Best Dividend Stocks
Best Dividend Stocks. Which are the best dividend paying stocks and how do you find these high dividend stocks?
Dividend Life Cycles
First, you must understand the relation between dividend life cycles and business life cycles. Schreiber and Stroik pointed out the six phases of a company’s development which would influence its dividend policy.
Companies in the start-up phase will need as much of its profits to be reinvested as possible in order to further the growth of the company. Thus, start-up companies will pay zero dividends.
Early Growth phase
Companies in the early-growth phase have survived the start-up phase, and gradually experiences increasing demand for its products and services. Dividend payouts will still be zero, since all profits will need to be reinvested to ensure the company remains highly competitive.
Late Stage Growth phase
In the late stage growth phase, the company continues to experience growth and will usually begin to pay small dividends of 10 to 15 percent earnings. This is an indicator that the company has reached a level of stability in profits and cash flow.
Companies will then gradually enter the expansion phase, as it tries to reach into overseas markets and invests in international developments. At this point in time, the companies’ rate of growth may decline as competitors reach into the company’s home market share. Dividend payouts will increase to 30 to 40 percent earnings.
Maturity phase: Best Dividend Stocks
At this point, the company’s growth rate slows significantly. Mature companies with competent management will continue to dominate their markets, and it is at this point where dividend payout ratios reach a maximum of almost 50 to 60 percent earnings. Investors at this point will receive generous dividend income.
Decline phase: Worst Dividend Stocks
Companies that fail to remain competitive will fall into the decline phase, and may experience negative growth. As sales and profits decline, dividend payouts will also decline and eventually become zero. Thus, it is best to avoid buying into a company’s stock when it is in its decline phase.