The Motley Fool

How I’m looking for dividends in a market with very few

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Economic Uncertainty Ahead Sign With Stormy Background
Image source: Getty Images

Now does not seem like the best time for income investing. Many major stocks that previously paid out good dividends have cut or postponed them. Indeed, in my own portfolio, my best dividend plays have all dried up. However times like these can actually be a great opportunity. This is what I’m looking for.

Not all gone

Firstly it’s worth noting that not all shares have stopped paying dividends. There are still a number of potential plays out there that can bring in decent yields.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Of course, times are still very uncertain. A second lockdown seems to be looming. Covid shows no signs of slowing down, and a recession seems ever more likely. Those stocks paying dividends today may still have to cut them tomorrow.

But even considering this, there is a way forward, I feel.

Look to past dividends for the future outlook

The basic premise I now follow for finding dividends is looking at firms that consistently paid good yields in the past.

I understand having to suspend dividends in times of trouble. In fact I almost always agree with the decision. As a long-term investor, I am glad to see management redirecting money into their businesses rather than keeping investors happy with dividends.

Times may be bad now, but eventually things will get back to normal. When they do, those solid companies that paid dividends before will pay them again. What is even better, locking in those shares now when prices are under pressure, should mean the relative yield we get when dividends come back will be even better.

Criteria to look for

So here are a number of criteria I look for. Firstly, I am looking at blue-chips with strong brands. Preferably companies that don’t seem to have too much trouble on the horizon.

Short-term problems like low oil prices or bad loan provisions don’t bother me. These will see improvements eventually. But companies that may not survive a fundamental shift in their market, such as customers moving to online rivals, are perhaps ones to be avoided.

Next, I am looking for shares that paid out dividends consistently in the past. The best guarantee of picking a future dividend stock that isn’t paying dividends at the moment seems, to me, to pick one that has almost always paid them in the past!

A quick look at a company’s payment history shows this. What’s more, I would be looking for decent dividend growth year-on-year in the past. Anything over 2% or 3% seems about right.

Lastly, I would be looking for previous yields in what I think of as the ‘Goldilocks zone’. This is between 4% and 6% yields as a general rule, though I have picked up oversold shares with dividends higher than 6% many times. Anything less isn’t worth it, anything higher is probably too much to sustain.

It may not seem like the best time to find dividends right now. But with prices under pressure, we may in fact have a great opportunity to lock in strong yields when everything gets back to normal.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.