What to seek and avoid
When you’re seeking dividend investments, go ahead and favor hefty dividend yields, but be wary when they’re really hefty, because they might be unsustainable. Seek healthy and growing companies, too, and ones that are not paying out more in dividends than they’re actually earning. For a sobering lesson, check out an article from October of last year by my colleague Brian Stoffel, who wrote about “3 Extremely Dangerous Dividends,” discussing rural telecom specialist Windstream Corporation (NASDAQ:WIN), supermarket concern Roundy’s Inc (NYSE:RNDY), and electronics retailer RadioShack Corporation (NYSE:RSH). It hasn’t been much more than five months since the article was published, and while Windstream’s payout is intact, RadioShack’s has disappeared, and Roundy’s has roughly been cut in half. Windstream Corporation (NASDAQ:WIN) may have low profit margins and a lot of debt, but it’s been investing in new directions and growing its revenue. Roundy’s Inc (NYSE:RNDY) is also saddled with debt and low margins, and operates in a tough industry. Still, it’s at least free-cash-flow positive. RadioShack Corporation (NYSE:RSH) has long been struggling and recently posted shrinking quarterly revenue and widening losses. One ray of hope is its new CEO, turnaround specialist Joseph Magnacca.
Credit: Windstream Corporation (NASDAQ:WIN)
A promising place to seek dividend contenders for your portfolio is the index of Dividend Achievers, which are companies that have hiked their dividends for at least 10 consecutive years. One company on the list, for example, is Intel Corporation (NASDAQ:INTC), which is yielding about 4% recently, and has been raising its payout by about 12% annually over the past five years, on average. It, too, has struggled a bit lately, but it’s healthy, with deep pockets, and has been moving into the rapidly growing mobile arena.
Now you, too, can answer the question, “What is a dividend?” And better still, you might want to consider adding some to your portfolio.
The article What Is a Dividend? originally appeared on Fool.com and is written by Selena Maranjian.
Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Intel Corporation (NASDAQ:INTC) and Windstream Corporation (NASDAQ:WIN). The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and RadioShack Corporation (NYSE:RSH).
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