Choosing the Right Dividend Stocks

By Michael Dubois,
Head of Corporate at VG Global Holdings



Having dividend-paying stocks is always a good idea when targeting long-term gains, but it’s wise to do some research before choosing what stock to invest in. Choosing a dividend-paying stock is never as simple as looking at the highest paying dividends in the now, although choosing an aristocratic stock is usually a safe bet. You need to look at the long-term, and for this, staying power is the all-important factor, and this can be identified in a company’s financial records.

One of the dangers when choosing a dividend stock is that businesses with a high dividend yield can sometimes find it difficult to maintain their shareholder payments – this is often true of businesses with cyclical operations, whereby a company will produce high profits for some of the year and then its revenues will drop for the rest of the year.

I always urge my clients to take a long-term view with their investment decisions, and one way to mitigate the risks is by looking for a long track record of dividend payments, and for robust financial records. Ideally those multi-year shareholder payments will be backed with strong incoming cash flow, and I would always recommend that you look for a business with a record of rising revenue, earnings, cash flow and shareholder dividends.

Obviously, all stocks come with risks as well as positive potential for an upside and this is because any business can run into operational difficulties occasionally, but there are some companies that I would encourage investors to take a look at right now.

Unilever: This company makes branded and packaged consumer goods, including food, detergents and personal care products, it’s a business known for its defensive and less-cyclical characteristics, and its dividend history stretches back decades, with good backing from cash flow for dividend payments. This company runs comparison sites for insurance, money, home services, and other products, and it is beginning to look like a cash-cow business these days, with a very strong cash-flow over the past few years. It also has a pretty decent record of shareholder dividend payments, and these payments were maintained throughout the pandemic, which is a very good sign of business strength.

IG Group: This is a financial technology and trading platform company, and it is a business which is likely to increase its dividend due to its recent multi-year record for revenue, cash flow and dividends, and it is also worth noting that this company also kept paying out to shareholders throughout the pandemic.

Those three companies are good examples of what to look for when choosing the right dividend payment company, and that’s because of the defensive nature of their operations, and their long-term track record.