop.
If the dividend % spikes too much relative to its historic trend this is a sure sign of trouble ahead. This has happened to me a few times, once with an ADR to a Indonesian company.
Too many first time investors have this thinking which by the time they realise the real reasons it is too late.