How to Limit Risks Investing in Monthly Dividend Paying Stocks

If you are looking to start investing in monthly dividend paying stocks, then there are several risks that you need to be aware of. Many of these investments come with the highest dividend yields that are available to investors. While the yields on these dividend paying stocks are high, the health of the company may be in jeopardy.

Instead of blindly investing in monthly dividend paying stocks, look to research each and every purchase. This will help to reduce (not eliminate) your risks of investing in these securities. There are plenty of questionable stocks with a monthly distribution, but there are also some quality ones as well. Follow these steps as a place to start limiting your risks of monthly dividend investments.

Difficulty: Moderate

Instructions

1. Check for the company's past performance for maintaining their dividend distribution. This is a very important step when researching any high yielding security, not just monthly dividend paying stocks. If a company has a tradition of maintaining or raising their dividend distribution, then it is a great 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 their P/E ratio, earnings growth projections, and dividend growth projections. Also consider reviewing the sector or industry that the company is in by reviewing it's competitors, as well as 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 can help you decide if a stock is overbought or oversold. These indicators can also help you establish entry and exit points within any stock which will ultimately 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. Do yourself a favor and wait until the market rebounds before making your purchase. 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 some additional analysis 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 analysis, but use it 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.

Resources

• Learn More About Monthly Dividend Paying Stocks

[JulieMayfield]

on 10/7/2009 Great article on a topic I'm trying to educate myself about. Thanks for the info!