How to Choose Dividend Stocks Based on Stability

Dividend companies generally are considered more stable because they typically provide for the necessities of life: food, water, electricity, gas, a place to live, and the all-important personal hygiene. As a result, the classic industries for dividends include:

  • Utilities

  • Real estate

  • Energy

  • Finance

  • Telecommunications

  • Consumer staples, such as food and clothing

Because people always purchase these products and services, even when times are tough, the industries that provide them are generally more stable. Less stable companies provide what consumers can live without — computers, cellphones, digital music players, restaurants, and anything travel related, such as hotels and airlines.

Every rule has exceptions. Yes, many financials broke the rules during the stock market bubble that peaked in 2007, but the red flags were waving before the bubble burst, and attentive investors who knew the warning signs bailed out early. Overall, however, dividend companies are more stable than non-dividend companies. In fact, paying dividends is probably one factor that helped some financial companies survive the crash, assuming they didn’t have to take money from the government.

Don’t buy shares and then fall asleep at the wheel. Take nothing in the stock market for granted. It’s always moving, so remain vigilant.

Investors often think mature companies pay out a large portion of their profits as dividends because they can’t find investments that offer good returns in their traditional businesses. Reality offers a more nuanced view. Take a look at General Electric (GE). You can’t find a more mature company than GE or one that had increased dividend payments more consistently. Yet, the company has pumped a good portion of its earnings into growth and diversification, building and running 12 major business units in state-of-the-art technology, from jet aircraft engines to household appliances.

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