For The Love Of Dividends
October 22, 2009 – 4:03 amWho doesn’t like cash? 
I don’t do a lot of individual stock picking, but I do watch the dividends of some stocks in order to roughly gauge how a company is doing. I realize there are hundreds of metrics out there, and new ones are created regularly. Aside from fads and specialty ratios, a growing and/or steady dividend is still a key indicator of financial health in my opinion.
Why? It’s hard to fake a dividend. Of course you also need to watch the payout ratio as well, but earnings per share is more easily manipulated than dividends. Either a company paid a dividend or they didn’t. Earnings can be manipulated by legitimate means based on one-time charges, exchange rate fluctuations, and thousands of other things. Dividends are distributes based on the approval of the board, and a long history of steady or growing dividends (in my opinion) indicates stability.
Keep in mind that high yields do NOT directly represent financial stability, as we’ve seen in the financial services sector recently. As always you need to make your own investment decisions, but as for me the dividend history for a firm is a good starting point.
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