Dividend investing is great for conservative investors looking to increase their capital in stable shares with, hopefully, less risk.
There's a lot of crossover between general success in the share market and success in dividend investing.
The fundamentals are the same. You're still investing in stocks, but your main focus is on the companies that will continue to pay returns to their shareholders.
This means you want to be looking into more of the large-cap bracket. Companies with a detailed dividend history, a good track record, and larger profit margins are more viable options.
Dividend investing essentials
When deciding where to invest when it comes to dividend shares, there are a few fundamentals to consider.
First, do your research.
A key component is a company's dividend yield. Look for companies that have a dividend yield around 5%. Anything too much lower and it becomes harder to see potential returns.
Next, take a detailed look into your company's dividend history.
While past performance isn't an indication of future performance, a good start is to get an idea of a company's overview. How long has this company paid dividends? And is there reasonable growth in them? These are the kinds of things you could consider.
Now that you've researched the history, it's time to look forward. What is the company's projected dividend yield? Note, you cannot predict future dividend payments, but you can look at a company's yearly dividend yield.
A forward dividend yield is the percentage of a corporation's share price that it expects to pay out as dividends to its shareholders, usually over 12 months.
A case study: Is Wesfarmers Ltd (ASX: WES) a good dividend investment?
Let's take a look at this summary of Wesfarmers, and the reasons why it could be a dividend worth investing in.
Wesfarmers is a company offering a diverse range of services, from operating in the retail sector to interests in the mining, manufacturing and insurance industries. At the time of writing, the Wesfarmers share price is $38.84.
It is one of the largest companies on the ASX, with a market cap of $44.67 billion and a dividend yield of 4.52%. In April this year, analysts projected Wesfarmers to have a 12-month yield of around 7.3%.
According to its FY19 results, Wesfarmers' dividend record date is 2 September 2019, with dividends payable by 9 October 2019. Wesfarmers reports full-year ordinary dividend of $1.78 per share, as well as a special dividend of $1.00 per share, for total dividends declared in FY19 of $2.78 per share.
Wesfarmers projects itself as a company committed to providing satisfactory dividends to its shareholders. As a starting point for dividend investors, it has a lot of appeal.
