When it's payday for investors

A regular, fully franked dividend from a strong company can be an important source of extra funds

-  PAM WALKLEY

For some sharemarket investors, dividends – regular payments from companies in which you are a part owner – are the main game. Owning shares that pay dividends can be especially important for people, such as retirees, who don’t receive a regular income from work.

Dividends are investors’ shares of a company’s profits and are usually cash payments distributed at regular intervals, normally every six months in Australia. They can also be paid monthly, quarterly or yearly or even on a one-off basis in the form of a “special dividend”.

Dividends can help boost portfolio returns in good times and bad, says the investing advice company the Motley Fool. “Cash payments aren’t subject to market whims like a share price is – meaning these payments can cushion the returns of a portfolio during a sharemarket correction or crash.”

So, how do you invest successfully in high-dividend stocks?

1 Do the research

Assess a company’s financial health and stability, considering factors such as dividend yield, growth history and payout ratio. This helps identify companies with a strong foundation for consistent dividends, shows Forbes.com.

Dividend yields are particularly relevant. You work this out by dividing the previous 12 months of dividend payments by the current share price. Many websites, including online brokers, give you this information.

The higher the yield, the better for income investors, but only up to a point, says the Motley Fool. “Abnormally high yields can indicate heightened levels of risk.”