Are you paying too much for income?

There are a few simple ways to find out, if you are paying too much for dividend stocks. Phil Oakley explains what they are.

Investing in stocks that pay large, growing dividends has become very popular. It's a sensible strategy, made all the more attractive by the slide in interest rates, which has made it ever harder to find a reliable investment income.

While it's impossible to invest in stocks without risking your capital, dividends once paid at least represent a return that can't be taken away. So buying shares with decent dividend yields has seemed a relatively low-risk way to invest. However, the risk with any popular investment is that you end up overpaying, and so losing money.

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Row 0 - Cell 0 Implied dividend growth
March 2009NowForecast divi growth
Diageo3.59%5.63%8.3%
Reckitt Benckiser4.80%5.21%3.5%
BATS3.01%4.04%6.1%
National Grid2.21%2.74%3.2%
Vodafone1.42%3.53%1%
Swipe to scroll horizontally
Row 0 - Cell 0 March 2009November 2013Change
Row 1 - Cell 0 DiviShare priceYieldP/eDiviShare priceYieldP/eDividend growthShare-price change
Diageo34.35p778.5p4.4%13.247.4p2,004p2.4%20.938%157.4%
Reckitt Benckiser80p2,503p3.2%15.8134p4,801p2.8%18.367.5%91.8%
BATS83.7p1,679p5.0%13.3134.9p3,410p4.0%16.861.2%103.1%
National Grid33p570p5.8%13.740.85p776p5.3%13.423.8%36.1%
Vodafone7.77p118p6.6%6.910.2p228p4.5%14.631.3%93.2%

Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.

 

After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.

 

In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.