President’s Advisory Council On Financial Capability

Money as You Grow was suggested as an initiative of the President’s Advisory Council on Financial Capability. The content on this website does not signify official policies of America Government or America Department of Treasury. The info and materials provided in this website are general in nature and are not to be considered the rendering of legal, tax, accounting, financial, investment, insurance or other expert advice.

1000. It is absolutely tempting to go for high yields. However, as investors who invest for income, even though high yields seem attractive, we should not jump straight into in. Jumping straight into a high-yield stock is like jumping into an ocean without knowing if its water is shark infested.

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It all appears good from the exterior but if we look deeper, there could be problems lurking ahead. An ongoing company which spends high dividends need to get the money from someplace. It can be paid from its income or it could be paid from its existing cash. There are many questions we need to ask ourselves when investing into shares for passive income. 1. Where will the ongoing company pay its dividends from? 2. Are the dividends sustainable?

Will the company continue to grow? 3. What’s the trend of its previous dividend payouts? Year by you Could it be increasing or decreasing? Since we’re investing for income, we wish that income be sustainable and better still if it is increasing yearly. Go through the company’s business structure for clues on where they derive its income.

If income is not stable, most likely the high dividends are not sustainable as well. This is especially so for REITS where their income comes from rental gathered. Sometimes, companies can take on a huge amount of personal debt to be able to broaden the business and drive up profits. It is very important to comprehend any risks which might come from taking on too much debt and keep track of how a company is performing by reviewing its financial results as so when available. A small business with a strong competitive advantage can use debts to its benefit, while a small business which is cyclical in character may succumb itself to danger when situation transforms harmful to them.

Also, companies may have a higher dividend payout proportion to attract traders when they just began but this dividend might not be sustainable. A lower dividend payout proportion is generally preferred as these businesses can still raise its dividends even if its revenue drop later. On the other hand, a company that includes a high dividend payout percentage are affected cut in its dividends when profits drop.