How to Invest in Dividend Stocks

Video Transcript

"Money market rates today are close to 0%. Are you looking ways to generate income in your portfolio? Hi, I'm Roger Groh with Groh Asset Management and today we're here to talk about stocks that pay dividends and really what does that mean? Well a company that is profitable that has elected to return a portion of those profits to shareholders may do so. Either by paying you a cash dividend or a stock dividend. In either case, that will be taxable to your portfolio and that is something to consider in terms of where you put those types of investments. How can you successfully identify high quality dividend stocks? Well I'm going to leave that up to you and your broker but in our firm we look for companies that sell more every year of whatever it is that they make. And as a result, increase their cash flow regularly. As long as cash flow goes up, I can feel more comfortable that they will continue to have cash to pay out in dividend. Now I'm not recommending searching for the companies that pay the highest dividends because dividends can be cut. In fact if you own most bank stocks over the last year you saw dividends high a year ago and today they're at zero. So you have to be very pragmatic about the types of investments that they make, what happens to them during recessions and whether they're likely to have the cash to pay you dividend going forward. One other note, other structures that you can use to get to the same place, well have you looked at preferred stocks? Have you looked at cumulative preferred stocks? Have you looked at cumulative convertible preferred stocks? And even have you looked at convertible bonds as a way to increase the likelihood that you'll be paid even if things get tough in that business. So don't necessarily look for the highest yield, look for the best company and a reasonable yield. I'm Roger Groh and that's a little bit about dividend stocks and thank you for spending time with me."