Dividends for Income

One thing you know for sure is that the coupon payment on a 10-year note is not going to rise. A yield of 3.06% does not offer much of a cushion against inflation. Investors interested in getting income from their investments are in sort of a tough place. Dividend-paying stocks are a very good place to look for a replacement.

If you are buying a stock for income, the last thing you want to see is a cut in the dividend. The best defense against that is a low payout ratio. Managements generally will try to avoid dividend cuts, but paying out more than you earn each year is not sustainable. A company needs to retain at least some of its earnings to grow, not just earnings, but the dividend as well. I therefore required that the company pay out no more than 60% of its earnings so there is a very strong cushion against dividend cuts.

Source: Zacks

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