How to Limit Risks Investing in Monthly Dividend Paying Stocks

If you are looking to start investing in monthly dividend-paying stocks, there are several risks of which you need to be aware. Many of these investments come with the highest dividend yields available, but the health of the companies may be in jeopardy.



Instead of blindly investing generally in monthly dividend-paying stocks, research each and every purchase. This may reduce --- but not eliminate --- the risks of investing in such securities.

Instructions

1. Check for the company's past performance for maintaining the dividend distribution. A tradition of maintaining or increasing the dividend distribution is a sign of a well-managed and profitable company.

2. Complete your own fundamental research on monthly dividend-paying stocks. Instead of strictly focusing on a company's dividend yield, look for other factors such as its price-to-earnings ratio, earnings growth projections, and dividend growth projections. Review the company's competitors and the sector's overall macro economic trends.

3. Review technical analysis on any monthly dividend-paying stocks you are looking to purchase. While conducting a technical review of a stock won't give you all the answers, it may help you decide if a stock is overbought or oversold. These indicators may also help you establish entry and exit points within any stock, which ultimately will lower your risks.

4. Take a look at the overall state of the global economy before investing in monthly dividend-paying stocks. Recessionary times can be brutal to even the best-run companies. Economic downturns can be difficult times for most people, but they also provide great investment opportunities for the long run.

5. Search for published reviews from analysts, financial websites, or bloggers specializing in dividend paying stocks. You may be able to find additional analyses that you had not thought of for monthly dividend-paying stocks by checking out these references. Don't base your total decision just on this analyses, but use them to help guide your final decision.

Tips & Warnings

• Keep an eye on the market and your dividend paying stocks even after you have purchased them for financial signals.

• Be very careful investing in trusts as they tend to come with higher risks than traditional dividend paying stocks.

References

• Bankrate.com; Develop a strategy for dividend-paying stocks; Laura Bruce; Dec. 3, 2007