Share:

To demonstrate their financial strength and create value for shareholders, many companies offer cash payouts in the form of dividends. Along with capital appreciation, stock dividends help you build wealth over time and can provide insight to guide your investment strategy. Below is what a company’s dividends can tell you about their financial health and growth potential.

How Dividends Can Signal a Company’s Economic Health

Which Companies Pay Dividends?

While deciding not to pay dividends can be a sign a company isn’t doing well, this isn’t always the case. Newer, fast-growing businesses often choose to reinvest their profits to fuel growth rather than distribute payments to shareholders.

On the other hand, older, more established companies with slower growth tend to send dividends regularly. The software giant Microsoft® famously waited decades before directly sharing profits with its investors.

Are Dividends Always Signs of Economic Strength?

investment strategyJust as not issuing dividends doesn’t always mean a company is struggling, large payments to investors may not necessarily indicate economic strength. For instance, a company might issue generous dividends even if they don’t have much cash on reserve in an effort to drive up stock values. While dividends can provide some insight into a company’s finances, they’re only a part of the overall picture.

What If a Company Reduces Dividends?

Occasionally, a company might reduce dividend payments to fund significant expansions, product development, or other projects directed toward long-term growth. However, in most cases, a dividend cut means the company is struggling to meet financial benchmarks and may be losing money. Keeping tabs on a company’s dividends will help you adjust your investment strategy and maximize your long-term growth.

 

For over a decade, Headwaters Investment Counsel & Asset Management has provided expert advice and customized services to clients across the country. They employ dividend growth investing, a robust and time-tested investment strategy that can outperform the market. Visit their website for more on their services, and call (440) 399-3359 to get started on your investment strategy.

tracking