7 Secrets to Successful Income Investing

Secret #3 – Favor Stocks for Income Growth

For income investing, I strongly favor stocks with high and growing dividends. To determine which stocks offer the best prospects for dividend growth, I look at two major factors:

Dividend history. If a company has a long string of annual dividend increases, they’ll want to show it off and keep it up. In the midst of our recovering economy, it’s best to put your money solely into those that have avoided the perils of leverage.

Payout ratio. This is the percentage of earnings that a company pays out in dividends. For banks and industrial concerns, I like to see a payout ratio or 50% or less. Utilities are safe up to 70%, while my limit on REITs sits at 80%. (In REITs, the number to use for earnings is called “funds from operations,” or FFO).

NEXT – Secret #4