When investing in dividends, be careful of companies whose stock prices are underperforming a lot and have a high dividend yield. Behind that may be a company's decline in sales and high debt levels. In recent years, COVID-19 has caused many companies to experience a decline in growth and demand due to economic globally contraction.
Dividend investing is an attractive investment for investors looking for regular passive income. This is especially true in the current situation where the standard interest rate is less than 1%. However, the first thing to consider when investing in dividends is whether the company can afford to pay dividends in the future.
The high dividend payout ratio of companies is that they use excessive profits to pay dividends. Rather, it may be difficult to prevent the company from growing and pay similar dividends in the future. To sum up, the high dividend yield resulting from the decline in stock prices poses a risk that a company's future prospects may be grim or similar dividend payments may be difficult.
Therefore, dividend investors should carefully look at the company's financial statements to determine whether the free cash to pay dividends can be maintained in the future. The debt and leverage brought on by a company to run its business is a major factor in reducing the company's profits, and when the company's demand decreases, the surplus profit to pay dividends naturally decreases. On the other hand, if the company's financial soundness is excellent and the dividend yield rises due to a fall in the stock price without any change in free cash flow, a low stock price is an opportunity to give investors a high dividend yield. In addition, there is less worry about falling stock prices.
In such a difficult economic situation, investors can reduce risk by diversifying and investing in companies with high dividend growth potential and excellent financial soundness around the world. You can use ETFs or invest in individual stocks. Investing in individual stocks should be determined more carefully. As a reference, I will introduce three global companies that are good for use as dividend investment.
1. Algonquin Power & Utilities Corp. (AQN)
Algonquin, headquartered in Canada, is an energy and gas utility company. The company's main profit comes from water and sewage treatment. It operates approximately 170,000 specialized facilities in a vast area from California, Oklahoma, and Georgia in the United States. As a main provider of energy and water to each region, there is always an essential demand. Currently, the dividend yield is about 4-5%.
2. Brookfied Renewable Partners (BEP)
Headquartered in Bermuda, Brookfied invests in facilities that supply renewable energy around the world in all of North America and South America, Colombia and Brazil, as well as Europe, India and China. Hydroelectric dams, wind and solar facilities are the main investment destinations. The use of renewable energy around the world is increasing, and the proportion is expected to exceed thermal power generation energy within the next 20 years. Currently, the dividend yield is about 4-5%.
3. Novo Nordisk (NVO)
Headquartered in Denmark, Novo Nordisk is the world's largest healthcare company for diabetes treatment. The company is providing more than 20 types of diabetes treatments and diabetes testing machines, and its global market share is around 50-60%. Demand for diabetes treatments is steadily increasing and the share price is expected to grow in the future as it maintains a monopoly. Currently, the dividend yield is about 2~3%.
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