When investing in income producing shares it is really important to look at companies that have a track record of delivering reliable earnings and dividend growth. Solid dividends are important, but they should not be at the expense of all earnings growth. Investors need to ensure that future earnings, and therefore dividends, can be maintained or can grow.
It’s worth remembering that high dividend stocks don’t always equate to sustainable income.
There have been many examples where companies with negative earnings outlooks, or highly geared or distressed companies, have issued high dividends. These dividend payments have eaten into the company’s capital base, making it difficult for the business to invest for its future growth.
It is important to thoroughly research stocks and understand the fundamental characteristics of the company you are looking to invest in.
