Find good companies for dividends payouts

The trick to getting extra income from your investments is finding the right type of companies.

09:58 08 November 2013

We all know that investments can be a great way to create relatively stable additional income, as long as we are able to find the right type of investment. Companies doing well at the current moment in time could suddenly have a few rough years later. Everything essentially boils down to doing a lot of legwork. Here are some suggestions to help you get started in finding the right dividend paying companies:

• Look for the potential for long term relations when researching companies. A good company will have the ability to either compete in the marketplace indefinitely, or the ability and inclination to diversify. You can find out a lot by perusing a website. Companies willing to shift with the growing times often put their works-in-progress on display for potential consumers. If you find a company but think the need for the product they offer will be eliminated in the near future, you’re probably right.

 

• History is the best place to begin when searching for stable companies. If you review records of past years—preferably decades—you should have a solid grasp of how the company handled itself through good and poor economies. This isn’t fool proof, but certainly helps separate good contenders from companies which shouldn’t be considered in case of dividend payout.

 

• Even if numbers are not your cup of tea, you’ll probably need to spend a little time reviewing the finances of the companies. Healthy companies should have a good amount of cash flow which is what is used to pay out dividends. Low cash flow could mean that a company has too much debt, or isn’t managing finances well. Looking at a balance sheet in conjunction with the cash flow will also give you a more comprehensive idea about the companies’ financial capabilities and potential options.

Remember to use the combined results for the best possible decision.